The United States is heading straight into a disaster and it 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 have 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 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.
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 for 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: [email protected]
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.