CHK is one of the main practitioners of two new technologies used to recover large amounts of previously unrecoverable shale gas: hydraulic fracturing (or "fraccing") and horizontal drilling. In a chapter entitled "The Natural Gas Revolution" in his recent book, The Quest: Energy, Security, and the Remaking of the Modern World, Daniel Yergin, one of America's foremost energy experts (and, IMO, a future Secretary of the Department of Energy), describes these technologies and their impact:
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"Fraccing ... injects large amounts of water, under high pressure, combined with sand and small amounts of chemicals, into the shale formation. This fragments the underground rock, creating pathways for otherwise trapped natural gas (and oil) to find a route and flow through to the well. ... Advances in controls and measurement allowed operators to drill down to a certain depth, and then drill on an angle or even sideways. This would expose much more of the reservoir, permitting greater recovery of gas (or oil) from a reservoir. ... Shale gas [and oil], heretofore commercially inaccessible, began to flow in significant volumes. Combining the advances in fraccing and horizontal drilling is what would unleash what became known as the unconventional gas revolution. ... In 2000 shale was just 1 percent of natural gas supply. By 2011 it was 25 percent, and within two decades it could reach 50 percent. ... Electric utilities, remembering gas shortages and price spikes, had been reluctant to use more natural gas. But now, with the new abundance and lower prices, lower-carbon gas seemed likely to play a much larger role in the generation of electric power, challenging the economics of nuclear power and displacing higher-carbon coal, the mainstay of electric generation. As a source of relatively low-priced electric power, it created a more difficult environment for new wind projects. Shale gas also began to have an impact on the debate on both climate change and energy security policy. By the beginning of this decade, the rapidity and sheer scale of the shale breakthrough -- and its effect on markets -- qualified as the most significant innovation in energy so far since the start of the twenty-first century. ... The potential here is enormous.
In spite of the tremendous promise of abundant, domestic, low-carbon natural gas, Progressive writers at the Rolling Stone (The Big Fracking Bubble: The Scam Behind Aubrey McClendon's Gas Boom) and the New York Times (Drilling Down: Insiders Sound an Alarm Amid a Natural Gas Rush) have in recent months mounted repeated attacks against the practitioners of fraccing and horizontal drilling, in particular Chesapeake and Mr McClendon. These attacks have consisted of essentially three charges:
- Fraccing is an environmetal disaster; surface pollution results from waste water that flows back out of the well; waste water and methane is released into adjacent water aquifers as a result of fraccing operations; fraccing and drilling operations transform bucolic landscapes into industrial wastelands.
- The promise of abundant, domestic natural gas is a mirage. The amount of proven natural gas reserves is far smaller than what is being promised by the fraccing companies. Companies like Chesapeake are inflating a "bubble" or engaging in "a Ponzi scheme," hoping, on the one hand, to persuade greater fools that the natural gas leases that they are "flipping" are richer than they actually are, while, at the same time, engaging in complex "Enron-like" financial transactions to conceal the weakness of their balance sheets. For example, Jeff Goodell of the Rolling Stone writes: "[The claim that there is enough natural gas to supply America for 100 years] is a great example of the kind of misleading rhetoric that Chesapeake – and the natural gas industry as a whole – specializes in. The assertion deliberately confuses what geologists refer to as the 'resource' and the 'reserves.' The resource is basically all the natural gas that geologists believe exists; the proved reserve is what they believe is currently recoverable at today’s prices, with today’s technology. The resource is indeed close to 100 years; but according to most calculations (including the Potential Gas Committee, a respected source that is cited by Chesapeake), the reserve is more like 11 years. The actual amount of gas we’ll be able to get out of the ground in the future depends on factors like price and demand and whether new technologies can be developed to get at hard-to-extract gas, and whether or not you care that it requires blasting and drilling our way through suburbs and national parks."
- Practitioners of fraccing and horizontal drilling like Aubrey McClendon, CEO of Chesapeake, are nothing more than <gasp> right-wing politicians, in the same mould as the evil Koch brothers. Goodell writes: "McClendon dominates America's supply of natural gas the same way the Tea Party-financing Koch brothers control the nation's pipelines and refineries. Like them, McClendon is an influential right-wing power broker."
These concerns all appear to be grossly overblown or simply irrelevant.
A report produced by Mr Yergin's Cambridge Energy Research Associates (CERA) provides a less hysterical assessment of environmental impacts:
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Of the potential environmental impacts of shale gas development, none has raised more public concern than the fear of contaminated drinking water supplies. The focus of this controversy is on the hydraulic fracturing process and its potential to contaminate drinking water aquifers. However, the consensus among geologists, petroleum engineers, and government reports is that such an event is highly improbable. ... At present there is no evidence that liquids used for hydraulic fracturing of deep shales can migrate upward to contaminate drinking water aquifers, and there are strong geological arguments to the contrary. However, the disposal of wastes associated with hydraulic fracturing must be properly managed and regulated, as is the case for all other wastes from natural gas production. ... Oil and gas operations are widespread throughout North America, and drinking water supplies have been appropriately safeguarded from contamination from these activities for many years. This suggests that the risks can be managed and that shale gas development can proceed safely, with proper industry management and regulatory safeguards in place.
CERA's findings are confirmed by a report produced by MIT on the future of natural gas:
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With over 20,000 shale wells drilled in the last 10 years, the environmental record of shale gas development is for the most part a good one. ... [T]here is substantial vertical separation between the freshwater aquifers and the fracture zones in the major shale plays. The shallow layers are protected from injected fluid by a number of layers of casing and cement — and as a practical matter fracturing operations cannot proceed if these layers of protection are not fully functional. Good oil-field practice and existing legislation should be sufficient to manage this risk.
On the other hand, a report from the U.S. Energy Information Administration (EIA), the statistical and analytical agency within the U.S. Department of Energy, lays to rest the concern that the supplies of shale gas are less than what is being claimed:
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The U.S. Energy Information Administration's Annual Energy Outlook 2012 (Early Release) estimates that the United States possessed 2,214 trillion cubic feet (Tcf) of technically recoverable natural gas resources as of January 1, 2010. Natural gas from proven and unproven shale resources accounts for 542 Tcf of this resource estimate. Many shale formations, especially the Marcellus, are so large that only small portions of the entire formations have been intensively production-tested. Consequently, the estimate of technically recoverable resources is highly uncertain, and is regularly updated as more information is gained through drilling and production. At the 2010 rate of U.S. consumption (about 24.1 Tcf per year), 2,214 Tcf of natural gas is enough to supply over 90 years of use. Although the estimate of the shale gas resource base is lower than in the prior edition of the Outlook, shale gas production estimates increased between the 2011 and 2012 Outlooks, driven by lower drilling costs and continued drilling in shale plays with high concentrations of natural gas liquids and crude oil, which have a higher value in energy equivalent terms than dry natural gas.
In other words, the estimate of "reserves" is simply the most conservative estimate of what resources are available while the EIA's estimate of "technically recoverable resources" is a more liberal estimate. There is no reason to believe that the estimate of "reserves" is a better predictor of what amount of gas will eventually be recovered. As a matter of fact, the estimate of "reserves" is regularly updated as more gas resources are "production-tested" and new extraction technologies are developed. If Mr McClendon is engaging in "misleading rhetoric," then, so is the EIA, the US government agency responsible for official estimates about natural gas resources.
As for Mr Goodell's claim that the recovery of unconventional natural gas resources will require "blasting and drilling our way through suburbs and national parks," could there be a more obvious attempt to prejudice the discussion in advance? And, as for the right-wing political views of Mr McClendon, they have absolutely nothing to do with the technical questions of the value of fraccing and horizontal drilling and the exact amount of natural gas supplies, but obviously are also interjected to bias RS's and NYT's left-wing readers against Mr McClendon.
IMHO, the Progressive writers of the Rolling Stone and the New York Times are opposed to Mr McClendon not for technically sound reasons at all, but simply because he has right-wing political views and because his company is offering technologies that promise to postpone development of Progressives' preferred energy resources of the future, wind and solar (sources, which, by the way, themselves have their own environmental downsides, namely, windmills' potential to destroy vast flocks of migratory birds and solar's potential to blight vast tracts of land with ugly solar panels). As Yergin writes: "As a source of relatively low-priced electric power, [shale gas] created a more difficult environment for new wind projects."
Thus, Progressives continue to wage war against high-tech companies that introduce revolutionary technological innovations in order to advance their own backward, ideologically driven agenda, an agenda that threatens, on the one hand, to kill off American computer high-tech industries with charges of racism, tax avoidance, and lack of concern for preserving American jobs and, on the other hand, to condemn America to energy impoverishment by keeping us dependent on oil from Islamo-Fascists or uneconomical, immature energy sources like wind and solar. How Progressives could adopt a more "anti-Progessive" agenda it is hard to imagine.
Full disclosure: Along with Carl Icahn and BlackRock, two of the most astute energy investors in the world, I am long CHK. I hope thereby to make an enormous profit, something that Progressives these days seem to find utterly abhorrent, unless, of course, they are seeking to tax it.
A further aside: One of the most revolutionary (and lucrative) advancements in computer technology is the use of computer software and hardware to perform geological modeling. It is this modeling, along with sophisticated computer-driven sensors and monitoring systems (Yergin's "advances in controls and measurement"), that has enabled the fraccing and horizontal drilling revolution. Presumably, Progressives would view those hardware and software engineers who have developed this technology, not as having made a productive contribution to society, but as having sold out to Dick Cheney.
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