New York state shale gas: Not so much

A drilling foreman once told me, "Don't believe ANY reserve number unless it's linked to a price." And, that is just what petroleum geologist and consultant Arthur Berman and his colleague Lyndon Pittinger have done in a new report on the viability of shale gas in New York state.

Not surprisingly, when Berman and Pittinger considered what it would cost to extract the shale gas beneath New York state at a profit, the mammoth claims about recoverable reserves made by the oil and gas industry appeared heavily inflated.

Source: Business First

The stunning conclusion of the report is that at current prices--in the mid-$4 range per thousand cubic feet (mcf)--NONE of the natural gas trapped in the New York portion of the Marcellus can be profitably extracted. It's possible, of course, that someone would try. But, the economics look very shaky at current prices given what we know about the nature of the underground deposits.

Perverse outcomes: Lifting U.S. oil export ban would mean greater dependence on foreign oil

The United States today is a large net importer of crude oil and refined products. And, yet the story that the country can somehow export crude oil as a foreign policy measure to help reduce Ukraine's dependence on Russia won't die. Oil executives and their surrogates keep bringing it up, and unsuspecting reporters amplify a message that has absolutely no basis.

The reason for this oil industry public relations blitz on the Ukraine is rooted in the industry's desire to end a decades-old ban on U.S. crude oil exports--one which the industry hopes to persuade Congress and President Obama to overturn. There is, in fact, a case regarding market efficiency for overturning the ban, but this is NOT the one the industry is using in its public relations campaign.

Here's why: The major effect of lifting the ban would be to allow domestic producers to sell lighter grades of crude oil--which U.S. refineries have little remaining capacity to refine--to foreign refineries which do have spare capacity. Perversely, that would lead to GREATER imports of foreign oil--mostly heavier grades--more suitable for the current U.S. refinery infrastructure. Net imports would remain unchanged, of course, even as the country's oil supply becomes more vulnerable to events abroad.

Did crude oil production actually peak in 2005?

"Wait a minute," you must be saying. "Haven't we been hearing from the oil industry and from government and international agencies that worldwide oil production has been increasing in the last several years?" The answer, of course, is yes. But, the deeper question is whether this assertion is actually correct.

Here is a key fact that casts doubt on the official reporting: When the industry and the government talk about the price of oil sold on world markets and traded on futures exchanges, they mean one thing. But, when they talk about the total production of oil, they actually mean something quite different--namely, a much broader category that includes all kinds of things that are simply not oil and that could never be sold on the world market as oil.

I've written about this issue of the true definition of oil before. But Texas oilman Jeffrey Brown has been bending my ear recently about looking even deeper into the issue. He makes a major clarifying point: If what you're selling cannot be sold on the world market as crude oil, then it's not crude oil. It's such a simple and obvious point that I'm ashamed to have missed it. And, Brown believes that if we could find data that separates all these other non-crude oil things out, the remaining worldwide production number for crude oil alone would be flat to down from 2005 onward.