Tuesday, June 28, 2011

In Case You Didn't Get Enough...

The New York Times followed Sunday's scathing assessment of shale gas with another article Monday that cites internal emails from some EIA staff members critical of shale gas.  The article casts doubts upon the reliability of EIA's numbers given its connections with the natural gas industry to supply data (although I'm not sure how the EIA would get it on its own without the cooperation of industry).

I've spent the past couple of days thinking about the big Sunday article. I've read numerous reactions, both pro and con, and tried to consider it in the big picture from both sides.  I think it is a mistake to dismiss the NYT or media in general for a perceived liberal bias.  But I don't think it is a stretch to say that this article is an entirely one-sided case of sloppy journalism.

The Times has earned its position at pinnacle of print journalism for decades of excellence in reporting.  The Times is "tenured" but not beyond having its motives or actions questioned.  I feel that the reporter never really challenged the assumptions of the parties that provided the leaked documents (and the talking points) and didn't do a lot of independent research.  It is alarming to read reactions from companies that were never contacted for an interview for the story.

What is particularly bothersome is the use of innuendo and "masked facts" to make vague accusations.  If the Times has the dirt on a particular company, they need to come out with it.  Instead they are sullying the entire industry as "pump and dump" boiler room hacks.  There is also the perception from the article that security fraud is being committed and that the SEC is laying down on the job.  I think the worst thing they have uncovered is a bit of greater-fool theory in action.  But if you extinguish the greater-fool, you might as well shut down the stock market.

I've gotten comfortable with shale gas because I've immersed myself in the subject in 2008 when the Haynesville Shale first became known.  I've followed the ups and downs as well as the benefits and risks (and there definitely are risks).  But I don't blame people for whom this is mostly a new subject for being skeptical.  There are no silver bullets, especially not in the world of energy, where shale gas has burst onto the scene and contributed to the energy supply of the country with incredible speed.

Over the past decade, it has become great sport to spot the next bubble (dot.coms, Enron, WorldCom, Madoff, mortgage market, etc.).  Unfortunately, with very few exceptions, the bubbles only are spotted after they pop.  But everyone wants to be the first to make the call.  Investors and the media are very competitive and there is much to gain from making the "early call" even if not entirely accurate.  But it's hard to make an early call because there usually is a lack of concrete data - as is the case with shale gas.

With the advent of Wikileaks over the past year, leaked confidential documents are back in vogue as a twisted new form of "democracy in action."  Looking at some of the documents from Sunday's article, I was struck by how many were old (2009 is the Jurassic era in terms of shale gas extraction) and from people not directly involved in shale gas extraction or reservoir estimation.  Because names of EIA officials in Monday's supporting documents are redacted, it is hard to tell just how deep skepticism about shale gas went in the organization.  You get one disgruntled skeptic (or goofy intern) who leaks email exchanges with a few fellow skeptics and suddenly you've got a Grand Conspiracy.

The skepticism is particularly acute in the northeast.  While drilling is nothing new in western Pennsylvania, it is less well known in New York.  The state has a moratorium against Marcellus Shale drilling in place.  The fearmongering is out of hand with the negative stories spread by anti-drilling folks stretched beyond reality (see: "Gasland").  Many are looking for a symbolic lynching.  The fear is real and this kind of article is what the angry crowd is looking for.


Bill Mendenhall said...

Robert, your post is very thoughtful and well-reasoned, as always. I would add two additional points: First, the vocal opponents of shale development are unrealistic about meeting our country's energy needs. "We" demand inexpensive electricity and fuel, but we are unwilling to accept any risk in order to obtain the energy. We can either have inexpensive energy with some manageable degree of risk of pollution, or we can have very, very expensive energy with no risk.

Second, we all know that the truth probably lies somewhere in between the extreme hysteria of the environmenal community and the rosey picture painted by the industry. I'm sure that the E&P companies do "puff" in their projections in order to keep investor enthusiasm high. But, those of us who have watched the Haynesville development carefully over the past several years understand that the quantities of gas being produced are real, and the production of shale gas offers tremendous promise for our country, if our leadership will make sensible and well-reasoned policies, and not simply respond to the loudest voices in the room.

Robert Hutchinson said...


Regarding your first point, it is classic NIMBYism. If the drilling were not occurring in the Marcellus Shale, I think the Times would be pushing shale as the New New Thing. I'm sure the residents of Nantucket were in love with the concept of windmills across the heartland until Cape Wind wanted to put them off the coast of Massachusetts.

Also, I don't think there is "no risk" with the second option, just different risk.

It is unfortunate that we are entering the national election cycle (just like Christmas, it seems to start earlier every year). Now we will hear lots of impassioned talk but see no action in terms of comprehensive energy policy.