By Deborah Rogers
Chesapeake Energy’s response to the recent Rolling Stone article “The Big Fracking Bubble: The Scam Behind the Gas Boom” is disappointing at best. It is, unfortunately, replete with character assassinations that have become all too common in Chesapeake’s arsenal.
In addition, rather than addressing the issues brought up in the article with new and credible information, they chose to rely on outdated “facts” and hubristic commentary.
I apologize in advance for the length of this post but since Chesapeake claims that “we decided that providing the full transparency that the media and our critics so often demand from our industry…”, I feel it necessary to examine in detail such transparency.
Chesapeake states: “The reality of at least 100 years’ worth of shale gas abundance has been supported by virtually every credible third-party expert, such as the U.S. Energy Information Administration (EIA), the Colorado School of Mines’ Potential Gas Committee…”
Fact: The USGS drastically slashed its estimates for reserves in the Marcellus shale by 80%. EIA followed suit in January 2012, slashing its estimates 66%. EIA stated that the Marcellus would provide a mere 6 years worth of gas rather than the previously estimated 18 years. New estimates place total reserves at about 23 years rather than 100.
Chesapeake states: “The collective market cap of these energy leaders approaches $2 trillion – ask yourself: do I believe Rolling Stone and Arthur Berman or the world’s biggest and most successful energy companies?”
Fact: This is the most insipid logic. A herd mentality does not necessarily connote a good outcome. Further, companies like Enron didn’t get to be a success by making poor decisions but eventually they did and it brought them down.
Chesapeake states: “According to the U.S. Federal Reserve, natural gas prices, which are at a 10-year low this month, could save U.S. consumers almost $20 billion on home energy bills this year. Total savings to the U.S. economy from low natural gas prices compared to current natural gas prices in Europe and Asia, will likely exceed $250 billion in 2012 – that’s more than a $600 million daily stimulus to the U.S. economy!”
Fact: No one disputes that low gas prices are contributing significantly to the U.S. economy at present, but low gas prices are not a “gift” from Chesapeake Energy. Any attempt by Chesapeake to claim low gas prices was their mission is nothing more than blatant spin. Are we to truly believe that Chesapeake Energy worked diligently to reduce gas prices to 10 year lows, driving natural gas companies to the brink of bankruptcy, jeopardizing thousands of jobs in the natural gas industry purely out of the goodness of their hearts so that the American consumer could enjoy lower electricity bills? Quite to the contrary, in an analyst call Mr. McClendon referred to his goal of pricing parity with crude: “that is obviously the Holy Grail for our industry is to have gas achieve oil pricing parity in the US.” Oil pricing parity hardly equates to low gas prices.
The current demise of gas prices is due strictly to over-production which has thereby glutted the market. We would do well to ask why these operators continued to produce all the way down this slippery slope?
Chesapeake states: “This affordable energy supply is also projected to increase disposable income for each household in the U.S. by as much as $2,000 per year.”
Fact: This claim comes from the IHS report issued in December which was commissioned and paid for by industry. Further, by the report author’s own admission, this claim only holds true if gas prices remain low. As we hve seen, however, low gas prices are not the “holy grail” of Chesapeake Energy. The same holds true for Chesapeake’s claims of a “renaissance” in manufacturing jobs. These jobs are wholly dependent on gas prices remaing low for the long term. It is for this very reason that Dow Chemical has recently railed against shale gas exportation because such exportation will inevitably raise prices and jeopardize those domestic jobs. Shale gas exportation, however, fits nicely with Mr. McClendon’s “holy grail” thesis and he was the first to commit production for exportation.
Chesapeake states: “The reporter is referring to two papers produced by Cornell University Professors Robert Howarth and Anthony Ingraffea. Chesapeake shared numerous rebukes of the studies, including Carnegie Mellon University, the U.S. Department of Energy and one from a fellow Cornell Professor, Larry Cathles who concluded that the methane leakage rate promoted by the study was “unreasonably large and misleading.”
Fact: A recent study by the University of Colorado, Boulder and the National Oceanic and Atmospheric Administration gathered data in the field from natural gas operations in Colorado which upheld the Cornell team’s conclusions. In fact, the actual field data came in a bit higher than the estimates of the Cornell scientists. Even ANGA, which is funded by Mr. McClendon, admitted “the findings raise questions and warrant a closer examination by the scientific community”. It is curious that Chesapeake omits this from their statement.
Chesapeake states: “Rolling Stone refers to Deborah Rogers as a “former investment banker,” conveniently failing to mention that Ms. Rogers is also an active “steering committee member” of the Oil and Gas Accountability Project (OGAP), an activist group that considers natural gas to be a “filthy energy” source, and has vigorously worked in New York and Pennsylvania to institute bans on hydraulic fracturing.”
Fact: In former days Mr. McClendon referred to me as “some goat farmer from Ft. Worth”. It is nice to see that they have now acknowledged my financial background. Chesapeake, however, has “conveniently failed to mention” many of my other qualifications. That is, no doubt, because they are exceedingly “inconvenient” to mention. Further, I have had absolutely no engagement with anyone regarding “bans on hydraulic fracturing.” I simply give presentations on shale gas economics at universities, business venues and public forums. If this contributes to a ban on hydraulic fracturing then it will be because the numbers speak for themselves. And lastly, although I have never considered Chesapeake a good investment, I want to go on record stating that I hold no short positions in any natural gas stock.
Chesapeake states: “To compare this incident to the BP spill is both misleading and irresponsible. An independent report by SAIC concluded that: “Overall, few impacts were realized due to the release of fluids from the ATGAS well control incident. Those that did occur were localized, of short duration, and were confined to surface waters and shallow soils surrounding this site. There were no ecological impacts to Towanda Creek or the unnamed tributary; nor were any impacts noted to nearby or regional water wells or springs.”
Fact: A man named Louis Simpson serves on the board of both SAIC and Chesapeake Energy which calls into question the “independence” of this report. In an email dated October 17, 2011 Jim Gipson, Director of Media Relations for Chesapeake Energy stated, “The report was never characterized as independent”. Someone should perhaps bring Mr. Gipson up to date.
Chesapeake states: “In addition, Chesapeake and other operators voluntarily disclose hydraulic fracturing components to a publicly available chemical disclosure registry at fracfocus.org. The author was told this repeatedly while meeting with Chesapeake.
Fact: FracFocus’ website provides the following quotation: “The listing of a chemical as proprietary on the fracturing record is based on the “Trade Secret ‡” provisions related to Material Safety Data Sheets (MSDS) found on the above link at 1910.1200(i)(1).”
Once again, we are back to “trade secrets” rather than full disclosure.
In closing, Chesapeake concludes with these curious statements which according to Chesapeake “speak forcefully and clearly to the major energy issues and challenges facing our country”.
1. “…· “What about the billions of tons of agricultural chemicals that run off every day into streams and rivers? That’s real pollution that kills real fish, and degrades a real environment. What’s worse for Chesapeake Bay? Fertilizer runoff from poultry farms? Or fracking 200 miles away for which there is no evidence that one drop has ever gotten more than 100 yards away from a well site?”
Reality: I was surprised when I read this statement from Mr. McClendon because the fertilizers to which he is referring are artificial and made from “clean burning natural gas”. Perhaps the controversy surrounding the whole life cycle emissions of natural gas should be expanded to include the peripheral detrimental effects of natural gas products such as those to which Mr. McClendon refers. He is certainly correct in stating that this is “real pollution” that “degrades a real environment”.
2. “…If you believe in a world where the wind and the sun are going to produce all our power in the future, then we’ve disrupted that vision of the world. On the other hand, if you dream of a world where air is cleaner, where energy is half the price it was before and we’re not exporting a million dollars a minute to OPEC or having to go fight wars in Afghanistan and Iraq, then you should embrace natural gas”.
Reality: The European Union recently issued a report on shale gas which included a comparison of shale gas to solar energy utilizing the same amount of land, in this case 3 acres. The conclusion was that solar would provide more electricity than shale gas over the long term because shale wells play out so quickly. Further, solar power stations do not contribute to air toxics or potential aquifer ruination and can provide electricity into perpetuity with the simple replacement of equipment.
And lastly, the statement “and we’re not exporting a million dollars a minute to OPEC” is complete nonsense. Chesapeake Energy was the first to commit production for LNG exportation to China. So while we may not be exporting dollars, we will most decidedly be exporting our natural resources to grow Asian economies. This hardly justifies wrapping ourselves in a red, white and blue flag and proclaiming energy independence for all.