Tuesday, April 21, 2009

Matt Simmons on Shale Plays

In a recent interview, Matt Simmons, CEO of Simmons & Company International, an energy-oriented investment banking operation, opined on the hype surrounding the emergence of gas shale plays in North America. Simmons is probably best known as a leading proponent of "Peak Oil" and has written a book called Twilight in the Desert, The Coming Saudi Oil Shock and the World Economy . Simmons was interviewed by the Association for the Study of Peak Oil and Gas - USA.

In the third part of the interview, Simmons was asked about the emerging shale plays in the U.S. Simmons has a pretty dim view of the potential new supply created by these plays, in part because of a lack of data. He considers most of the frenzy about shales to be overblown at this point, noting, "I’ve never seen the industry hype something crazier."

Simmons points to the production growth statistics in the Barnett Shale, noting that much of the increase in production is linked to the addition of new wells. He also notes that peak initial production comes almost immediately and production declines quickly because of the way the operators frac the wells, so the wells don't have long-term productive lives. He doesn't see a sustainable supply increase coming from the shales, but he said we really won't see any real numbers until the states report production numbers from Q3 2009.

I'm not going to get into a Peak Oil argument, but it's hard to tell whether he is pooping on shale plays to support his argument about Peak Oil or if he is on to something. In any case, what is true is that the numbers just aren't in to support either side. Check out the interview. The questions about the shale plays are at the end.


Caroline Keddy said...

Do you think that natural gas will turn the energy debate on its head?
There is indication of very large amounts of natural gas in the Haynesville Shale- this will provide the USA secure domestic clean energy for years. Would love to hear your opinion.

C. Keddy
blog: Http://www.naturalgasforamerica.com

Robert Hutchinson said...

I think we need to look at the nation's energy sources as a portfolio. We have the various liquid fuels, coal and the various renewables.

Oil has the clear disadvantage of being supplied by hostile foreign entities. Plus, it's not very clean. Coal is a domestic product, but it's dirty and the technology just isn't there yet to strip away carbon and mercury (I do hope the day comes that we get "clean coal" but right now it's more of a fantasy). Renewables are great but the technology just isn't there to use them everywhere in great supply. Again, I hope we get there.

These facts make natural gas a key item in the enrgy portfolio. It is a domestic product (not counting LNG, which is largely unnecessary at this point but will be dumped on our shores), it is plentiful, and it is relatively clean burning, at least compared to other liquid and solid fuels. In addition, it can replace other liquid fuels without much technological advancement. Boone Pickens refers to natural gas as a bridge to the future. I think it can be both a bridge to the future and the future itself. But there shouldn't be just one clear winner - there should be a portfolio of winners.