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Natural gas industry strikes back at New York Times article | NewsOK.com
June 28, 2011
Natural gas industry strikes back at New York Times article | NewsOK.com.
Natural gas industry strikes back at New York Times article
Aubrey McClendon, chief executive officer of Oklahoma City-based Chesapeake Energy Corp., sent an email to employees in which he called the Times article “inaccurate and misleading.”
Weekend New York Times articles that questioned whether the productivity and economic potential of shale gas has been overhyped by industry officials created a furor Monday among oil and gas executives as well as academic officials who study the industry.
In this April 23, 2010 photo, a Chesapeake Energy natural gas well site is seen near Burlington, Pa., in Bradford County. (AP Photo/Ralph Wilson)
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Oklahoma congressmen comment
Two members of Oklahoma’s congressional delegation commented Monday on Sunday’s shale gas story in The New York Times.
Sen. Jim Inhofe, R-Tulsa:
“Here in Oklahoma, natural gas development has led to a tremendous economic boost and the creation of good paying jobs. That is a fact. Everyone knows that The New York Times has an anti-fossil fuel perspective. Even the reporter admits that the article is based on information provided by those who are apparently working to shut down drilling. Don’t be surprised if a vastly different picture emerges from a more balanced and responsible news outlet.”
Rep. John Sullivan, R-Tulsa:
“It’s a biased story that completely ignores the vast reserves of natural gas that has been uncovered across the U.S — we are in the midst of a shale gas revolution that has the potential to be a game changer for American energy security. We have over a 125-year supply of natural gas and each field they find is larger than the last. Reports indicate that our nation has more natural gas than Saudi Arabia does oil. It’s crazy to continue relying on OPEC oil when we have a cheaper, cleaner more abundant supply of American made natural gas sitting right under our feet.”
CHRIS CASTEEL, Washington Bureau
“Are you telling me some reporter at The New York Times knows more about the natural gas business than 25 companies and their engineers? I don’t think so,” said Texas billionaire T. Boone Pickens, who has amassed much of his fortune through his ability to analyze and predict developments and price movements in the oil and gas industry.
Aubrey McClendon, chief executive officer of Oklahoma City-based Chesapeake Energy Corp., sent an email to employees in which he called the Times article “inaccurate and misleading.”
“The Times story was obviously motivated by an anti-natural gas agenda. It is telling that the reporter chose not to interview a single reliable source and instead selectively quoted emails from unnamed sources or well-known industry critics dating back to as early as 2007 to invent a series of inaccurate and misleading allegations,” McClendon said.
“I wanted you to know that this reporter’s claim of impending scarcity of natural gas supply contradicts the facts and the scientific extrapolation of those facts by the most sophisticated reservoir engineers and geoscientists in the world,” McClendon said.
“It is also ludicrous to allege that shale gas wells are underperforming as we sit awash in natural gas, with natural gas prices less than half of what they averaged in 2008,” he said. I also note that Chesapeake and other shale gas producers are routinely beating our production forecasts. How can shale wells be underperforming if shale gas companies are beating their production forecasts and as U.S. natural gas production has recently surged to record highs?”
G. Randy Keller, director of the Oklahoma Geological Survey which investigates the state’s land, water, mineral and energy resources, was particularly incensed by Times quotes from unnamed industry insiders and analysts that compared shale plays to Ponzi schemes and said some were questioning whether companies were “intentionally, and even illegally, overstating the productivity of their wells and the size of their reserves.”
“I just don’t think any of these companies deserved to be treated like that,” Keller said. “It sure had an awful lot of hatchet job to it and was a little short on what I would consider facts.
“There are promoters in every business and I know somebody somewhere has overstated something, but to suggest this is a big problem is crazy,” he said.
Keller said he talks with lots of industry officials in the course of his work and hasn’t heard anybody talk about inflating reserves.
Keller said the only negative talk he has heard is that natural gas prices have been so low lately that some companies are right on the edge of making money in the short term.
Keller said he’s not overly concerned about that because commodity prices like natural gas and oil rise and fall over time and natural gas prices currently are extremely cheap when compared to oil that can produce the same amount of energy.
“I’m not a financier, but I own stock in several of those companies, and I’m not looking to sell it,” he said.
Harold Hamm, chief executive officer of Enid-based Continental Resources, said he had not read the article in depth, but defended the industry’s shale gas projections.
“I believe these reserves are real,” he said.
Hamm said he chose to focus his company on oil exploration because he believed the abundance of natural gas reserves would result in an oversaturated market. And he said that is what has happened with the shale gas boom.
“As a geologist, I believe natural gas is ubiquitous,” he said. “It’s everywhere.”
ExxonMobil, the largest natural gas producer in the United States, blasted The New York Times’ journalistic standards in a blog entry Monday.
“The Times questions the value of our country’s vast shale gas resources with little more than anonymous sourcing, two-year-old emails and analysis unsupported by fact,” the blog said. “Ironically, author Ian Urbina did not call ExxonMobil, the largest natural gas producer in the United States, for comment. You would think an investigative journalist for one of the world’s great newspapers would have been curious to know why the world’s largest publicly traded energy company has invested billions of dollars in a so-called ‘Ponzi scheme.’ Of course we’re doing no such thing, no matter how hard the article works to imply otherwise.”
Melanie Kenderdine, executive director of the Massachusetts Institute of Technology Energy Initiative, said her group currently projects that roughly 500 trillion cubic feet of shale gas are recoverable at costs of less than $7 per thousand cubic feet.
Costs vary greatly from one geological formation to another and even within the same geological formation, she said.
“Even with uncertainty, there is a substantial amount of shale gas in the U.S. at relatively affordable costs,” she said.
In an article that appeared in Sunday’s New York Times, the writer noted that the federal government’s Energy Information Administration has steadily increased its projections of domestic natural gas supplies. However, he quoted unnamed officials within the agency as questioning whether there was an “irrational exuberance” around shale gas that may have left the shale industry set up for failure.”
Asked about the article Monday, federal Energy Information Administration officials forwarded a response they had made to a New York Times inquiry that said agency officials considered discussions between staff members concerning estimates of recoverable shale gas to be part of a “healthy analytical process.”
“While resource estimates will continue to be updated as new information becomes available, experience suggests that EIA has been more likely to understate rather than overstate the contribution of unconventional oil and natural gas resources in recent Annual Energy Outlook Reference cases,” the response said.
AROUND THE WEB
June 25: Wall Street Journal “Facts about Fracking”
June 25: New York Times article “Insiders Sound an Alarm Amid Natural Gas Rush”
June 26: Chesapeake’ Aubrey McClendon responds on Facebook “An email to Chesapeake employees”
June 26: GreenBiz.com “Why we need to calm the natural gas frenzy”
June 26: The Associated Press “Gushers highlight gas potential of Pa.’s Marcellus Shale”
June 26: Blog: Not Hot Air “New York Times no Wiki Leaks of shale”
June 27: John Hanger. Facts of the Day blog “Barnett hale Production Now Record High: Facts not fit to print in NYT”
June 27: Huffington Post “Lawmakers urge Obama to pursue more Natural Gas exploration”
June 27: New York Times “SEC Shift Leads to Worries of Overestimation of Reserves”
June 27: Forbes “Green Tech Blog: Analysis”
June 27: Fuel Fix “Barnett Shale Still Has Lots of Life”
June 27: Council on Foreign Relations “Is Shale Gas a Ponzi Scheme?”
June 27: Energy In Depth “NYT’s ‘Dewey-Defeats-Truman’ Moment on Shale?”
June 27: CNBC “Deborah Rodgers: Shale Companies’ Balance Sheets Raise ‘Red Flags'”
June 27: Exxon Mobil Perspectives “Don’t facts matter anymore?'”
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Behind Veneer, Doubt on Future of Natural Gas – NYTimes.com
June 27, 2011
Behind Veneer, Doubt on Future of Natural Gas – NYTimes.com.
Drilling Down
Behind Veneer, Doubt on Future of Natural Gas
Kathy Chruscielski
A drilling operation in Texas. In documents, Energy Information Administration officials voice skepticism.
By IAN URBINA
Published: June 26, 2011
Drilling Down
Widespread Skepticism
Articles in this series will examine the risks of natural gas drilling and efforts to regulate this rapidly growing industry.
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“The potential for natural gas is enormous,” President Obama said in a speech this year, having cited it as an issue on which Democrats and Republicans can agree.
The Department of Energy boasts in news releases about helping jump-start the boom in drilling by financing some research that made it possible to tap the gas trapped in shale formations deep underground.
In its annual forecasting reports, the United States Energy Information Administration, a division of the Energy Department, has steadily increased its estimates of domestic supplies of natural gas, and investors and the oil and gas industry have repeated them widely to make their case about a prosperous future.
But not everyone in the Energy Information Administration agrees. In scores of internal e-mails and documents, officials within the Energy Information Administration, or E.I.A., voice skepticism about the shale gas industry.
One official says the shale industry may be “set up for failure.” “It is quite likely that many of these companies will go bankrupt,” a senior adviser to the Energy Information Administration administrator predicts. Several officials echo concerns raised during previous bubbles, in housing and in technology stocks, for example, that ended in a bust.
Energy Information Administration employees also explain in e-mails and documents, copies of which were obtained by The New York Times, that industry estimates might overstate the amount of gas that companies can affordably get out of the ground.
They discuss the uncertainties about how long the wells will be productive as well as the high prices some companies paid during the land rush to lease mineral rights. They also raise concerns about the unpredictability of shale gas drilling.
One senior Energy Information Administration official describes an “irrational exuberance” around shale gas. An internal Energy Information Administration document says companies have exaggerated “the appearance of shale gas well profitability,” are highlighting the performance of only their best wells and may be using overly optimistic models for projecting the wells’ productivity over the next several decades.
While there are environmental and economic benefits to natural gas compared with other fossil fuels, its widespread popularity as an energy source is relatively new. As a result, it has not received the same level of scrutiny, according to some environmentalists and energy economists.
The Energy Information Administration e-mails indicate that some of these difficult questions are being raised.
“Am I just totally crazy, or does it seem like everyone and their mothers are endorsing shale gas without getting a really good understanding of the economics at the business level?” an energy analyst at the Energy Information Administration wrote in an April 27 e-mail to a colleague.
Another e-mail expresses similar doubts. “I agree with your concerns regarding the euphoria for shale gas and oil,” wrote a senior official in the forecasting division of the Energy Information Administration in an April 13 e-mail to a colleague at the administration.
“We might be in a ‘gold rush’ wherein a few folks have developed ‘monster’ wells,” he wrote, “so everyone assumes that all the wells will be ‘monsters.’ ”
The Energy Information Administration’s annual reports are widely followed by investors, companies and policy makers because they are considered scientifically rigorous and independent from industry. They also inform legislators’ initiatives. Congress, for example, has been considering major subsidies to promote vehicles fueled by natural gas and cutting taxes for the industry.
In any organization as big as the Energy Information Administration, with its 370 or so employees, there inevitably will be differences of opinion, particularly in private e-mails shared among colleagues. A spokesman for the agency said that it stands by its reports, and that it has been clear about the uncertainties of shale gas production.
“One guiding principle that we employ is, ‘look at the data,’ ” said Michael Schaal, director of the Office of Petroleum, Natural Gas and Biofuels Analysis within the Energy Information Administration. “It is clear the data shows that shale gas has become a significant source of domestic natural gas supply.”
But the doubts and concerns expressed in the e-mails and correspondence obtained by The Times are noteworthy because they are shared by many employees, some of them in senior roles. The documents and e-mails, which were provided to The Times by industry consultants, federal energy officials and Congressional researchers, show skepticism about shale gas economics, sometimes even from senior agency officials.
The e-mails were provided by several people to The Times under the condition that the names of those sending and receiving them would not be used.
Some of the e-mails suggest frustrations among the staff members in their attempt to push for a more accurate discussion of shale gas. One federal analyst, describing an Energy Information Administration publication on shale gas, complained that the administration shared the industry’s optimism. “It seems that science is pointing in one direction and industry PR is pointing in another,” wrote the analyst about shale gas drilling in an e-mail. “We still have to present the middle, even if the middle neglects to point out the strengths of scientific evidence over PR.”
The Energy Information Administration, with its mission of providing “independent and impartial energy information to promote sound policymaking” and “efficient markets,” was created in response to the energy crisis of the 1970s because lawmakers believed that sound data could help the country avoid similar crises in the future.
As a protection from industry or political pressure, the Energy Information Administration’s reports, by law, are supposed to be independent and do not require approval by any other arm of government.
Its administrator, Richard G. Newell, who announced this month his plans to resign to take a job at Duke University, has hailed the prospects for shale gas, calling it a “game changer” in the United States energy mix. “The energy outlook for natural gas has changed dramatically over the past several years,” Mr. Newell told the Natural Gas Roundtable, a nonprofit group tied to the American Gas Association. “The most significant story is the transformative role played by shale gas.”
A number of factors have also helped create more interest in shale gas. The nuclear disaster in Japan in March has focused attention on the promise of natural gas as a safer energy source.
And last year, as energy market analysts warned about tougher federal regulations on oil and coal, particularly after the BP oil spill and the Massey coal mining accident, they also pointed to natural gas as a more attractive investment.
But a look at the Energy Information Administration’s methods raises questions about its independence from energy companies, since the industry lends a helping hand to the government to compile those bullish reports.
The Energy Information Administration, for example, relies on research from outside consultants with ties to the industry. And some of those consultants pull the data they supply to the government from energy company news releases, according to Energy Information Administration e-mails. Projections about future supplies of natural gas are based not just on science but also some guesswork and modeling.
Two of the primary contractors, Intek and Advanced Resources International, provided shale gas estimates and data for the Energy Information Administration’s major annual forecasting reports on domestic and foreign oil and gas resources. Both of them have major clients in the oil and gas industry, according to corporate tax records from the contractors. The president of Advanced Resources, Vello A. Kuuskraa, is also a stockholder and board member of Southwestern Energy, an energy company heavily involved in drilling for gas in the Fayetteville shale formation in Arkansas.
The contractors said they did not see any conflict of interest. “Firstly, the report is an extremely transparent assessment,” said Tyler Van Leeuwen, an analyst at Advanced Resources, adding that many experts agreed with its conclusions and that by identifying promising areas, the report heightened competition for Southwestern.
Intek verified that it produced data for Energy Information Administration reports but declined to comment on questions about whether, given its ties to industry, it had a conflict of interest.
Some government watchdog groups, however, faulted the Energy Information Administration for not maintaining more independence from industry.
“E.I.A.’s heavy reliance on industry for their analysis fundamentally undermines the agency’s mission to provide independent expertise,” said Danielle Brian, the executive director of the Project on Government Oversight, a group that investigates federal agencies and Congress.
“The Chemical Safety Board and the National Transportation Safety Board both show that government agencies can conduct complex, niche analysis without being captured or heavily relying upon industry expertise,” Ms. Brian added, referring to two independent federal agencies that conduct investigations of accidents.
These sorts of concerns have also led to complaints within the administration itself.
In an April 27 e-mail, a senior petroleum geologist who works for the Energy Information Administration wrote that upper management relied too heavily on outside contractors and used “incomplete/selective and all too often unreal data,” much of which comes from industry news releases
“E.I.A., irrespective of what or how many ‘specialty’ contractors are hired, is NOT TECHNICALLY COMPETENT to estimate the undiscovered resources of anything made by Mother Nature, period,” he wrote.
Energy officials have also quietly criticized in internal e-mails the department’s shale gas primer, a source of information for the public, saying it may be “on the rosy side.”
The primer is written by the Ground Water Protection Council, a research group that, according to tax records, is partly financed by industry.
The Ground Water Protection Council declined to respond to questions.
Tiffany Edwards, a spokeswoman for the Department of Energy, said that the shale gas primer was never intended as a comprehensive review and that further study was continuing.
Asked about the views expressed in the internal e-mails, Mr. Schaal says his administration has been very explicit in acknowledging the uncertainties surrounding shale gas development.
He said news reports and company presentations were included among a range of information sources used in Energy Information Administration studies. Though the administration depends on contractors with specialized expertise, he added, it conforms with all relevant federal rules.
And while production from shale gas has not slowed down and may not any time soon, he said, a lively debate continues within the administration about shale gas prospects.
Robbie Brown contributed reporting from Atlanta. Kitty Bennett contributed research.
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