Fluctuating gas estimates needn’t freak investors
By Christopher Swann
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Bad news for natural gas wildcatters is often music to the ears of environmentalists. So opponents of fracking — the controversial gas extraction method — pounced on sharply lower government estimates of the gas contained in the Marcellus shale surrounding New York’s aquifers. If the economic prize is far smaller than previously thought, they argue, why take the ecological risks? But investors shouldn’t be alarmed. Even by ultra-conservative reckonings, there’s still up to 109 years of current production.
On the surface the U.S. Geological Survey’s tally looked like a blow to gas producers and their investors. Geologists at the agency forecast just 84 trillion cubic feet of the fuel — about 80 percent less than a previous estimate by the Energy Information Administration. This only added to the conflicting opinions about the Marcellus field, whose vast New York portion has yet to be given the official nod for full exploration and production.
But there’s little reason for investors betting on fracking’s potential to fret over the competing forecasts. Firstly the geologists at the USGS are known for their caution. There is also a suspicion that plenty of the data they used is stale, dating back as far as 2005 before the fracturing process was fully honed. And their previous reckoning for the Marcellus almost a decade ago was for just 2 trillion cubic feet.
In any event, even the USGS’s timid estimate would only have firms running out of Marcellus gas around the year 2120, according to consultant Navigant. In reality, the figure is probably way too low. A credible Pennsylvania State University study identified some 370 trillion cubic feet of gas is locked in the region’s rocks.
Before skeptics run away with the idea that shale has been hyped, it’s worth remembering that Marcellus is not America’s only formation. The EIA estimated this year that the total U.S. endowment was 2,543 trillion cubic feet, more than 100 years of current U.S. consumption.
Those worried that fracking could harm water supplies are keen for the drilling craze to fizzle. The latest USGS estimates are not an indication that this is about to happen. For better, and in some cases for worse, fracking is here to stay.