Lessons From Past Natural Gas Import Fiascos Suggest A Cautious Approach to Natural Gas Exports

The U.S. should take a cautious approach to exporting natural gas.

That’s the clear lesson of three decades of bad guesses by analysts about natural gas prices and supplies. If pro-export advocates are wrong this time, consumers and businesses will be the ones who suffer from higher domestic gas prices.

Several recent studies concluded that domestic price increases from exports would be small. This conclusion, however, is based on unrealistic assumptions about the size of U.S. gas supplies and the true cost of producing shale gas.

In fact, supplies are likely substantially smaller than predicted, while costs are higher.

History should provide ample reasons for the U.S. to look before it leaps into large-scale exports. Two cycles of investment fiasco involving natural gas imports to the U.S. have occurred in the past 30 years, first in the 1970s, and again just a few years ago, when more than 47 applications for natural gas import terminals were pending at one point.

Both of these were due to incorrect predictions about domestic supply. The supply models that past gas import decisions were based on had widespread support by experts. But they were wrong.

The lesson: gas supply estimates are much more uncertain than experts and conventional wisdom assumes.

Now, a new supply model has replaced the previous one and analysts again agree upon natural gas abundance at low prices for decades to come. Our analysis - which we plan to publish on in coming days - suggests that they are wrong again.

We do not dispute that the shale gas resource is large; we question the near- to medium-term supply, the amount of shale gas that is available on demand. The number of gas-directed drilling rigs has plummeted in the past year because of low price and we fear that demand may exceed supply unless this trend is reversed.

All oil and gas wells display production decline rates over time. The decline rate is simply the change in flow over time. Shale gas wells have especially high decline rates, meaning U.S. supplies are likely shorter-lived than many are predicting. For example, conventional gas wells decline at annual rates of about 20% per year but the production from shale gas wells declines at rates of at least 33% per year and often higher.

Furthermore, the cost of production is likely more than the prevailing market price based on company filings to the government.

Thousands of wells that have been drilled have not been turned on yet. As these wells come on line, supply rates will be maintained at high levels despite decreased drilling for a while. When this excess capacity is reduced over the next year or so, U.S. supply will decrease unless gas drilling resumes and this will not happen until prices rise.

Production from shale is a new phenomenon and prediction about future well performance is speculative. Recent studies, however, by the U.S. Geological Survey, the University of Texas, Louisiana State University and other industry groups show that commercially recoverable per-well shale gas reserves may be considerably smaller than some believe.

Despite assumptions that gas prices will remain low, ExxonMobil Chief Executive Rex Tillerson says that his company is making "no money" on U.S. natural gas due to low prices that have fallen well below the cost of production.

“We are losing our shirts,” Mr. Tillerson told MarketWatch last June.

In recent weeks, a coalition of gas users that include Dow Chemical Company warned that gas exports would increase domestic prices and that in turn would cause a loss of competitive advantage for U.S. business. They are correct.

Energy from domestic gas is a strategic natural resource and, therefore, should be given special attention before approving its export. Just because we have abundant natural gas, why should we race to use it up as fast as we can?

We recommend allowing spot cargo exports on a trial basis for two years. This pilot project should not contractually bind export volumes of more than 3.0 billion cubic feet per day, approximately 4% of daily U.S. consumption. In two years, we should have a much clearer understanding of the capacity of shale gas to support internal supply.

Past ExxonMobil CEO Lee Raymond cautioned last year, “There is going to be a big debate in the U.S. as to whether or not they’re going to permit the export of liquefied natural gas. Even if you get past the politics, you have to test whether or not the resource base is sufficient.”

We agree. Approving long-term export contracts before confirming the true size of U.S. natural gas supplies would be reckless. Policymakers should take the time to get it right, so the rest of the country does not pay the price for another cycle of bad guesses about the natural gas market.

Arthur E. Berman, Petroleum Geologist
J. Michael Bodell, Oil and Gas Price Stucture Specialist and Petroleum Geologist
Henry Groppe, Chemical Engineer and Founder, Groppe, Long and Littell, Oil and Gas Supply Demand and Price Analysts.
Rune Likvern, Natural Gas and Oil Supply and Demand and Systems Analyst and Economist
Tadeusz Patzek, Petroleum Engineer and Chairman of the Department of Petroleum &
Geosystems Engineering at The University of Texas at Austin
Lyndon F. Pittinger, Petroleum Engineer

Industry Experts Know Less Than College Professors and Journalists About Shale Gas Economics

A recent article by Ken Maize in Power mistakenly assumes that university professors who have never worked in the oil and gas industry know more about evaluating oil and natural gas well economics than industry professionals who have spent their careers doing this work.

In "Is Shale Gas Shallow or the Real Deal?", Maize cites Dr. Terry Engelder's opinions about shale gas versus ours.  Terry is a friend and colleague who I respect and sometimes participate with in panel discussions about shale gas.  He is a late adopter of oil and gas reserve forecasting after a career in structural geology.

Maize confuses Terry's work on resource assessment with our work on reserve forecasting because he is a journalist and doesn't understand this important distinction.

Resources are the total volume of oil and gas regardless of cost, while reserves are the small fraction of resources that can be produced commercially.

The debate is simple.  Are shale gas wells commercial failures or not?

Rex Tillerson, the CEO of ExxonMobil, stated about shale gas, "We are all losing our shirts today." Mr. Tillerson said in a talk before the Council on Foreign Relations in New York. "We're making no money. It's all in the red."

Independent evaluations of shale gas plays by the United States Geological Survey, the Bureau of Economic Geology (University of Texas at Austin), and the Louisiana State University Center for Energy Studies all corroborate our well reserve estimates for shale gas wells.

There is no debate.  Maize's article is contrived and Engelder is wrong.

The Big Deal About U.S. Energy Self-Sufficiency

Mark J. Perry caused a minor sensation on October 22, 2012 when he posted a blog about record-breaking fossil fuel production in the United States. Perry is an economics professor at the University of Michigan at Flint and a visiting scholar at the American Enterprise Institute. His blog is titled as an economics and finance website but a great deal of content is about energy.

In "U.S. fossil fuel production will reach all-time high this year; America’s energy self-sufficiency will be highest since 1990" (http://www.aei-ideas.org/channel/carpe-diem/page/2/), Perry shows a stunning graph of U.S. fossil fuel production (coal, natural gas and crude oil) from 1975 to 2012 (Exhibit 1).

Exhibit 1. U.S Fossil Fuel Production.  Source:  Mark Perry.

I was able to reproduce his graph using EIA data but I had to include natural gas plant liquids to make it match. When I plotted this data on a more conventional y-axis scale, the enormity of the anomaly shrinks to what it really is, namely an increase in overall fossil fuel production within a narrow range of fluctuation over three-and-a-half decades (Exhibit 2).

Exhibit 2. U.S Energy Production From Fossil Fuel Sources. Source: EIA.

2011 fossil fuel energy production was 1.3 quadrillion British thermal units (Quads) higher than the previous peak in 1998 with 60.6 Quad in 2011 and 59.3 Quad in 1998. The EIA reports comparative energy production in Quads to normalize the various measures of its components: cubic feet for gas, barrels for crude oil and natural gas liquids (NGL), and short tons for coal. A Quad is a measure of the heat content of those energy sources when burned. Exhibit 3 shows how this conversion is made.

Exhibit 3. Quad conversion Table. Source: EIA.

One Quad is approximately equal to 1 trillion cubic feet of gas, 180 million barrels of oil, 120 million barrels of NGL (about 65% of the thermal content of crude oil), and 36 million short tons of coal.

Exhibit 4 shows the various components of total fossil fuel energy at a scale appropriate to understanding which sources increased and decreased over the period of the graph.

Exhibit 4. U.S Energy Production From Component Fossil Fuel Sources. Source: EIA.

Comparing 1998 with 2011 production, coal decreased by about 184,000 tons per day, natural gas increased a whopping 11 billion cubic feet per day (bcf), crude oil decreased almost 605,000 barrels per day and NGLs increased approximately 160,000 barrels per day (Exhibit 5).

Exhibit 5. 2011 vs 1998 Fossil Fuel Component Comparison Table. Source: EIA.

Dr. Perry celebrates the success of the shale revolution in his blog calling it "a big deal." He points out that the U.S. is closer to energy self-sufficiency than at any other time in the past 22 years. But the problem for the U.S. is not total energy. We have always had an abundant endowment of coal and natural gas. The problem is liquid fuel for transport and that comes from crude oil. The shale revolution in oil that he describes is notable and important but it only returns production to 2003 levels which were lower than at any time after 1951.

There is nothing untrue in Perry's blog but it, unfortunately, contributes to the distorted viewpoint that the U.S. will soon become energy independent and will no longer need to import foreign oil. The U.S. has used more oil than it produces since records were kept in 1920 but became a true net oil importing country after World War II (Exhibit 6).

Exhibit 6. US Crude Oil Production and Consumption Since 1920. Source: EIA.

After production peaked in 1970, not even the discovery of Prudhoe Bay, the largest oil field in the U.S. (12.8 billion barrels produced to date), brought production back to the 1970 peak. Including the recent increase from shale oil, the gap between production and consumption is approximately 9 million barrels of oil per day, almost as much as 1970 peak production.

I am encouraged by the slight reversal in U.S. oil production but see no way that we will become oil independent. The star performer in total fossil fuel production is natural gas. While it is true that gas offers the possibility of replacing crude oil refined products as a transport fuel, this will be decades in the future (massive equipment changes and distribution infrastructure) and does not address the near- to medium-term problem of oil imports. Curiously, nowhere in his blog about economics and finance does Perry discuss the cost and profitability of shale gas or shale oil. Rather than write so much about energy, a subject outside of his training and experience, it would be useful if he wrote about the economics of the shale developments that he is so exuberant about. That would be a big deal.

Testing the Davy Jones Well

I heard from a reliable source that McMoRan plans to test its ultra-deep Davy Jones 1 well soon after Labor Day.

Arthur Berman Publications

Arthur E. Berman Publications

1. Berman, A. E., 2012, U.S. Shale Gas: A Different Perspective on Future Supply and Price: Bulletin of the South Texas Geological Society (February, 2012) v. 52, no. 6, p. 19-44.

2. Berman, A. E., 2011, After The Gold Rush: A Perspective on Future U.S. Natural Gas Supply and Price: The Oil Drum : http://www.theoildrum.com/node/8212.

3. Berman, A. E. and L. F. Pittinger, 2011, U.S. Shale Gas: Less Abundance, Higher Cost: The Oil Drum (August 5, 2011), http://www.theoildrum.com/node/8212.

4. Berman, A. E., 2010, EIA Annual Energy Outlook 2011: Don’t Worry, Be Happy: The Oil Drum December 29, 2010: http://www.theoildrum.com/node/7285.

5. Berman, A. E., 2010, Shale Gas—Abundance or Mirage? Why The Marcellus Shale Will Disappoint Expectations: The Oil Drum October 29, 2010: http://www.theoildrum.com/node/7075#more.

6. Berman, A. E., 2010, BP's Deepwater Horizon - Static Top Kill vs. Bottom Kill: Weighing the Risks: The Oil Drum July 30, 2010: http://www.theoildrum.com/node/6790.

7. Berman, A. E., 2010, Estimated Oil Flow Rates From the BP Mississippi Canyon Block 252 “Macondo” Well: The Oil Drum June 29, 2010: http://www.theoildrum.com/node/6644.

8. Berman, A. E., 2010, What caused the Deepwater Horizon Disaster?: The Oil Drum May 21, 2010: http://www.theoildrum.com/node/6493#more

9. Berman, A. E., 2010, ExxonMobil’s Acquisition of XTO Energy: The Fallacy of the Manufacturing Model in Shale Plays: The Oil Drum: http://www.theoildrum.com/node/6229

10. Berman, A. E., 2010, McMoRan Davy Jones Gas Discovery: The Oil Drum: http://www.theoildrum.com/node/6135#more

11. Berman, A.E., 2009, Facts are Stubborn Things: Association for the Study of Peak Oil: http://www.aspousa.org/index.php/2009/11/facts-are-stubborn-things-arthur-e-berman-november-2009/

12. Berman, A. E., 2009, A Haynesville Shale symposium: World Oil, v. 230, no.10, p. 15.

13. Berman, A. E., 2009, Exploration Discoveries: World Oil, v. 230, no. 10, p. 17.

14. Berman, A. E., 2009, Realities of shale play reserves: examples from the Fayetteville Shale: World Oil, v. 230, no.9, p. 17.

15. Berman, A. E., 2009, Exploration Discoveries: World Oil, v. 230, no. 9, p. 17.

16. Berman, A. E., 2009, Lessons from the Barnett Shale imply caution in other shale plays: World Oil, v. 230, no. 8, p. 17.

17. Berman, A. E., 2009, Exploration Discoveries: World Oil, v. 230, no. 8, p 19.

18. Berman, A. E., 2009, Mozambique heats up: World Oil, v. 230, no.7, p. 17.

19. Berman, A. E., 2009, Exploration Discoveries: World Oil, v. 230, no. 7, p. 19.

20. Berman, A. E., 2009, A long recovery for gas prices: revisiting the Haynesville Shale: World Oil, v. 230, no. 6, p. 15.

21. Berman, A. E., 2009, Exploration Discoveries: World Oil, v. 230, no. 6, p. 17.

22. Berman, A. E., 2009, Papua New Guinea emerging as a natural gas province: World Oil, v. 230, no.5, p. 15.

23. Berman, A. E., 2009, Haynesville sizzle could fizzle: World Oil, v. 230, no.4, p. 19.

24. Berman, A. E., 2009, Independents discover major oil reserves in Uganda: World Oil, v. 230, no.3, p. 15-70.

25. Berman, A. E., 2009, Independents discover major oil reserves in Uganda: World Oil, v. 230, no.3, p. 15-70.

26. Berman, A. E., 2009, Exploration Discoveries: World Oil, v. 230, no. 3, p. 17.

27. Berman, A. E., 2009, Low oil prices and the future of exploration—en aguas revueltas: World Oil, v. 230, no.2, p. 21.

28. Berman, A. E., 2009, Exploration Discoveries: World Oil, v. 230, no. 2, p. 23.

29. Berman, A. E., 2009, Shale Plays and Lower Natural Gas Prices: A Time for Critical Thinking: World Oil, v.230, no. 1, p. 15.

30. Berman, A. E., 2009, Exploration Discoveries: World Oil, v. 230, no. 1, p. 17.

31. Berman, A. E., 2008, Oil and politics in Sudan: World Oil, v. 229, no.12, p. 15.

32. Berman, A. E., 2008, Exploration Discoveries: World Oil, v. 229, no. 12, p. 17.

33. Berman, A. E., 2008, 50 Years of Exploration in the Tarim Basin, v. 229, no. 11, p. 21.

34. Berman, A. E., 2008, Exploration Discoveries: World Oil, v. 229, no. 11, p. 23.

35. Berman, A. E., 2008, Geology matters in the Austin Chalk play, v. 229, no. 10, p. 21.

36. Berman, A. E., 2008, Exploration Discoveries: World Oil, v. 229, no. 10, p. 23.

37. Berman, A. E., 2008, The Haynesville Shale sizzles while the Barnett cools, v. 229, no. 9, p. 23.

38. Berman, A. E., 2008, Exploration Discoveries: World Oil, v. 229, no. 9, p. 25.

39. Berman, A. E., 2008, The High Price of Oil: World Oil, v. 229, no. 8, p. 23.

40. Berman, A. E., 2008, Exploration Discoveries: World Oil, v. 229, no. 8, p. 25.

41. Berman, A. E., 2008, Re-examining peak oil: An interview with Nansen G. Saleri: World Oil, v. 229, no. 7, p. 25.

42. Berman, A. E., 2008, Exploration Discoveries: World Oil, v. 229, no. 7, p. 27.

43. Berman, A. E., 2008, The limits of global gas supply: World Oil, v. 229, no. 6, p. 23.

44. Berman, A. E., 2008, Exploration Discoveries: World Oil, v. 229, no. 6, p. 25.

45. Berman, A. E., 2008, Another Discovery in Belize: World Oil, v. 229, no. 5, p. 23-24.

46. Berman, A. E., 2008, Exploration Discoveries: World Oil, v. 229, no. 5, p. 27.

47. Berman, A. E., 2008, Winners Curse: The end of exploration for ExxonMobil: World Oil, v. 229, no. 4, p. 23-24.

48. Berman, A. E., 2008, Exploration Discoveries: World Oil, v. 229, no. 4, p. 25.

49. Berman, A. E., 2008, NAPE exhibitors miss the mark: World Oil, v. 229, no. 3, p. 23.

50. Berman, A. E., 2008, Exploration Discoveries: World Oil, v. 229, no. 3, p. 25.

51. Berman, A. E., 2008, Three Super-giant fields discovered offshore Brazil: World Oil, v. 229, no. 2, p. 23-24.

52. Berman, A. E., 2008, Exploration Discoveries: World Oil, v. 229, no. 2, p. 27.

53. Berman, A. E., 2008, The paradigm and the anomaly: World Oil, v. 229, no. 1, p. 20.

54. Berman, A. E., 2008, Exploration Discoveries: World Oil, v. 229, no. 1, p. 21.

55. Berman, A. E., 2007, Peaking in Tongues: World Oil, v. 228, no. 12, p. 20.

56. Berman, A. E., 2007, Exploration Discoveries: World Oil, v. 228, no. 12, p. 25.

57. Berman, A. E., 2007, Revisiting the Barnett Shale: World Oil, v. 228, no. 11, p. 20.

58. Berman, A. E., 2007, Exploration Discoveries: World Oil, v. 228, no. 11, p. 21.

59. Berman, A. E., 2007, Readers respond to the Fayetteville Shale: World Oil, v. 228, no. 10, p. 20.

60. Berman, A. E., 2007, Exploration Discoveries: World Oil, v. 228, no. 10, p. 21.

61. Berman, A. E. and J. H. Rosenfeld, 2007, Deep-water Gulf of Mexico Wilcox play: a new paradigm for the Gulf Coast Paleogene: Petroleum Frontiers, v. 21, no. 1, IHS, Inc., 54p.

62. Berman, A. E., 2007, Will LNG imports hurt US natural gas exploration?: World Oil, v. 228, no. 9, p. 20.

63. Berman, A. E., 2007, Exploration Discoveries: World Oil, v. 228, no. 9, p. 19.

64. Berman, A. E., 2007, The Fayetteville Shale play: An early evaluation: World Oil, v. 228, no. 8, p. 20.

65. Berman, A. E., 2007, Exploration Discoveries: World Oil, v. 228, no. 8, p. 25.

66. Berman, A. E., 2007, Giant Nanpu field discovery: A lesson in reserve calculation: World Oil, v. 228, no. 7, p. 19.

67. Berman, A. E., 2007, Exploration Discoveries: World Oil, v. 228, no. 7, p. 21.

68. Berman, A. E., 2007, The impending natural gas supply crisis: Why prices will rise: World Oil, v. 228, no. 6 (June 2007), p.21.

69. Berman, A. E. and J. H. Rosenfeld, 2007, A new depositional model for the deepwater Wilcox-equivalent Whopper Sand—changing the paradigm: World Oil, v. 228, no. 6 (June 2007), p.77-82.

70. Berman, A. E., 2007, The end of exploration: World Oil, v. 228, no. 5 (May 2007), p.21.

71. Berman, A. E., 2007, Plank road fever and the Barnett Shale: World Oil, v. 228, no. 4 (April 2007), p.23-24.

72. Berman, A. E., 2007, Deepwater Wilcox play in the Gulf of Mexico: Paradigm lost: World Oil, v. 228, no. 3 (March 2007), p.19.

73. Berman, A. E., 2005, The Great Sumatra-Andaman Earthquake of December 26, 2004: New Insights That Will Change the Next 40 Years and the Plate Tectonic Paradigm: Houston Geological Society Bulletin, v. 48, no. 4, p. 31-41.

74. Berman, A. E., 2005, The Debate Over Subsidence in Louisiana and Texas: Houston Geological Society Bulletin, v. 48, no. 1, p. 47-54

75. Berman, A. E., 2005, Ideas Are Like Stars: The Current Oil Boom: Houston Geological Society Bulletin, v. 47, no. 10, p. 9-23.

76. Berman, A. E., 2005, The Oil Boom, 1973-1986: A Simple Story? Houston Geological Society Bulletin, v. 47, no. 9, p. 9-21.

77. Berman, A. E., 2005, An Interview with Joel Bartsch, President of the HMNS: Gold, Re-opening of the Weiss Energy Hall and Hall of Gems and Minerals, and Distinguished Lectures on Earthquakes and Tsunamis: Houston Geological Society Bulletin, v. 47, no. 9, p. 53-55.

78. Berman, A. E., 2005, Letters from Jakarta: Indian Ocean Nations Select a Tsunami Warning System: Houston Geological Society Bulletin, v. 47, no. 8, p. 9-19.

79. Berman, A. E., 2005, An Interview with Jim Hackett, Anadarko Petroleum CEO, January 7, 2005: Houston Geological Society Bulletin, v. 47, no. 7, p. 25-36.

80. Berman, A. E., 2005, The Northern Sumatra Earthquake of 2004:Forty Years of Ignoring Plate Tectonics: Houston Geological Society Bulletin, v. 47, no. 6, p. 9-19.

81. Berman, A. E., 2005, Anatomy of a Silent Disaster: Ongoing Subsidence and Inundation of the Northern Margin of the Gulf of Mexico: Houston Geological Society Bulletin, v. 47, no. 6, p. 31-47.

82. Berman, A. E., 2004, Technology in the Post-Modern Age: A Conversation with John Lienhard: Houston Geological Society Bulletin, v. 47, no. 5, p. 9-17.

83. Berman, A. E., 2004, New ideas and their diffusion: Houston Geological Society Bulletin, v. 47, no. 4, p. 9-17.

84. Berman, A. E., 2004: Election issues in the context of petroleum and history part 2. United States Energy Dependence: Houston Geological Society Bulletin, v. 47, no. 3, p. 9-13

85. Berman, A. E., 2004: Election issues in the context of petroleum and history: Houston Geological Society Bulletin, v. 47, no. 2, p. 9-13.

86. Berman, A. E., 2004: A lesson about predictions: Houston Geological Society Bulletin, v. 47, no. 1, p. 9-11.

87. Berman, A. E., 2004: The war on terror and strategic oil supplies: Rigzone, June 11, 2004.

88. Berman, A. E., 2004: Proven reserve reductions: a geologist’s perspective—Is certification necessary?: Houston Geological Society Bulletin, v. 46, no. 10, p. 67-73.

89. Berman, A. E., 2004: Oil and gas proven reserve reductions: a geologist’s perspective: Houston Geological Society Bulletin, v. 46, no. 9, p. 55-60.

90. Berman, A. E., 2004: Pemex makes gas discoveries in the Sabinas basin: Rigzone, March 4, 2004.

91. Berman, A. E., 2004: Academic Liaison Committee adds resources and goes on the HGS Website: Houston Geological Society Bulletin, v. 46, no. 7, p. 31-39.

92. Berman, A. E., 2004: The HGS Website: a closer look: Houston Geological Society Bulletin, v. 46, no. 5, p. 37-51.

93. Berman, A. E., 2004: The Bureau of Economic Geology—an interview with Director Scott Tinker and staff and a new Houston research center: Houston Geological Society Bulletin, v. 46, no. 6, p. 37-45.

94. Berman, A.E. and V. Schmidt, 2003, Africa: New Plays, New Perspectives: Houston Geological Society Bulletin, v. 46, no. 3, p. 37-45

95. Berman, A. E., 2003: Eyes on planet Earth: monitoring our changing world: Houston Geological Society Bulletin, v. 46, no. 4, p. 23-28.

96. Haldar, J. K., C. J. O’Byrne, A. E. Berman, and J. Gamber, 1999, Dynamic Response of Deepwater Depositional Systems to Growth of the Mississippi Fan Fold Belt, Gulf of Mexico (abstract): in W. C. Terrell and L. Czerniakowski, eds., Transactions Gulf Coast Association of Geological Societies, vol. 49, p. 2.

97. O’Byrne, C. J., J. K. Haldar, R. Klecker, A. E. Berman, and J. Martinez, 1999, Dynamic Response of Deepwater Depositional Systems to Growth of the Mississippi Fan Fold Belt, Gulf of Mexico: in W..C. Terrell and L. Czerniakowski, eds., Transactions Gulf Coast Association of Geological Societies, vol. 49, p. 404-417.

Berman On CBS Evening News With Scott Pelley

CBS anchor Scott Pelley did a story on Chesapeake Energy's meltdown Friday, May 12, 2012. I had a brief appearance commenting on the slow train wreck of the shale gas producers as they consciously destroyed their own product price by over production.

Berman To McClendon: Some Support From An Unexpected Source

This has been a tough period for Chesapeake Energy and Aubrey McClendon with his loans and losses on drilling investments. Despite these issues, I give him and his company credit for vision and leadership in the shale revolution.

He once described me as "a third-tier geologist who considers himself a reservoir engineer, that somehow [knows] more about the shale gas revolution in America than companies that have combined market caps of almost $2 trillion and have spent hundreds of billions of dollars to develop these new resources, I mean, it's ludicrous."

Nice.

The logic is that corporations that spend billions of dollars of shareholder money are inherently more knowledgeable and credible than industry professionals who have published dozens of technical papers on the questionable reserves and economics of shale gas.

What the revelations about McClendon's losses really mean is that what we have been saying for years is true: shale gas is an economic loser.

Still, McClendon has shown singular direction and foresight in an exploration and production industry commonly characterized by the herd mentality of late adopters.