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Thread: MUST READ: The Bursting of the Shale Gas Bubble

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    Iridium mamboni's Avatar
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    Exclamation MUST READ: The Bursting of the Shale Gas Bubble

    MUST READ: The Bursting of the Shale Gas Bubble

    Filed in Energy by SRSrocco on November 9, 2013 •


    The United States is heading straight into a disaster and doesn’t even know it. Except for a few analysts and a fraction of individuals who read alternative financial media, the rest of the public and majority of investors are completely in the dark.

    The U.S. and world has been bamboozled by MSM and the Oil & Gas Industry to believe that Shale Energy is our new savior — a new energy revolution that will allow economic growth and prosperity to continue for another 100 years.

    Unfortunately, data is finally coming out to reveal that the supposed Great Shale Gas Miracle is about to end.

    I had a great conversation on the phone with energy analyst Bill Powers this week about his book, “Cold, Hungry and in the Dark” and his take on the shale gas industry. Bill Powers and Art Berman are two of the few voices who have been outspoken and quite skeptical of the overly optimistic forecasts by the shale industry.

    Powers had an interview with The Energy Report called “Give Up the Shale Gas Fantasy & Profit When the Bubble Bursts.” In the interview he stated the following:


    Bill Powers: More data points have come in supporting my views and making it very clear that the Fayetteville and Haynesville shales are now in decline and the Barnett had a very steep, 17% decline in H1/13 on a year-over-year (YOY) basis. It is now producing about 4.6 billion cubic feet a day (Bcf/day), which is substantially down from its peak of near 6 Bcf/day. The facts are starting to show that declines for the older shale plays such as the Barnett, Haynesville, Fayetteville and Woodford are very serious. More important, once production growth from the Marcellus slows down, it will no longer be able to offset declining production from shale plays as well as conventional, offshore, CBM and tight sands production, which are all in terminal decline.

    The Energy Report: What other economic consequences do you see if and when your views become reality?

    BP: I think it will be similar to the housing crisis, where a handful of people saw it coming and profited from it. There was significant evidence that housing prices were unsustainable, but most people were surprised when the housing bubble popped. People from Alan Greenspan to Ben Bernanke and others had a lot of information about the economy and how unsustainable house prices were, but did not want to talk about it publicly. There’s a saying that “the impossible can become the inevitable in the blink of an eye.” I think this will happen with natural gas. For example, in the first week of December 2000, gas prices went from around $4/Mcf to over $10/Mcf in only a few trading sessions. This was due to falling production, lower storage levels and a cold spell that set in across much of the United States. This price spike was the first of numerous spikes during the last decade.
    (FULL INTERVIEW HERE)


    I first came across Bill Powers work from his articles and interviews on Financial Sense Newshour. Furthermore, Jim Willie thinks Bill is one of the best energy analysts out there.

    During our conversation, Bill explained just how bad the situation will become with the future shale gas supply. As he stated in his interview above, several of the shale gas fields are already in decline and there are only a few that are still growing. This has kept overall natural gas production in the United States from declining — so far.

    Here are two charts of the four shale gas fields in decline that Powers spoke about in his interview:


    The WoodFord Shale peaked in 2012, and the Barnett Shale at the end of 2011. The problem with shale gas wells is their high annual decline rates that can range from 40-60% per year. The only way to grow production is by massive drilling. However, at some point in time, the sweet spots are exploited and the field peaks and declines.

    The Barnett Field located in Texas was the first shale gas field to be produced in a major way. The Barnett peaked in shale gas production in Nov 2011 at 6,330 MMcf/day or also stated as 6.33 billion cubic feet a day and at last count (per Powers interview) has declined to about 4.6 billion cubic feet a day.

    Another huge problem from the shale gas companies is the price they have been receiving for natural gas has been below their break-even costs. Natural gas has been trading below $3-.3.5 mmbtu for several years, and the break-even for most of these companies is $6-7 mmbtu. This has put severe strain on these companies balance sheets as many are loaded with debt.

    Bill told me that Chesapeake Energy has over $20 billion of debt ($23 billion according to YahooFinance) and the value of their reserves at current market prices is less than their debt. This will spell disaster for Chesapeake going forward. No wonder Chesapeake announced that it was laying off upwards of 2,000 people a few months ago.

    Interestingly, Chesapeake’s stock was up 78% since the beginning of the year until this past week when it saw its share price decline 12% in three days on a negative press release.

    Bill believes only a few energy stocks will benefit when the “Shale Gas Bubble Finally Bursts” as he puts it. He also believes prices of natural gas will rise considerably when U.S. natural gas production goes into a decline. However, higher gas prices will not bring on more supply — the same problem the United States suffered during the 2000-2008 time period as production declined during rising prices.

    I highly recommend people to read Bill’s book, “Cold, Hungry in the Dark.” He original intentions for the book (with over 400 footnotes) was to have a public debate with the CEO of Chesapeake Energy, Aubrey McClendon. Unfortunately, McClendon stepped down before the book was released.

    One of the interesting things about Powers, is that he firmly believes in the precious metals as an investment and store of value when things get rough in the future.

    I plan on putting more of Bill’s work on this site as I believe a lot of investors who are invested in the energy sector, may indeed be holding onto energy stocks that are extremely over-valued.


    YOU CAN FOLLOW BILL POWERS: AT TWITTER HERE
    EMAIL ADDRESS: bill@bill-powers.com

    Lastly, the peaking of Shale Gas & Oil will cause serious ramifications for the U.S. and rest of the world. I am putting together an article titled, “COLLAPSE ECONOMICS: Protect Your Wealth With Gold & Silver” explaining this in detail.

    Most people including many of the gold and silver investors, are not prepared for this up coming economic collapse.
    Tricks and treachery are the practice of fools, that don't have brains enough to be honest. -Benjamin Franklin
    Sincerity makes the very least person to be of more value than the most talented hypocrite. -Charles Spurgeon

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    Re: MUST READ: The Bursting of the Shale Gas Bubble

    No wonder there are cities that are outlawing fire burning stoves, gotta feed the beast.

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    Re: MUST READ: The Bursting of the Shale Gas Bubble

    Quote Originally Posted by General of Darkness View Post
    No wonder there are cities that are outlawing fire burning stoves, gotta feed the beast.
    Huh? Fire burning stoves?
    Tricks and treachery are the practice of fools, that don't have brains enough to be honest. -Benjamin Franklin
    Sincerity makes the very least person to be of more value than the most talented hypocrite. -Charles Spurgeon

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    Re: MUST READ: The Bursting of the Shale Gas Bubble

    Quote Originally Posted by mamboni View Post
    Huh? Fire burning stoves?

    Just one example. I guess I should have said banning SMOKE from stoves, same difference I guess.


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    Re: MUST READ: The Bursting of the Shale Gas Bubble

    "Another huge problem from the shale gas companies is the price they have been receiving for natural gas has been below their break-even costs. Natural gas has been trading below $3-.3.5 mmbtu for several years, and the break-even for most of these companies is $6-7 mmbtu. This has put severe strain on these companies balance sheets as many are loaded with debt."

    Well, this explains the production declines, doesn't it?

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    Re: MUST READ: The Bursting of the Shale Gas Bubble

    Quote Originally Posted by SWRichmond View Post
    "Another huge problem from the shale gas companies is the price they have been receiving for natural gas has been below their break-even costs. Natural gas has been trading below $3-.3.5 mmbtu for several years, and the break-even for most of these companies is $6-7 mmbtu. This has put severe strain on these companies balance sheets as many are loaded with debt."

    Well, this explains the production declines, doesn't it?
    No, production declines are due to the rapid depletion rates of these fracked wells, upwards of 40-60% per year. A typical oil well might deplete at 2-4%. The US shale oil/fracking producers need $6 per mmbtu just to get to positive cash flow. Presently, despite the temporary production glut, these US producers are net negative $35 billions. Their debts are larger than the value of the reserves. Because of the rapid depletion, they have to increase the number of drilling rigs every year, which soon become unsustainable. In sum, US natural gas industry is a classic Ponzi, financed by debt borrowed on the cheap, and no prospect of ever becoming profitable, with a reserve base that has virtually peaked and will go into rapid depletion decline within the next 2-3 years.

    Everywhere you look, the entire US economy has been artificially propped up by borrowing production from the future, by creating debt. It is the world's largest hedge fund. Sooner or later, the cash flows go crunch as the debt comes do and then there's all hell to pay. All paper wealth is at risk, because every paper asset is tied to every other. We are in for one hell of a hangover.
    Tricks and treachery are the practice of fools, that don't have brains enough to be honest. -Benjamin Franklin
    Sincerity makes the very least person to be of more value than the most talented hypocrite. -Charles Spurgeon

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    Militant Wing of the Salvation Army midnight rambler's Avatar
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    Re: MUST READ: The Bursting of the Shale Gas Bubble

    Quote Originally Posted by mamboni View Post
    Huh? Fire burning stoves?
    I bet Chad has at least a couple of different versions of fire burning stoves, perhaps he can fill us in in the matter.
    "It is the mark of an educated mind to be able to entertain a thought without accepting it." --Aristotle

    "If both the past and the external world exist only in the mind, and if the mind itself is controllable-what then?" --George Orwell

    "It's not a matter of what is true (reality) that counts but a matter of what is perceived to be true (reality)." --Henry Kissinger

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    Re: MUST READ: The Bursting of the Shale Gas Bubble

    get your pre ban wood stoves while you can. they never cease to amaze me with their regulations.

    http://www.offthegridnews.com/2013/1...urning-stoves/

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    Re: MUST READ: The Bursting of the Shale Gas Bubble

    Quote Originally Posted by chad View Post
    get your pre ban wood stoves while you can. they never cease to amaze me with their regulations.

    http://www.offthegridnews.com/2013/1...urning-stoves/
    Note Ragnar Benson himself weighing in the comments section. One of the do-good libtards even posted something like, "I can't wait until your generation dies off" TRANSLATION: Old farts like you are standing in the way of our collectivist utopia

    One comment is a hoot: "Woodsmoke is assault (on my lungs)"
    "It is the mark of an educated mind to be able to entertain a thought without accepting it." --Aristotle

    "If both the past and the external world exist only in the mind, and if the mind itself is controllable-what then?" --George Orwell

    "It's not a matter of what is true (reality) that counts but a matter of what is perceived to be true (reality)." --Henry Kissinger

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    Re: MUST READ: The Bursting of the Shale Gas Bubble

    Quote Originally Posted by chad View Post
    get your pre ban wood stoves while you can. they never cease to amaze me with their regulations.

    http://www.offthegridnews.com/2013/1...urning-stoves/
    Yeah, all of my neighbors heat with wood and they're using old stoves that won't make the cut. These folk need to heat with wood - it's a cost of living thing. This law will cause major hardship for these folk. Fucking government should at least help folk transition to a new clean burning stove with subsidies. After all, the government has $trillions for the fucking banks, but no money to help the people who can use the help?
    Tricks and treachery are the practice of fools, that don't have brains enough to be honest. -Benjamin Franklin
    Sincerity makes the very least person to be of more value than the most talented hypocrite. -Charles Spurgeon

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