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Recent headlines in the US press about the coming economic boom heralded by the shale gas revolution would lead you to think we are literally swimming in oil. A spate of reports last year, in particular the International Energy Agency’s (IEA)
World Energy Outlook (WEO) in November 2012, forecast that the US will outstrip Saudi Arabia as the world’s largest oil producer by 2017, becoming, as Reuters put it, “all but self-sufficient in net terms” in energy production. According to the IEA, the projected increase in oil production from 84 mbpd (million barrels per day) in 2011 to 97 mbpd in 2035 will come “entirely from natural gas liquids and unconventional sources” – largely shale oil and gas – while conventional oil output will begin to fall from 2013.

These resources can only be mined at the cost of massive environmental pollution: their extraction involves hydraulic fracturing (“fracking”; pressurised injection of a mixture of water, sand and detergents to create new cracks in the rock to force out the gas), using the technique of horizontal drilling (1). But their exploitation in the US has brought about the creation of hundreds of thousands of jobs and offers the advantage of cheap and abundant energy. Exxon Mobil’s 2013 Energy Outlook says the shale gas revolution will make the US a net exporter by 2025. But is the shale revolution all it’s fracked up to be? The ongoing fragility of the global economy should give pause for thought. Spain’s once-flourishing economy – the Eurozone’s fourth largest in 2008 – is now in dire straits as its supposedly unstoppable property bubble burst unexpectedly that same year, with house prices dropping by a third. But policymakers have learnt few lessons from the 2008 crash, and may be on course to repeat similar mistakes in the petroleum sector.

A
New York Times investigation first unearthed major cracks in the “shale boom” narrative in June 2011, finding that state geologists, industry lawyers and market analysts “privately” questioned “whether companies are intentionally, and even illegally, overstating the productivity of their wells and the size of their reserves” (2). According to the paper, “the gas may not be as easy and cheap to extract from shale formations deep underground as the companies are saying, according to hundreds of industry e-mails and internal documents and an analysis of data from thousands of wells.”

In early 2012, two US energy consultants, writing in the flagship British energy industry journal
Petroleum Review, sounded the alarm. They noted a strong “basis for reasonable doubts about the reliability and durability of US shale gas reserves” which have been “inflated” under new Security and Exchange Commission (SEC) rules introduced in 2009 (3). The new rules allow gas companies to claim reserve sizes without any independent third party audit.