Energy Dept. skeptics sound alarm on natural gas rush



Energy companies have worked hard to promote the idea that natural gas is the fossil fuel of tomorrow, and they have found reliable allies among policymakers in Washington.

“The potential for natural gas is enormous,” President Barack Obama said in a speech this year, having cited it as an issue on which Democrats and Republicans can agree.

The Department of Energy boasts in news releases about helping jump-start the boom in drilling by financing some research that made it possible to tap the gas trapped in shale formations deep underground.

In its annual forecasting reports, the U.S. Energy Information Administration, a division of the Energy Department, has steadily increased its estimates of domestic supplies of natural gas, and investors and the oil and gas industry have repeated them widely to make their case about a prosperous future.

But not everyone in the Energy Information Administration agrees. In scores of internal emails and documents, officials within the Energy Information Administration, or EIA, voice skepticism about the shale gas industry.

One official says the shale industry may be “set up for failure.”

“It is quite likely that many of these companies will go bankrupt,” a senior adviser to the Energy Information Administration administrator predicts. Several officials echo concerns raised during previous bubbles, in housing and in technology stocks, for example, that ended in a bust.

(See the e-mails here)

Energy Information Administration employees also explain in emails and documents, copies of which were obtained by The New York Times, that industry estimates might overstate the amount of gas that companies can affordably get out of the ground.

They discuss the uncertainties about how long the wells will be productive as well as the high prices some companies paid during the land rush to lease mineral rights. They also raise concerns about the unpredictability of shale gas drilling.

Widely respected

The EIA’s annual reports are widely followed by investors, companies and policymakers because they are considered scientifically rigorous and independent from industry. They also inform legislators’ initiatives.

In any organization as big as the Energy Information Administration, with its 370 or so employees, there inevitably will be differences of opinion, particularly in private emails shared among colleagues.

A spokesman for the agency said that it stands by its reports, and that it has been clear about the uncertainties of shale gas production.

“One guiding principle that we employ is, ‘look at the data,'” said Michael Schaal, director of the Office of Petroleum, Natural Gas and Biofuels Analysis within the EIA. “It is clear the data shows that shale gas has become a significant source of domestic natural gas supply.”

But the doubts and concerns expressed in the emails and correspondence obtained by The Times are noteworthy because they are shared by many employees, some of them in senior roles.

The documents and emails, which were provided to The Times by industry consultants, federal energy officials and congressional researchers, show skepticism about shale gas economics from senior advisers and from officials who help produce the agency’s most important forecasting reports.

The emails were provided to The Times under the condition that the names of those sending and receiving them would not be used.

Some of the emails suggest frustrations among the staff members in their attempt to push for a more accurate discussion of shale gas.

One federal analyst, describing an Energy Information Administration publication on shale gas, complained that the administration shared the industry’s optimism.

“It seems that science is pointing in one direction and industry PR is pointing in another,” wrote the analyst about shale gas drilling in an email.

The Energy Information Administration, with its mission of providing “independent and impartial energy information to promote sound policymaking” and “efficient markets,” was created in response to the energy crisis of the 1970s because lawmakers believed that sound data could help the country avoid similar crises in the future.

As a protection from industry or political pressure, the EIA’s reports, by law, are supposed to be independent and do not require approval by any other arm of government. The Energy Information Administration staff includes many former industry officials.

Independence questioned

But a look at the Energy Information Administration’s methods raises questions about its independence from energy companies, since the industry lends a helping hand to the government to compile those bullish reports.

The EIA, for example, relies on research from outside consultants with ties to the industry.

And some of those consultants pull the data they supply to the government from energy company news releases, according to Energy Information Administration emails.

Projections about future supplies of natural gas are based not just on science but also a certain amount of guesswork, since it is difficult to know precisely how much gas can be extracted from underground until wells are drilled.

Two of the primary contractors, Intek and Advanced Resources International, provided shale gas estimates and data for the Energy Information Administration’s major annual forecasting reports on domestic and foreign oil and gas resources.

Both of them have major clients in the oil and gas industry, according to corporate tax records from the contractors.

The president of Advanced Resources, Vello A. Kuuskraa, is also a stockholder and board member of Southwestern Energy, an oil and gas company heavily involved in drilling for gas in the Fayetteville shale formation in Arkansas.

The contractors said they did not see any conflict of interest.

“Firstly, the report is an extremely transparent assessment,” said Tyler Van Leeuwen, an analyst at Advanced Resources, adding that many experts agreed with its conclusions and that by identifying promising areas, the report heightened competition for Southwestern.

Intek verified that it produced data for Energy Information Administration reports but declined to comment on questions about whether, given its ties to industry, it had a conflict of interest.