zombie economicsThere have always been several myths about shale gas, pollution, earthquakes, flaming taps, etc, which have not stood up to examination, but there are also what I would call “Zombie Facts”. Zombie Facts are those that just plain wrong, but refuse to die.  The facts themselves are complex and thus need some research to refute. They often come from reputable sounding sources and thus quickly jump the gap from plausibility to reality in the public eye. 

Last week’s RSPB/National Trust report “Are we fit to frack?" cited several sources of doubtful veracity: The Post Carbon Institute, Howarth ( Methane Emissions) Tyndall Centre (2011!) all have various axes to grind in pushing the Peak Oil narrative. This report was allegedly peer-reviewed: 

The recommendations are based on a full technical evidence report which has been peer reviewed by the Centre for Ecology and Hydrology, one of the UK’s leading ecological research institutes. 

That sounds like asking the Russian Parliament for a legal opinion about  the annexation of Crimea to my eyes, but it’s only one example of the shale denier tactics stolen wholesale from climate change deniers, in this case experts in one field being given credit in another, and cherry picking.

These are individuals who purport to be experts in a particular area but whose views are entirely inconsistent with established knowledge.

The third characteristic is selectivity, drawing on isolated papers that challenge the dominant consensus or high- lighting the flaws in the weakest papers among those that support it as a means of discrediting the entire field.

Early on in the report, is this Zombie Fact from Bloomberg New Energy Finance. We’ve heard it before. At the Specatator Shale Gas Debate last December,  Greenpeace, the Green Party and WWF all cited Bloomberg New Energy Finance, as did, more alarmingly, Shadow Energy Minister Jonathan Powell:

This (government) view, however,was challenged by evidence submitted to the House of Lords Economic Affairs Committee2 by Bloomberg New Energy Finance (BNEF) in October 2013, which stated that despite the significant investment potential for UK shale gas, the direct impact of shale on the cost of electricity in the UK will be limited (BNEF, 2013). BNEF estimates the cost of UK shale gas extraction to be in the range of $7.10–12.20 per MMBtu3, compared with$5–6 in the US.The 40–100% price difference between the two countries is largely down to higher land prices and lack of rigs and infrastructure in the UK.

The fact it comes so early in the document shows how important this is in the green narrative: Shale gas is going to be expensive and won’t put down gas prices so why don’t we call the whole thing off? 

This zombie fact, cites no evidence to support it except a press release. So much for painstaking peer reviewed research. It’s not too hard to find the actual “evidence” which is more opinion than fact at the House of Lords Economic Affairs Committee site

Because of the paucity of data, very little has been published on the cost of shale drilling in the UK or the flow rates which might be expected. We can, however, make educated estimates of these two variables, based on an understanding of comparable figures in the US and anecdotal information from drillers, servicers and geologists.

That research on UK gas prices being so high is based on anecdotal evidence is telling enough, but it was the US figures that sounded just plain wrong. $5 to $6 cost of production sounds unlikely in the extreme in the US, where gas prices didn’t break $4 in 2013. This from the House of Lords evidence:

Based on the above, UK unit costs for shale gas extraction are likely to be considerably higher than those seen in the US (Figure 3). While dry US plays such as the Marcellus, Haynesville and Barnett have breakeven costs of some $5-6/MMBtu (always assuming a 15% after tax equity IRR), we believe the comparable range for the UK is likely to lie between $7.10 and $12.20/MMBtu. This is close to the $8-11/MMBtu range in which spot UK gas prices have traded over the past two years. 

On the production side, our favourable case assumes a 30-day initial production (IP) rate of 4,250mcfd. This is akin to wells in the US Marcellus and Eagle Ford shales.

How do BNEF figures match the experience  of Cabot Oil and Gas, the kings of the NorthEast Marcellus. Elsewhere in the “evidence” BNEF said the cost in NE Pennsylvania was $5.23. But Cabot in a presentation last month said they were down to seventy five cents. Not exactly a rounding error difference.

 cabot

How to explain the difference between 75 cents and $5.23? I asked Bloomberg New Energy Finance. And asked. And asked. And finally got this reply last week:

I am unaware of any out-of-date figures we have published, in fact we monitor US costs very closely and update our models and client information quarterly with the latest data. To what are you referring?

None of the research we have published suggests that UK shale gas will not be cost competitive - in fact we believe it could likely be extracted profitably at current UK gas prices. The fact that profit making companies are drilling for it would also suggest this to be true.  

We have, however, said that we think it unlikely that the UK will be able to produce enough shale gas to materially affect the wholesale and retail price of gas in the UK market. We stand by this conclusion.

As to the use of the information by third parties - I'm afraid we can't take responsibility for that as it is out of our control.

As to your request for us to provide accurate data to our clients - of course we do that. The information is available in excruciating detail to all paying subscribers to our Gas service. We don't however make this information available to non-subscribers.

So, according to BNEF themselves, the RSPB and Greenpeace and Natalie Bennett shouldn’t take their figures too seriously. But they don’t seem to mind too much that they do. Builds brand awareness, although on closer examination, not in a good way.

Further on the subject of US gas costs, this slide from Southwestern, the number 4 shale producer in the US, encapsulates seven years worth of continuous improvement on one slide. The problem with reports such as the RSPB's is that we need to have current information, not the already out of date.  Where it's right at all.

swn

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  • Dave Lowry

    On that last image - Is the lateral length in metres?

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  • Arne ERIKSSON

    Nick, you do brilliant stuff, but on climate change "denialism" U R badly informed.<br /><br />Firstly, don't use the term "denier" because it is clearly linked to the term holocaust deniers (a tasteless tactic by the green mob).<br /><br />Secondly, no one is denying global warming (at least occasionally, and up-until 16 years ago), and that CO2 is a GHG.<br /><br />Please name one bespoken critic of the IPCC "consensus" that have stated, in line with your 2009 (!!) reference that "…if climate change is happening, it is nothing to do with man-made CO2 emissions." NO ONE!<br /><br />And exactly what are they denying?<br /><br />IPCC estimates the climate sensitivity to be "…likely in the range 1.5°C to 4.5°C".<br />What value outside this range may I claim before I'm being burnt at the stake? 1.4? 1.1?<br /><br />Fact 1: temperatures at the summit of the Greenland ice sheet have mostly been warmer the last 10.000 years than it is today.<br />Fact 2: CO2 is a GHG<br />Unknown 1: if and how the climate reacts to changes in the atmospheric CO2 concentration.<br />Unknown 2: the magnitude of natural variability in temperatures/climate and the underlying mechanism for some of those natural influences.<br /><br />But as I said, you do great work.

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  • Nick Grealy

    Dave, the figures are in feet.This is America, last hold out of British Thermal Units after all!<br />Arne, my point is that deniers of shale, and deniers of clime change use the same tactics. I agree, the "denier" label stinks. Perhaps dissenters would be a better term, certainly a more polite one.

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