The shale gas fairytale continues By John Dizard

There comes a moment towards the end of any financial bubble when even sceptics wonder if they are wrong, and trees really can grow to the sky. They see grey suited investors with the shining eyes of religious converts, gazing on the Revealed Word of sell-side PowerPoint presentations, and feel a little foolish.

That’s how I’ve felt recently about the shale gas mania, which is sweeping the world of sovereign wealth funds, private equity partners, and other people who attend international big-think conferences.

So I looked again at shale gas production reports, development costs, technical papers, and, yes, the PowerPoints. I went to Texas to meet producers, geologists, and landmen.

And I’m sticking with my position. Yes, shale gas is there, but it is expensive to produce, and there is much, much less of it available at today’s low prices than policy people, investors, and energy consumers are counting on. It is not a cheap and simple way to replace coal (in America), or Russian gas supplies (in Europe). I am, however, humbled in the presence of the marketing genius of the promoters who have convinced so many people to buy the story.
Because it is a story. The basic truth about shale is that it is much harder to extract the gas from those rocks than it is from the sandstones that are the source of most “conventional” gas. Gas production rates are dependent on porosity, or the gaps between rock particles, and permeability, or the ability of fluids to move through the rocks due to the connectedness of those gaps. You measure flows of fluid, or gas, through rock with a unit called the “darcy”. Even tight sandstones have gas flows measured in millidarcies, or thousandths of a darcy. Flows from gas-bearing shale, in contrast, are usually measured in microdarcies, or nanodarcies, which means it can be literally hundreds of times harder to get the stuff out.