Shale and its Discontents
The New York Times still doesn’t get the shale revolution.


Robert Bryce

Hinchey and two other Democratic members of the House, Coloradans Diane DeGette and Jared Polis, have called for the Securities and Exchange Commission to investigate the natural-gas sector based on the anonymous quotes in Urbina’s story.

Evidently, they put an inordinate faith in anonymous quotes from e-mails written in 2009 — that’s the Jurassic age when it comes to shale-drilling technology and shale hydrocarbon production. Over the past two years, the domestic drilling sector has pivoted from natural gas to oil production. The economics of much of today’s drilling in formations such as the Eagle Ford in Texas, the Bakken in North Dakota, and the Marcellus in Pennsylvania, depend on the value of the liquids being targeted, not the methane. What started as the shale-gas revolution is now rapidly becoming the shale-oil revolution.

The “sweet spots” in these mud formations are loaded with huge quantities of valuable propane, ethane, and other forms of liquefied petroleum gas. Thus, for many drillers, the profits to be had from a given well may be found in the liquids, while the natural gas is almost an afterthought.

A quick look at the rig count confirms this. About a year ago, the U.S. had about 1,570 rigs at work, and of those, nearly twice as many were targeting gas as were targeting oil. Today, the U.S. has nearly 1,900 rigs working, and a majority (1,006 rigs) are seeking oil while 874 are focused on gas.

The underlying premise of Urbina’s front-page story was this: Some natural-gas production from shale won’t be profitable. Thus, some companies have exaggerated their prospects, and the federal government should investigate them. That’s hardly news. Mining or drilling for natural resources always carries risk. Some drilling companies will lose huge amounts of capital by exploring in the shale. Some will go bust or be acquired. One of the companies Urbina mentioned, Chesapeake Energy, has been a dreadful performer in the stock market. Over the past five years, stockholders in the company have seen essentially zero return on their investment. (Over the same time period, the company’s CEO, Aubrey McClendon, has taken some $150 million in compensation.) But over that same time period, stockholders in another shale-focused company, Range Resources, have seen the value of their equity double.

That’s what happens in business: Some companies are more profitable than others. And yet the Times trumpeted Urbina’s thinly sourced, poorly researched story on the front page of its Sunday edition as though it were breaking a major investigative story.

Back in 1930, an itinerant preacher named Dad Joiner, by drilling a gusher in Rusk County, Texas, stumbled onto the largest oil field in the continental U.S., a field that has since produced more than 5.2 billion barrels of oil. The East Texas field assured America’s dominance in the energy business for the next 40 years. Today, the shale revolution is launching a similar, more widespread change, one that will move far beyond U.S. borders.

The shale revolution now underway is rapidly changing the global energy picture, and for the better. We are moving away from coal and toward natural gas. That’s good for a lot of reasons. And as the U.S. produces more gas from shale, drillers will also produce a lot more oil. Again, that’s good for a lot of reasons. We need cheap, abundant, dispatchable sources of power. And given the ongoing recession and high unemployment, the cheaper, the better.

The shale revolution will help keep American energy prices low for years to come and it will create thousands of jobs. Again, that’s great news. But you won’t read about it in the paper which claims to publish all the news that’s fit to print.

— Robert Bryce is a senior fellow at the Manhattan Institute. His fourth book, Power Hungry: The Myths of “Green” Energy and the Real Fuels of the Future (PublicAffairs), recently came out in paperback.