Thoughts On the Shale Gas Revolution

We have seen a lot of predictions that the “tight oil” revolution will change everything about America. The shale gas and shale oil and the fracking and the horizontal drilling will make USA energy independent. It will lead to a resurgence in US manufacturing. It will change the balance of power in many regions throughout the world. There is enough to last 100 years.

The CEO of NRG said that many people will go off the electric grid in a few years. They will stay on the gas grid, using the gas for heating and some electricity generation. He says that people will get most of their electricity from solar, and use gas to fill the gap.

I am not against all of this, but I think we need to be careful about some of these predictions. Maybe there is not enough shale gas to last 100 years. Some people are saying that we do not need to invest in solar, wind, nuclear, geothermal or wave power because gas and oil will still fulfill all our energy needs.

The issue I have with all of this is I think a lot of people in the energy industry did not see this coming. And given that shale wells run out a lot more quickly than conventional, we should be worried.

This occurred to me while seeing a couple of stories a few times in the past few weeks.

Charif Souki, chairman, CEO and president of Cheniere Energy Inc. was the highest paid executive in Houston in 2013, taking home $142 million dollars, mostly in stock awards. Chenire Energy is coming on like gangbusters because they are preparing the first terminal in the USA to export natural gas. It is actually a bi-directional terminal, although most articles will refer to it as an export terminal. They got this export terminal up and running just in time for the shale revolution because they originally built it as an import terminal. According to a press release on the DOE site, they will “retrofit an existing LNG import terminal in Louisiana so that it can also be used for exports.” If a cheap gas company didn’t see all this cheap gas coming, will they be able to predict when it will end?

The other event was the bankruptcy of Energy Future Holdings (articles in Bloomberg here, here, here and here, article in New Yorker here, article in Washington Post here). It was the biggest private equity deal, and now it is one of the biggest bankruptcies. They produce a lot of their energy from coal and nuclear. They thought gas would stay expensive. But gas got cheap, and when it did, it brought the price of other types of generation down as well. They could not pay off the debt, and the rest is legal and financial history. It looks like the trial will be take several months.

Image from Wikimedia, assumed allowed under Fair Use

Post created on 2014-05-11_19:24:27, last modified on 2018-02-09_0:32:23

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