Shale Gas Will be the Next Bubble to Pop - An Interview with Arthur Berman
by James Stafford
Friday, November 30, 2012
Note: Refer to RigZone for the original publication. The thoughts and comments contained herein do
not necessarily reflect those of the ALRDC Board, its members, and/or their member companies.
The "shale revolution" has been grabbing a great deal of headlines for some time now. A favorite
topic of investors, sector commentators and analysts – many of whom claim we are about to
enter a new energy era with cheap and abundant shale gas leading the charge. But on closer
examination the incredible claims and figures behind many of the plays just don't add up. To
help us to look past the hype and take a critical look at whether shale really is the golden goose
many believe it to be or just another over-hyped bubble that is about to pop, we were fortunate to
speak with energy expert Arthur Berman.
Arthur is a geological consultant with thirty-four years of experience in petroleum exploration
and production. He is currently consulting for several E&P companies and capital groups in the
energy sector. He frequently gives keynote addresses for investment conferences and is
interviewed about energy topics on television, radio, and national print and web publications
including CNBC, CNN, Platt's Energy Week, BNN, Bloomberg, Platt's, Financial Times, and
New York Times. You can find out more about Arthur by visiting his website:
http://petroleumtruthreport.blogspot.com/
In the interview Arthur talks about:
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Why shale gas will be the next bubble to pop
Why Japan can't afford to abandon nuclear power
Why the United States shouldn't turn its back on Canada's tar sands
Why renewables won't make a meaningful impact for many years
Why the shale boom will not have a big impact on foreign policy
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Why Romney and Obama know next to nothing about fossil fuel energy
Interview conducted by James Stafford of Oilprice.com
James Stafford: How do you see the shale boom impacting U.S. foreign policy?
Arthur Berman: Well, not very much is my simple answer. A lot of investors from other parts
of the world, particularly the oil-rich parts have been making somewhat high-risk investments in
the United States for many years and, for a long time, those investments were in real estate.
Now these people have shifted their focus and are putting cash into shale. There are two
important things going on here, one is that the capital isn't going to last forever, especially since
shale gas is a commercial failure. Shale gas has lost hundreds of billions of dollars and investors
will not keep on pumping money into something that doesn't generate a return.
The second thing that nobody thinks very much about is the decline rates shale reservoirs
experience. Well, I've looked at this. The decline rates are incredibly high. In the Eagleford
shale, which is supposed to be the mother of all shale oil plays, the annual decline rate is higher
than 42%.
They're going to have to drill hundreds, almost 1000 wells in the Eagleford shale, every year, to
keep production flat. Just for one play, we're talking about $10 or $12 billion a year just to
replace supply. I add all these things up and it starts to approach the amount of money needed to
bail out the banking industry. Where is that money going to come from? Do you see what I'm
saying?
James Stafford: You've been noted suggesting that shale gas will be the next bubble to collapse.
How do you think this will occur and what will the effects be?
Arthur Berman: Well, it depends, as with all collapses, on how quickly the collapse occurs. I
guess the worst-case scenario would be that several large companies find themselves in financial
distress.
Chesapeake Energy recently had a very close call. They had to sell, I don't know how many,
billions of dollars worth of assets just to maintain paying their obligations, and that's the kind of
scenario I'm talking about. You may have a couple of big bankruptcies or takeovers and
everybody pulls back, all the money evaporates, all the capital goes away. That's the worst-case
scenario.
James Stafford: Energy became a big part of the election race, but what did you make of the
energy policies and promises that were being made by both candidates?
Arthur Berman: Mitt Romney, particularly, talked about how the United States would be able
to achieve energy independence in five years. Well, that's garbage.
Anybody who knows anything about oil, gas and coal, knows that that's absurd. We were
producing a little over 6 million barrels a day thanks to an all-out effort in the shale oil play. We
consume 15 million barrels of oil a day and that leaves the gap of 9 million barrels per day. At
the peak of U.S. production, in 1970, the U.S. produced 10.6 million barrels per day. Like I said,
either the guy doesn't know what he's talking about, or is making a big joke of it.
Obama didn't talk so much . . . He's a hugely green agenda kind of president and I'm not opposed
to that, but he's certainly not for the oil and gas business. It wasn't until he got serious about
thinking about his re-election that he decided to take credit for what really happened.
James Stafford: Japan recently announced that they are going to be phasing out nuclear power.
What are your views on nuclear? Are we in a position to abandon this energy source?
Arthur Berman: No. Japan is a special case. The disaster at Fukushima, the nuclear reactor, was
right on top of a major fault. So, that was a dumb place to put it.
To wholesale abandon nuclear power because one reactor was incredibly stupidly planned, to me
seems like a bit of a . . . well, I can't tell people how they should react, but if I were a Japanese
citizen, and the truth was that we have no oil, we have no coal, we have no natural gas, the next
question is, "Well, if we get rid of nuclear, what are we going to do?"
It's a really good question to ask. If you don't have anything of your own, how are you going to
get what you need? The answer is that they have to import LNG and that's very expensive.
Right now, natural gas is selling in Japan for $17 per million BTUs. You can buy the same BTUs
in Europe for $9 today, or in the US for $3.25
James Stafford: What about Germany's decision to also phase out nuclear power?
Arthur Berman: For Germany to abandon nuclear… that decision is truly delusional because
they haven't had any problems over there. Nor is Germany particularly earthquake prone or
tsunami prone. They have forced themselves into a love relationship with Russia.
James Stafford: What are your views on Canada's tar sands? Are they a rich source of oil that
the U.S. needs to exploit? Or do you think they're a carbon bomb, which could do irreparable
damage to the climate?
Arthur Berman: Well, that's a very good question. I suppose they're both, as are virtually all
things that burn. Right? They're a very rich source of oil. And they're dirty. It requires a lot of
natural gas heating to convert them into some usable form, a lot of processing, but here's the
thing, if the United States doesn't buy that oil from Canada, do you think Canada's just going to
say, "Oh. Okay. Nevermind. We'll forget about all this."
No. They're going to sell it somewhere else. They'll probably sell it to Asia. So, the issue of the
carbon bomb doesn't get resolved by the United States not taking the oil.
So, to me, that's off the table. Yes. I think it's an incredibly sensible play to get your oil from a
neighbor, and a neighbor who you trust, and it doesn't require overseas transport and probably
getting involved in periodic revolutions and civil uprisings.
James Stafford: Is there any technology, any development you see coming in the future that can
help us get where we need to be? Is conservation really the only answer or do you have any
hopes for some of the alternative energy technologies, such as solar or, even, some of these more
advanced technologies such as Andrea Rossi's E-cat machine?
Arthur Berman: Oh. I have all the enthusiasm for technology that you could ask for. I'm a
scientist and I love technology but I heard a very good presentation several years ago on your
exact question and the man who gave a talk said, "I'm going to give you a rule to live by. If it's
not on the shelf today, then a solution is no sooner than ten years in the future." So, when you
talk about E-cat and you talk about algae and all this kind of stuff, it's not on the shelf today. So,
that means it's in some sort of pilot stage of testing.
Work harder guys. Work harder and faster because you've got a lot of work to do. So, yes, I'm
enthusiastic. I think there are some great ideas out there but I don't see any of them helping us in
the coming five to ten-year period.
James Stafford: Environmentalists talk about the evil of fossil fuels, but have they really done
their research to see how vital it is to pretty much everything that we base our modern lives
upon?
Arthur Berman: Well, that's exactly right. My oldest son and his family until recently lived in
California, and in California people think electricity comes from the wall. They don't have any
idea that most of their electricity comes from horrible coal-fired power plants in New Mexico
and Arizona. As long as they don't have to see it, they don't have a problem.
But, in this world, and in this life, we're all connected and if you see something you don't like,
there's a good possibility that whatever they're doing there has something to do with something
you're using. So, this is an issue.
The original article appears at: http://oilprice.com/Interviews/Shale-Gas-Will-be-the-NextBubble-to-Pop-An-Interview-with-Arthur-Berman.html