The "shale revolution" has been grabbing a great deal of headlines for some time now. A favorite topic of investors, sector commentators and analysts – many of whom claim we are about to enter a new energy era with cheap and abundant shale gas leading the charge. But on closer examination the incredible claims and figures behind many of the plays just don't add up. To help us to look past the hype and take a critical look at whether shale really is the golden goose many believe it to be or just another over-hyped bubble that is about to pop, we were fortunate to speak with energy expert Arthur Berman.
Berman is a geological consultant with thirty-four years of experience in petroleum exploration and production. He is currently consulting for several E&P companies and capital groups in the energy sector. He frequently gives keynote addresses for investment conferences. You can find out more about him by visiting his website: http://petroleumtruthreport.blogspot.com/
OilPrice: How do you see the shale boom impacting US foreign policy?
Arthur Berman: Well, not very much is my simple answer.
A lot of investors from other parts of the world, particularly the oil-rich parts have been making somewhat high-risk investments in the United States for many years and, for a long time, those investments were in real estate.
Now these people have shifted their focus and are putting cash into shale. There are two important things going on here, one is that the capital isn't going to last forever, especially since shale gas is a commercial failure. Shale gas has lost hundreds of billions of dollars and investors will not keep on pumping money into something that doesn't generate a return.
The second thing that nobody thinks very much about is the decline rates shale reservoirs experience. Well, I've looked at this. The decline rates are incredibly high. In the Eagle Ford shale, which is supposed to be the mother of all shale oil plays, the annual decline rate is higher than 42%.
They're going to have to drill hundreds, almost 1,000 wells in the Eagle Ford shale, every year, to keep production flat. Just for one play, we're talking about $10 or $12 billion a year just to replace supply. I add all these things up and it starts to approach the amount of money needed to bail out the banking industry. Where is that money going to come from? Do you see what I'm saying?
OP: You've been noted suggesting that shale gas will be the next bubble to collapse. How do you think this will occur and what will the effects be?
AB: Well, it depends, as with all collapses, on how quickly the collapse occurs. I guess the worst-case scenario would be that several large companies find themselves in financial distress.
Chesapeake Energy recently had a very close call. They had to sell, I don't know how many, billions of dollars worth of assets just to maintain paying their obligations, and that's the kind of scenario I'm talking about. You may have a couple of big bankruptcies or takeovers and everybody pulls back, all the money evaporates, all the capital goes away. That's the worst-case scenario.
OP: Energy became a big part of the election race, but what did you make of the energy policies and promises that were being made by both candidates?
AB: Mitt Romney, particularly, talked about how the United States would be able to achieve energy independence in five years. Well, that's garbage.
Anybody who knows anything about oil, gas and coal, knows that that's absurd. We were producing a little over 6 million barrels a day thanks to an all-out effort in the shale oil play. We consume 15 million barrels of oil a day and that leaves the gap of 9 million barrels per day. At the peak of U.S. production, in 1970, the U.S. produced 10.6 million barrels per day. Like I said, either the guy doesn't know what he's talking about, or is making a big joke of it.
Obama didn't talk so much . . . He's a hugely green agenda kind of president and I'm not opposed to that, but he's certainly not for the oil and gas business. It wasn't until he got serious about thinking about his re-election that he decided to take credit for what really happened.