No More Pipelines

Help keep BC LNG-free.

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Graphic source: BC LNG, A Reality Check, by David Hughes

BC's Minister of Natural Gas Development, Rich Coleman, is telling us that BC has 150 years-worth of natural gas reserves in the ground. His estimate, as with many connected with the proposed LNG industry, is grossly misleading. Industry speaks of "proven reserves" - meaning gas that they know they can extract. According to BP, the world has 55.7 years of proven natural gas reserves. A minor discrepancy. But here is the real crunch of what Minister Coleman is not telling us.

1) If it were true that BC had 150 years-worth of natural gas reserves, that would be 150 years at the province's present rate of consumption - about 3.5 billion cubic feet per day. Each of the large LNG projects proposed would require that much gas. Build one large LNG plant, and BC would have about 75 years-worth of natural gas. Build three LNG plants, and BC would have about 50 years-worth of natural gas. And so on. Simple math seems to elude the man in charge.

2) Fracked gas wells are far less productive than conventional natural gas wells. They require more energy to obtain an equivalent amount of energy, and they deplete faster. Much faster. Many wells are effectively exhausted in less than 4 years, versus 8-12 years for conventional wells. Thus, the relationship between increasing the demand for fracked gas is not linear with the production effort required to produce that gas. Doubling the demand for fracked gas probably means quadrupling the number of active wells. Quadrupling the demand probably means sixteen-tuppling the number of active wells. This may be great news for the drilling industry, but BC does not have the labour pool, the electricity, nor the water to sustain such a fracking push.

Read below for an enlightening segment from an unlikely source, It talks about oil and natural gas extraction from an American perspective, but the technology and the realities are the same in BC. You mentioned earlier that you thought the shale boom was being oversold. What are your thoughts on America's oil and gas boom?

Chris Martenson: Well, this is really important. The current story is something along these lines: "Hey, look at how clever we've been. Because of the magic of technology, we have discovered how to unlock these incredible oil and gas resources that we just didn't even know about before."

When I talk to people who are in the oil business, they say, "Oh, no, no, we've known about those shale deposits, we've been drilling into and through them for decades. We've had horizontal drilling for decades; we've had fracking for decades. What we haven't had is $80-a-barrel oil reliably enough to support us going into those with those technologies."

So what really unlocked those reserves was price. Not technology, not cleverness, not ingenuity. Don't get me wrong, there's a lot of very clever, ingenious stuff going on in those drilling actions, but price was the primary driver here.

Here's the thing, though: When more expensive energy comes out of the ground, it means that everything that you use to go get that energy, after a lag, becomes more expensive too. This is doubly compounded by this idea that there's less net energy coming from these finds.

They use more energy to get that energy, but that more energy is more expensive. So that feedback loop is already in play here.  It simply means that there's less to be used as we like elsewhere in the economy.

When I look at America's apparent energy abundance
I'm a little worried that it's been oversold. In particular, the dynamics of depletion that exist in both the tight shale oil and shale gas plays are very different from conventional reservoir depletion dynamics.  I'm concerned that people are accustomed to the old and relatively slow reservoir depletion dynamics and are lulled by the sharp increases in output that these new reservoirs offer without really understanding just how rapidly they fall off as well.

Here's an example, in the Barnett shale gas play, in one region where they drilled 9,000 wells, there was just this exponential increase in gas output. But then there was no more room for any more wells in that section, and within one single year the gas output from that region with all of those beautiful, technologically marvelous 9,000wells had fallen by 44%. One year!

So as long as America can continue to forever increase the number of wells that it's completing and bringing online every year, it will be able to maintain rising production from the shale plays. Obviously that's an impossibility. You run out of space eventually, you don't have enough rigs or talent to drill incrementally more wells each year, or the capital just isn't there for some reason. Sooner or later, there are only so many wells you can complete. At that point, we discover that the rapid increases in oil production  almost immediately begin to drop. And this is a whole new dynamic.  I think we need to build in a little caution for ourselves around this story that seems to be almost completely missing from most mainstream news reports.

So really, we're on a very elaborate treadmill right now, where as long as we can continue to drill, drill, drill, drill, drill, drill, drill, then we'll get an increasing output. I'm not convinced that that's going to happen.

There are a number of factors that will cause that to slow. One is environmental concern. Another is, I don't think they're going to have the capital to do that forever. A third is that we've already drilled through all of the known sweet spots in these plays, and so we're down to the more marginal portions of the main plays. The wells going into the less-than-sweet spots are going to require higher energy prices to break even than did the initial wells. And fundamentally, sooner or later, you just run out of places to put new wells.

The biggest problem I have with how the shale story is being sold is it is being used to justify a blind resumption of business-as-usual and I think we really need to be asking some deeper questions of ourselves because eventually even these plays will run out too.  I say we should have a distinct and well thought out plan for how we want to use the potential work those resources represent to build ourselves the finest country energy can supply.