Forbes: The Popping of the Shale Gas Bubble

[FBaggins]

1. It's worth noting how far wrong he has been to date.

By now I am sure you are saying to yourself, ‘Who is this guy?’ He certainly does not know what he is talking about...

One could certainly be forgiven for saying that... since that's where the evidence points.

Peak Production in Haynesville
by Bill Powers
Editor, Powers Energy Investor
June 22, 2010

In my December 1, 2009 issue I identified the Haynesville shale in Louisiana and Texas as one of the few areas in North America likely to grow natural gas production over the following 19 months. While the Haynesville may continue to grow from its current level of production of approximately 1.80 billion cubic feet per day (bcf/d) (this figure is the estimated combined production from the Haynesville in both Louisiana and Texas), it now appears that production growth from the play has stalled. While still a very large field by nearly every metric, to many of the vocal proponents of shale gas, the Haynesville has become a major disappointment. Some early estimates for production from the field were well north of 6 bcf/d. The peaking of production from the Haynesville shale has significant implications for North American natural gas supplies and will soon be recognized as a contributing factor to the end of shale gas production growth in the U.S.

...snip...

Based on the independent research I have done, I fully agree with Ben Dell of BernsteinResearch, one of the most vocal critics of the hype surrounding shale plays, who believes that operational results from the Haynesville have now peaked and are set to decline. Here is a quote from a recent research piece he put out:
http://www.financialsensearchive.com/editorials/powers/2010/0622.html

His claim was "Haynesville production is unlikely to grow materially from today’s level"... back when it was only producing 1.8 bcf/d. Haynesville actually peaked at closer to 10Bcf/d two years ago and still produces more than the 6 Bcf/d he claimed would never happen.

Then there's this from the same time period:

Stage Set for Ferocious Rally in Natural Gas

Due to a misunderstanding of the changing North American natural gas supply/demand balance, most investors and many on Wall Street believe natural gas prices will continue to wallow near current levels for much of the next two years. Conventional wisdom will shortly be proven wrong once again. In fact, the improving fundamentals of the North American natural gas market have set the stage for a ferocious rally in natural gas over the next 18 months. Investors who can look beyond today’s gloomy outlook stand to profit handsomely from the UNG and long term options on the UNG as natural gas prices rise and the contango of the futures curve flattens out and heads towards backwardation.

Probably the largest reason for the negative sentiment towards natural gas is the belief that shale gas is plentiful and will keep prices near current levels or lower for years to come. I see several flaws in this line of thinking. While shale gas production has grown approximately 16-fold over the last five years and accounts for 13% of total U.S. natural gas production, future gains in shale gas production are going to be very hard to come by, if not impossible, with the country’s largest shale gas field, the Barnett shale, now in decline.

http://seekingalpha.com/article/212260-stage-set-for-ferocious-rally-in-natural-gas

Let's look at the three key claims:

1) UNG is set for a "ferocious rally" over the next 18 months (from late June 2010 - when the price was about $63).
In reality? It closed 18 months later at under $26 and still hasn't recovered (it's under $22 today). Imagine what happened to investors who took his advice and purchased options. They lost everything (instead of doubling their money as he predicted).

2) There won't be significant gains in shale gas production (it was then about 5 trillion cubic feet per year). In reality? It doubled over the next two years. Today? Heck... the Marcellus alone produces as much as he thought was the national peak just four years ago.

3) The Barnett shale had peaked and was in decline.
In reality? Production in the Barnett revesed course and increased over the next couple years. It appears to be on the downward slope now (though still higher than his presumed peak)... but that may just be a function of more productive plays taking some of the capital (or the continued low price of gas shifting production to liquids).

We could go on all day. There's no evidence that he's learned from his mistakes.