The natural gas industry and energy insiders quickly reacted to a New York Times (NYT) stories last Sunday and Monday which cited unnamed industry and government sources describing the shale gas industry as a “Ponzi” scheme with a future similar to Enron Corp. and the bursting of the dot.com bubble.

Turning the tables, critics of the article accused the Times of “fear mongering” and seeking to discredit cheaper competitors to renewable energy.

The U.S. Energy Department’s Energy Information Agency (EIA) found it necessary to issue a statement Monday refuting charges made in the front page NYT articles June 26 and 27 that EIA’s reserves and production evaluations were seriously flawed. Others in the industry and independent analysts also responded quickly to the Times accusations that the shale gas boom was over-hyped. The NYT articles included selective quotes that likened the industry to a “Ponzi scheme” with no legs and with a future similar to that of Enron and the bursting of the dot.com bubble.

ExxonMobil Corp., not to be confused with a dot.com, commented in its Perspectives blog that “the Times questions the value of our country’s vast shale gas resources with little more than anonymous sourcing, two-year-old e-mails and analysis unsupported by fact. Ironically, author Ian Urbina did not call ExxonMobil, the largest natural gas producer in the United States, for comment.

“The writer did seem to put a lot of weight on the word of a retired geologist who just two years ago wrote that it was ‘difficult to imagine’ that the ‘Haynesville Shale can become commercial.’ Ironically, the Haynesville Shale is now the largest gas producer in the United States…If the writer had bothered to call us, we would have told him that ExxonMobil’s investment approach is disciplined and based on a long-term view of global market conditions…It was this long-term vision that led to the acquisition of XTO and subsequent shale gas ventures…”

CEO Aubrey McClendon of Chesapeake Energy Corp., the nation’s second largest gas producer, noted in a lengthy rebuttal the broad range of companies investing in shale gas.

“Consider whether it could really be possible that all of these well-respected energy leaders, with a combined market cap of almost $2 trillion, know less about the economics of shale gas production than a single New York Times reporter, a few environmental activists and a handful of shale gas doubters?” McClendon asked. “The Times story was obviously motivated by an anti-natural gas agenda.”

EIA said its views on shale gas, which were provided in advance to the NYT for an article it was preparing, “differ in significant respects” from those published by the newspaper on Monday, according to Michael Schaal, director of the Office of Petroleum, Natural Gas and Biofuels Analysis within the EIA’s Energy Analysis office.

“One guiding principle that we employ is, ‘look at the data,'” Schaal said in his original response to the Times reporter. “It is clear the data shows that shale gas has become a significant source of domestic natural gas supply. Prior to 2005 shale gas constituted only 4% of natural gas production and had grown to become 23% of production for 2010. EIA’s continued monitoring of the situation indicates that growth in shale gas production continues and that shale gas has exceeded 30% of total marketed natural gas production through May of this year.”

Kenneth B. Medlock III of the Baker Institute Energy Forum at Rice University noted that he was selectively quoted in the NYT story, which, based on a presentation he made in May 2010 at the Federal Reserve Bank of Dallas, drew the erroneous conclusion that resources in the original Barnett Shale Basin were in decline.

“During the presentation at the Dallas Federal Reserve Bank, I showed a projection for U.S. shale production by region that indicated production from the Barnett Shale would decline slightly for a period of time as investors temporarily shifted priority to larger and less costly plays in places like the Haynesville and Marcellus shales,” said Medlock. “This shift, as I explained, was a matter of economics, not geology, since all of the plays have large resource potential but different production costs and proximity to market.” This represents “just a flattening profile for a period of time as investors shift attention to plays that offer better profitability.”

Production “doesn’t lie,” said the analyst team at Tudor, Pickering, Holt & Co. (TPH). The article used “selected e-mails from peripheral industry observers (not shale gas experts)…Saying shale gas is not easy/cheap to extract is a cheap shot with no back-up info and rehashing discredited arguments. But calling it Enron? Better back it up with more than this article does. Remember, Barnett Shale production is currently at record levels, even with the rig count one-half of peak levels. Shale gas is real. Disregard this as an unsubstantiated NYT hit piece.”

Because it was the first shale play with “considerable production onshore U.S., the Barnett provides a good amount of history,” said the TPH analysts. Output “from the Barnett is now higher (at 5.6 Bcf/d) than it was in 2008 (previous peak was 5.3 Bcf/d in 2008) despite rig count being more than cut in half. If wells are declining faster than expected, the Barnett would not be at record production with reduced rig count.”

The NYT has been consistent in its “distaste for shale gas from their fear mongering about hydraulic fracture contamination of groundwater (no basis) to concerns about water disposal in the Marcellus (an issue identified three years ago and [which] is being addressed)…No doubt the NYT is no fan of shale gas…maybe they hate shale gas because the resulting cheap gas prices are a roadblock to widespread adoption of alternatives…We are now leaving our soapbox.”

The NYT “has it wrong,” said Dan Pickering, chief energy strategist of TPH Asset Management. Pickering said “a myriad of companies, hundreds of executives and thousands of employees indicate the industry believes in both the short-term and long-term viability of shales. They are speaking with their capital budgets, their bonus pool, their acquisition budgets…not with their keyboards and chat room postings. If there is any conspiracy or hidden agenda, it’s amongst those writing articles, not drilling gas shale.”

Michael Levy, who is the David M. Rubenstein Senior Fellow for Energy and the Environment at the Council on Foreign Relations, said Monday the stories were “on the whole…pretty poor quality.” Urbina “was clearly looking for negative views of shale gas and no problem finding them. Given the massive size of the industry, and the number of financial bets being placed upon the sector, that shouldn’t be a surprise. What is a surprise is that Urbina hasn’t done much to put them in context.”

Some of the e-mails are “ridiculous,” said Levi. One investor “notes that his e-mails to producers have gone unanswered and concludes that they must have something to hide…” The story “conflates several issues,” and many of the e-mails are from 2008 and 2009 “when shale gas was still a much murkier industry…Lots of the technical debates that are played out in those e-mails have come a long way since…”

The NYT’s latest blasts at the natural gas industry are not its first. In February and March the newspaper ran a rambling series of articles with horror stories of a widening prospect of pollution from hydraulic fracturing for shale gas, stories which had been largely debunked even before the articles were written. Following those stories, some of those quoted said either they had never spoken to a Times reporter or they had been misquoted, and Pennsylvania state regulators said their activities had been miss-reported (see NGI, March 7).

“You really have to wonder why the New York Times is campaigning against cleaner-burning, domestically produced natural gas,” ExxonMobil’s Ken Cohen stated in his blog.

Editorial Comment:

And professional journalists are wondering why a newspaper industry leader would damage its credibility by substituting advocacy for accuracy, in what can only be described as a travesty of journalistic principles.

The come-from-behind natural gas industry by virtue of its recent success has many powerful enemies, including the coal and nuclear industries which it is crowding, and renewables like wind and solar power, which it is undercutting with lower prices. Even the oil half of “oil & gas” doesn’t like the idea of natural gas encroaching on its transportation market. So there is no lack of possible backers of the on-going campaign, of which the NYT articles are only a small part, to undermine the industry, inciting citizen NIMBY protests with misinformation about its prospects and drilling practices.

There are serious questions currently being debated by industry, government and citizens as to how the natural gas boom will be managed, how to deal with drilling near population centers, and how to get the best benefit for the nation from this massive domestic resource. Unfortunately, the New York Times contributes nothing of substance to that debate.

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