Energy pundits sing natural gas' praises, but Bill Powers, author of "Cold, Hungry and in the Dark: Exploding the Natural Gas Supply Myth," isn't buying it. He sees serious flaws in how reserves are reported, and his own research shows steep, across-the-board production declines in the near future. Nonetheless, he expects a multiyear bull run for the resource, and recommends investors get positioned before scarcity hits—just five to seven years from now. Find out who Powers is betting on in this interview with The Energy Report.
The Energy Report: Numerous experts, including T. Boone Pickens and Porter Stansberry, have said that, thanks to natural gas shale recovery technology, the U.S. is set to become energy independent. In your new book, "Cold, Hungry and in the Dark: Exploding the Natural Gas Supply Myth," you say that the U.S. has only a five- to seven-year supply of shale gas rather than the 100 years estimated by the U.S. Energy Information Administration (EIA). What data are you consulting, and why are your conclusions so different from what the EIA projects?
Bill Powers: First of all, the EIA has since backtracked on its estimates of shale gas recoveries. At one time it was over 800 trillion cubic feet (800 Tcf), which is approximately a 40-year supply at current consumption rates. Due to reductions in estimated future recoveries in the Marcellus Shale and elsewhere, EIA estimates are now down to 400–500 Tcf, which is closer to a 20-year supply.
T. Boone Pickens and Porter Stansberry provide very few facts to support their statements. I use production history from shale plays that are currently in production. For the Barnett Shale, I use production history from the Texas Railroad Commission. For the Fayetteville Shale, I use production history from the Arkansas Oil and Gas Commission. I have examined the Department of Natural Resources' production reports for the Haynesville Shale. While there has been a big ramp-up in shale gas production, the evidence indicates that current production levels are not sustainable. In my book, I give substantial evidence that there may be 125–150 Tcf gas produced from shales in the future. That is a far cry from a 100-year supply.
TER: If the EIA's data are inaccurate, what information sources can investors turn to for reliable data?
BP: That's a tough question because it is very difficult to find independent information sources. The oil and gas industry funds a lot of these studies. MIT received money from Hess Corp.; Penn State has had controversy over its support from industry; Navigant Consulting has put out an industry-funded study. The Potential Gas Committee is also funded by the industry. Petroleum Geologist Art Berman has done some of the best work on shale gas productivity and decline curves—I cite him in my book. There are other sources out there, but they're relatively few.
Also, I document how the EIA has changed its methodology for collecting production data. The EIA has been substantially wrong—it has admitted this in the past. Last, I document the fundamental flaws in a widely cited report the EIA put out in July 2011 that went field by field through the shale gas and shale oil fields. There were numerous mistakes in that report.