THE FUTURE OF FRACKING - Hydrofracking: What Everyone Needs to Know - page 81

“Quit drilling,” T. Boone Pickens, the Dallas oil and gas billionaire, warned his
fellow board members at Exco. In the 1990s, Pickens lost control of his energy
company, Mesa, when prices dipped and he couldn't support the debt load. But
Exco had made a $650 million deal with BG Group, an English gas company, when
times were good. When gas prices slipped, Exco was contractually bound to keep
its 22 rigs hitting production targets in the Haynesville Shale. Pickens was miffed.
“We are stupid to drill these wells,” he bluntly told the New York Times . 40
A third element that has kept prices from rising involves geology. As mentioned
in chapter 1 , shale deposits can be “dry”—meaning they produce only natural
gas (mostly methane)—or “wet”—meaning they also produce liquid natural gases
(LNGs), such as ethane, butane, and propane. LNGs are used to make plastics, to
power industrial heaters, or to produce the flames in your home barbecue. LNG
prices are linked to the price of crude oil, which—unlike gas—is set globally and
is relatively high. 41 As natural gas prices dropped, drill rigs have been shifted from
dry to wet shales, boosting supplies; but this has also led to a glut of LNGs, and
their prices will eventually fall.
In retrospect, it should have been obvious that with so much money flowing into
drilling and so many new wells being hydrofracked in such a short amount of time,
the natural gas bubble would burst. But, as with the Internet and real-estate bubbles
of recent years, the savvy players were publicly predicting that gas supplies will
last “for a hundred years” while privately expressing doubts.
In August 2008, Aubrey McClendon, then still CEO of Chesapeake Energy,
told analysts that he had tamed the once risky, wildcatting oil and gas business
and turned it into a regular, boring “manufacturing business that requires four in-
puts … land, people, science and, of course, capital.” But as internal documents
revealed by a lawsuit show, just two months later McClendon e-mailed his execut-
ives: “What was a fair price 90 days ago for a lease is now overpriced by a factor
of at least 2x given the dramatic worsening of the natural gas and financial mar-
kets.” 42
Global behemoths like ExxonMobil and Royal Dutch Shell can afford to play
for the long term and have the resources to cut costs and develop efficiencies. Gas
prices will eventually rise, but for the near term the industry is suffering the after-
math of its rapid growth spurt.