Commentary

Headed For Greener Pastures

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By Joyce Hale

Parting is always sweet sorrow, especially when the flow of money goes, too. The above-the-fold headline in the Sunday Arkansas Democrat Gazette announced, “National gas jobs no longer solid.”

For those who looked at the boom and bust happening in earlier developed Western states, this pattern repeated in Arkansas is no surprise. What is surprising is knowing this historic pattern cycles over and over again wherever mineral extraction occurs, yet greater permitting restraint is never considered to provide price stability and resource sustainability. Instead, a land rush mentality fueling greed is encouraged politically while overproduction allows for short-term windfalls and long-term woes.

Their departure should not be a surprise. Drilling rigs signaled the beginning of the exodus months ago and with them goes the good jobs of work crews. Left behind are workers of lesser skills and Main Street businesses that had heady plans for expansion when Arkansas’ shale gas was the darling of producers high on energy development. This is just the beginning as the industry tries to readjust its business plan.

“We shall return!” is the mantra projecting a hopeful face on the situation, but they will come again only when supply and demand drives the price up or when the infrastructure is in place to transport the gas and process it into LNG for lucrative foreign sales.

Arkansas produces a form of dry natural gas, which has fallen from favor due to excess availability and lower demand. High methane content gas is dryer than natural gas containing evaporated liquids like ethane, butane and pentane. When combined they are referred to as natural gas liquids and “wet” gas. Producers obligated with heavy debt service that cannot be met with low prices of dry gas have shifted to places rich in wet gas. One of the NGL constituents having much greater economic advantage is ethane. This feedstock for ethylene is used to make plastics.

Once the price of gas returns to profitability for producers, what will the Fayetteville Shale offer in its second act? Bill Powers, writer for “Financial Sense,” a publication cited by Barron’s as one of the top financial websites, wrote as early as May 2011, “The Fayetteville Shale peaks.” Powers goes on to provide an extensive analysis showing the Fayetteville Shale to be on a downhill run. Production has never met earlier projections and Estimated Ultimate Recovery is also questioned. What was considered to have as much as a 30-year production run now appears to have topped out in six.

How could estimates have been so far from reality? First, we know that producers start developing the “sweet spots” where concentrations of the gas are greatest. This is then the basis for implying the entire place will produce as generously. We are also learning that unconventional gas wells die off faster than conventional wells. To have claimed that the horizontal drilling would produce as long and as simple as vertical wells was unrealistic. And finally, Dr. W. John Lee, hired by the Security and Exchange Commission to evaluate reserves, declared that 20 percent of shale wells carry the play and
80 percent can easily be uneconomic.

What has been set in motion has created a full spectrum of support and opposition. While some will be lamenting reduced drilling activity, others will be grateful for a breather and the possibility of being better prepared on the day of the second coming.

REFERENCES:

• What Makes Gas Wet? (State Impact)

http://stateimpact.npr.org/pennsylvania/2012/01/26/what-makes-wet-gas-wet/

• Fayetteville Shale Peaks (Financial Sense)

http://www.financialsense.com/contributors/bill-powers/2011/05/02/the-fayetteville-shale-peaks

• Western Colorado Struggles as Energy Jobs Fade (New York Times)

http://www.nytimes.com/2012/06/29/us/energy-boom-turns-to-bust-in-colorado.html?_r=1&emc=eta1

• SEC Division of Corporate Finance Appoints Academic Engineering Fellow (Security and Exchange Commission Press Release)

http://www.sec.gov/news/press/2007/2007-211.htm

• FRACANOMICS Part 2 Deborah Rogers – Drilling for Dollars

http://www.youtube.com/watch?v=5SzO1UJuduw&feature=player_embedded or

http://unitedforaction.org/2012/05/07/frackonomics-pt-1-deborah-rogers/

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