It may contaminate your well water and emit more emissions than expected, but is shale gas business also a Ponzi scheme?
The New York Times had a great piece today called “Insiders Sound an Alarm Amid a Natural Gas Rush,” which quotes from among hundreds of industry e-mails and insider documents suggesting that shale gas isn’t as easy or inexpensive to extract from the ground as claimed. Some of the e-mails compare the current shale-gas lovefest to a dot-com bubble destined to burst, or to a giant Ponzi scheme because the economics don’t work. I’m sure the economics do work on a certain percentage of wells, but when companies talk generally about the productivity of shale-gas wells or the size of their reserves are they exaggerating reality? Are they pumping up their stocks and duping investors? And if so, are we grossly overestimating the true contribution — environmental problems aside — shale gas can make to our energy future?
This reminds me of some comments Jeff Rubin made during a chat we had in December. Rubin, former chief economist at CIBC World Markets and author of Why Your World Is About to Get a Whole Lot Smaller, compared the current path of the shale-gas industry to what we saw with the sub-prime mortgage market. Here’s what he had to say, taken from a Q&A that ran in the Toronto Star:
The debate is about the real cost. If you exclude the natural gas liquids that come with most shale projects, is the real cost $4 per Mcf (1,000 cubic feet) or is it $8? If the real cost is $8 then a lot of people, like Chesapeake Energy, the biggest gas producer in the U.S., have a big problem. Is shale gas the sub-prime mortgage market of the natural gas market? Is this one giant con and investors are being conned into thinking there’s a huge supply of gas at $4 when it really costs $7 or $8 to bring it to market? In the fullness of time economics will assert itself, just as it did in the sub-prime mortgage market.
The question is, when will that time come?
Tags: Jeff Rubin, NYT, ponzi scheme, shale gas
Tyler Hamilton is associate publisher and editor-in-chief of Corporate Knights magazine and former business columnist for the Toronto Star. This blog is a personal project started in April 2005.
June 27th, 2011 at 8:00 am
what rubbish. Rubin MAKES AN ASSUMPTION THAT IS NOT VERIFIED FACT BUT AN ASSUMPTION, then asks a question: “If the real cost is $8 then a lot of people, like Chesapeake Energy, the biggest gas producer in the U.S., have a big problem. Is shale gas the sub-prime mortgage market of the natural gas market?”…then asks another question: “Is this one giant con and investors are being conned into thinking there’s a huge supply of gas at $4 when it really costs $7 or $8 to bring it to market?” that the reader is supposed to accept as fact, based on reading his first question as a fact. If one reads the second quote after the first six words, Rubin cleverly creates a declarative sentence rather than a question, though he ends with a question mark: “investors are being conned into thinking there’s a huge supply of gas at $4 when it really costs $7 or $8 to bring it to market” Clever but very deceptive rubbish. Rubin must be assuming that the China National Offshore Oil Corporation and BHP Billiton that together have invested literally billions of dollars in joint ventures with Chesapeake Energy did no due diligence to uncover the Ponzi scheme in the nat/gas industry. What utter rubbish this article is.