tion has peaked in North America.”
Around that time, a risein natural gas prices coinciding with growing demand anddecreasing access to U.S. supplies had actually led energyanalysts to predict that North America would become theworld’s biggest importer of liqueed natural gas (LNG) by2010, as the industry embarked on what the
called a “concerted drive to build LNG facilities.”
But as independent drillers demonstrated that they coulduse fracking to increase production, especially in shale rockformations, the major multinational energy companies turnedtheir attention to shale gas. By June 2010, the same companythat had declared gas in North America a dud had becomethe largest producer on the U.S. gas scene.
With the adjustment in outlook due to fracking, ExxonMobilwas not the only major oil and gas company changing itstune. Big energy corporations have begun promoting natu-ral gas as the next big energy source, not just in the UnitedStates, where fracking technology was rst applied, but allaround the world where there are shale gas plays that havenot yet been tapped.
In June 2010, the
Wall Street Journal
reported that shale gas had become “one of the hottest in-vestments in the energy sector.”
The shale gas bust
As the major players in the globalenergy industry are turning their
attention and money back to gas,
many companies are nding thatfracking is not as protable as theyhad hoped. It turns out that theAmerican gas market is actuallyoversupplied.
This means that gasprices have remained so low that
drilling is not protable for manyproducers.
After a sharp rise and
sharper fall in 2008, natural gasprices have plateaued and from June 2010 to June 2011, remainedsteady, despite cyclical uctua-tions.
Some companies continueto drill because they need to in
order to maintain rights to the
land, or because they are desperatefor cash. Others are simply slow-ing their drilling because it is notworth the money.
Perhaps an even bigger problem
for many companies is that the
wells themselves are not producingas much gas as was originally ex-pected. In June 2011, a
New York Times
investigation of hundredsof industry emails it collectedrevealed, “… energy executives,industry lawyers, state geologists and market analysts voiceskepticism about lofty forecasts and question whether com-
panies are intentionally, and even illegally, overstating the
productivity of their wells and the size of their reserves.”
One email indicated that companies want to show high early
production numbers to investors, but sustained productionat those levels may not be affordable.
Another analyst from
IHS Drilling Data said, “The word in the world of indepen-dents is that the shale plays are just giant Ponzi schemes andthe economics just do not work.”
New York Times
-cluded that internal messages were “in stark contrast to morebullish public comments made by the industry. …”
In fact, many of the companies that began the shale gas rushare struggling to make a prot or are going under. An ana-lyst from PNC Wealth Management wrote that shale gas is“inherently unprotable.”
A geologist from Chesapeake En-ergy wrote in an email exchange with a federal governmentofcial, “In these shale plays no well is really economic rightnow. They are all losing a little money or only making a littlebit of money.”
The geologist later added, “… a lot of smallercompanies have gone under because of these issues.”
As American companies are strug-gling, many see major multinationalcorporations as a welcome sourceof cash. The aforementioned Chesa-peake Energy geologist said in anemail, “Also, Wall Street has beenvery pessimistic on nat[ural] gas. Sothey have been much more hesitantto just hand out big money to peopleand that’s why most companies are
having to sell shares of their as
-sets to the Major [sic] international
companies in order to get the capital
necessary to develop these plays.”
summarized another industry analyst:“Amid low natural gas prices and alargely uneconomic drilling cli-mate, she said highly liquid Chinesecompanies will nd willing partners
among onshore oil and gas compa
-nies hurting for capital to drill.”
In fact, as drilling itself appears lessprotable, some companies are ap-
parently deciding that it is simplybetter to sell off the land than to
actually produce gas. One analyst
noted that the companies most likely
to prot are the ones that sell the
land based on the hype rather than
those that drill it themselves.
According to the
Chesapeake Energy has been “most
Top 10 NaturalGas Producers
First Quarter 2011
Williams Energy(Barrett Res.) *
* Provides combined quarterly natural gas andoil production data only.
National Gas Supply Association.“Top 40 Producers, First Q 2011 Production.” June 16, 2011.