Engdahl: Shale Energy is a Ponzi Scheme

Editor’s note: The opinions reported in this article are directly contradicted by the latest report from the U.S Energy Information Administration which was issued two days after this article was posted.

Econintersect:  A shocking charge has been leveled by American-German freelance journalist, historian and economic researcher F. William Engdahl.  He says the purported shale gas (and oil) revolution is a fraud because the costs exceed the output.  Engdahl maintains that the entire shale energy boom is new Ponzi scheme organized by the same Wall Street banks who created the mortgage securitization fraud that enabled the U.S. real estate bubble.  The scheme depends on high production volumes.  These are obtained initially but subside dramatically faster than for conventional wells, according to Engdahl.  Only a few insiders know this and are fleecing gullible investors, he says.

Engdahl indicates strong evidence of the fraud is provided by Chesapeake Energy (NYSE:CHK), the “premier shale gas exploiter“.   About Chesapeake he says:

Its stock shares fell from $80 in 2008 to just above $20. It’s selling shale assets to pay down debt and its debt is rated “junk.” As one industry analyst puts it, having America’s second largest natural gas producer almost completely walk away from the shale gas business is a great indication that today’s natural gas price bubble is on the verge of popping.

Engdahl says that the uneconomical extraction from shale by fracking can be even more expensive if ill-defined potential environmental damage occurs.  Here is what he says:

Why have we just now seen the boom in fracking shale rock to get gas and oil? Thank then-Vice president Dick Cheney and friends. The real reason for the recent explosion of fracking in the United States was passage of legislation in 2005 by the US Congress that exempted the oil industry’s hydraulic fracking, astonishing as it sounds, from any regulatory supervision by the US Environmental Protection Agency (EPA) under the Safe Drinking Water Act. The oil and gas industry is the only industry in America that is allowed by EPA to inject known hazardous materials – unchecked – directly into or adjacent to underground drinking water supplies.^[8]

The 2005 law is known as the “Halliburton Loophole.” That’s because it was introduced on massive lobbying pressure from the company that produces the lion’s share of chemical hydraulic fracking fluids – Dick Cheney’s old company, Halliburton. When he became Vice President under George W. Bush in early 2001, Cheney immediately got Presidential responsibility for a major Energy Task Force to make a comprehensive national energy strategy. Aside from looking at Iraq oil potentials as documents later revealed, the energy task force used Cheney’s considerable political muscle and industry lobbying money to win exemption from the Safe Drinking Water Act. ^[9]

During Cheney’s term as vice president he moved to make sure the Government’s Environmental Protection Agency (EPA) would give a green light to a major expansion of shale gas drilling in the US.

In 2004 the EPA issued a study of the environmental effects of fracking. That study has been called “scientifically unsound” by EPA whistleblower Weston Wilson. In March of 2005, EPA Inspector General Nikki Tinsley found enough evidence of potential mishandling of the EPA hydraulic fracturing study to justify a review of Wilson’s complaints. The Oil and Gas Accountability Project conducted a review of the EPA study which found that EPA removed information from earlier drafts that suggested unregulated fracturing poses a threat to human health, and that the Agency did not include information that suggests “fracturing fluids may pose a threat to drinking water long after drilling operations are completed.”^[10] Under political pressure the report was ignored. Fracking went full-speed ahead.

Engdahl cites a report by Arthur Berman, a veteran petroleum geologist specialized in well assessment.  Berman believes that current shalle gas production is in a bubble and will collapse withing a few years, if not within months.

In February Berman cautioned against following through on planned U.S. natural gas exports by the U.S. because of uncertainty about production going forward.

Energy sector analyst Bill Powers has a book being published next month (May 2013) “Cold, Hungry and in the Dark: Exploding the Natural Gas Supply Myth” which details the prospects for the shale gas boom.  Powers says the continuing boom is a myth and the U.S. has only about 5-7 year supply of shale gas remaining.

There is a big difference between a 100-year supply and 5-7 years.  Something like the difference between AAA-ratings and defaulting MBS (mortgage backed securities).  Uh-oh!  Didn’t they turn out to be the same thing?  (And they were not AAA).

John Lounsbury

Sources:

• The Fracked-up USA Shale Gas Bubble (Global Research, 13 March 2013)
  

• America’s shale energy revolution is another Ponzi fraud (RT, 21 March 2013)

• Lessons From Past Natural Gas Import Fiascos Suggest A Cautious Approach to Natural Gas Exports (Arthur Berman, Petroleum Truth Report, 16 February 2013)

• Shale Gas Bubble About to Burst: Art Berman, Bill Powers Steve Horn, Desmogblog.com, 21 November 2012)

• US Shale Gas Won’t Last Ten Years: Bill Powers (Peter Bryne, The Energy Report, 08 November 2012)
  

• F. William Engdahl (Wikopedia)

Hat tip to Russell Huntley.