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The Shale Bubble

THEY TELL US

WE'RE ON THE CUSP OF AN OIL & GAS REVOLUTION.

But what if it's all just a short-term bubble?

THE REALITY

The Reality is that the so-called shale revolution is nothing more than a bubble, driven by record levels of drilling, speculative lease & flip practices on the part of shale energy companies, fee-driven promotion by the same investment banks that fomented the housing bubble, and by unsustainably low natural gas prices. Geological and economic constraints – not to mention the very serious environmental and health impacts of drilling – mean that shale gas and shale oil (tight oil) are far from the solution to our energy woes.

DIMINISHING RETURNS

High productivity shale plays are not ubiquitous and wells suffer from very high rates of depletion.

THE DRILLING TREADMILL

Because depletion rates are so high and drilling locations increasingly unproductive, industry is forced to drill ever more wells just to offset declines.

UNSUSTAINABLE PRICES

Wall Street promoted the shale gas drilling frenzy in order to profit from mergers & acquisitions, resulting in prices lower than the cost of production.

DIMINISHING RETURNS

Shale plays suffer from the law of diminishing returns. Wells experience severe rates of depletion, belying industry claims that wells will be in operation for 30-40 years. For example, the average depletion rate of wells in the Bakken Formation (the largest tight oil play in the US) is 69% in the first year and 94% over the first five years.

THE DRILLING TREADMILL

This steep rate of depletion requires a frenetic pace of drilling, just to offset declines. Roughly 7,200 new shale gas wells need to be drilled each year at a cost of over $42 billion simply to maintain current levels of production. And as the most productive well locations are drilled first, it’s likely that drilling rates and costs will only increase as time goes on.

UNSUSTAINABLE PRICES

Wall Street promoted the shale gas drilling frenzy which resulted in prices lower than the cost of production and thereby profited [enormously] from mergers & acquisitions and other transactional fees. The oil and gas industry is now demonstrating reticence to engage in further shale investment, abandoning pipeline projects, IPOs and joint venture projects.

A SHALE BUBBLE

As a result of these realities – high depletion rates, the need to drill ever more wells to maintain production, decreasingly productive wells as the best locations are drilled and depleted, and the higher prices required to justify this investment – our country will have drilled and fracked our way down a blind alley (with huge associated economic and environmental costs) for a short-lived energy boom.

http://shalebubble.org/the-reality/