Is the energy industry full of hot air on shale gas well productivity estimates?

At the beginning of this month, Collins resident James H. Burnette sent a letter to New York State Comptroller Thomas DiNapoli, urging DiNapoli to use his authority as sole trustee of the state’s pension fund to shed all investments in companies that take part in or profit from the controversial natural gas drilling technique known as hydrofracking. In particular, Burnette urged DiNapoli to boycott National Fuel Gas:

As a non-drilling company, whose business is primarily throughput and end user distribution, National Fuel can claim that they do not directly support the process of hydrofracking.

Since the gas in question is produced in Pennsylvania, a state which wholeheartedly endorses fracking, I believe it to be somewhat disingenuous for National Fuel to claim no indirect support of this practice…

However, to date, I see no attempt by National Fuel at a true free market where we have a choice between fracked, non-fracked, or bio-gas generated by agricultural waste and manure digesters and turned into energy using bio-gas turbines. Instead, the ag community is asked to mortgage their futures by gambling with risky fracked-well lease agreements. I’m willing to pay a few bucks more to make a powerful statement as I do through my electrical service (which gives end users a choice of 100% wind generated electricity). THAT is free market enterprise.

Until the public is given this sort of choice, National Fuel is complicit in tipping the playing field heavily in favor of an industry which consistently denies any culpability in surface and ground water usurpation and contamination. (Therein lies your indirect public subsidy.)

As National Fuel’s long-term plans include stepped up involvement in Pennsylvania gas well hydrofracking, I fear that new infrastructure investment at the East Aurora compressor station will be used as a foot in the door to justify the wholesale fracking of western New York.

This practice goes after the lowest hanging fruit, and is a quick, dirty, and easy way to cut costs. Until National Fuel makes better business decisions, with the double bottom line which also includes good corporate citizenship, I ask that the NYS Comptrollers Office suggest divestment of state workers’ retirement funds from myopic, irresponsible “gold rush” industries.

On Friday, DiNapoli’s office issued a reply, which essentially pleaded impotence: As trustee, DiNapoli is obligated to ensure that the fund earns at least a market rate of return: “As such, maintaining diversified investments in energy and other companies that have historically produced attractive rates of return for the Fund is not discretionary—it is an obligation.” Deputy Comptroller Thomas Nitido goes on to list the ways in which DiNapoli has worked to protect New Yorkers from the environmental hazards of hydrofracking:

In 2010 and 2011 he worked with other institutional investors to sponsor and support a shareholder initiative to press oil and gas companies to identify and address environmental hazards that result from hydraulic fracturing and related activities. In addition, the Comptroller was able to persuade some of these companies to adopt significant improvements in their risk management practices, including: well-by-well disclosure of fracking chemicals; recycling fracking waste water to eliminate hazards related to disposal and to limit impacts related to water withdrawals; use of less toxic additives in the fracturing process; control of air emissions; and sound practices to lower the danger of accidental releases of fracking chemicals…

…Comptroller DiNapoli has proposed legislation to create the Natural Gas Damage Recovery Fund that would provide relief to parties damaged by pollution resulting from natural gas production and make the culpable parties strictly liable for the costs of cleanup and damages…

…in 2008, the Comptroller created a dedicated investment program to invest in clean technologies. The pension fund portfolio includes investments in wind farms, programs to finance energy efficiency retrofits in residential and commercial structures, and solar energy installations, as well as companies that are pursuing advances in energy efficiency and renewable energy technology.

Meantime, New York State Attorney General Eric Schneiderman has resisted demands that he drop his lawsuit against federal agencies, in which he alleges that those agencies are attempting to institute regulations that would permit hydrofracking in the Delaware River Basin without adequate environmental review. Last week, as part of a separate but related investigation, Schneiderman issued subpoenas to three companies: Range Resources, Cabot Oil and Gas, and Goodrich Petroleum. The attorney general believes that these and other companies have peddled inflated estimates of the productivity and profitability of shale gas wells. (Schneiderman is also investigating Chesapeake Energy.) In June, Ian Urbina of the New York Times disclosed hundreds of emails from industry insiders—lawyers, geologists, market analysts, executives—suggesting that companies have intentionally overstated the productivity of their wells and the size of their reserves. “Reminds you of the dot-coms,” an analyst for PNC Wealth Management wrote. Another called it “a Ponzi scheme,” while another said that natural gas companies “are having an Enron moment. They want to bend light to hide the truth.”

That deception continues. On Wednesday, Buffalo Business First published an article title “Marcellus Shale deeper in natural gas resources,” which reports that researchers had found more natural gas in the Marcellus Shale than they’d predicted earlier:

The area [of study] covers eight states, including New York, and contains about 84 trillion cubic feet of undiscovered, technically recoverable natural gas and 3.4 billion barrels of undiscovered, technically recoverable natural gas liquids. The other states measured are Kentucky, Maryland, Ohio, Pennsylvania, Tennessee, Virginia, and West Virginia.

That number, 84 trillion cubic feet, is indeed an increase from the two trillion cubic feet estimated by the US Geological Survey in 2002—but the latter is a number no one has used in years. The number that industry representatives and pro-fracking politicians and lobbyists have used in recent years is 410 trillion cubic feet, based on an estimate by the US Department of Energy. Earlier this year, DOE even doubled that rosy estimate.

The USGS’s expertise trumps DOE, so in fact the estimated volume of retrievable gas has decreased dramatically. This would seem to reinforce Schneiderman’s thesis: The productivity of shale gas wells has been grossly and perhaps intentionally overblown.