Bill Powers’ Powers of Prediction Overrated

Bill Powers - Tom Shepstone Reports Tom Shepstone
Shepstone Management Company, Inc.

  

An article in Forbes by Bill Powers rings the “end is near” bell for shale gas but his powers of prediction are way overrated.

Fractivists always want it both ways. One minute they proclaim we are awash in a glut of gas which is a problem, they say, because we’ll destroy renewables at which point the evil industry will raise prices on all of us. They next minute they say everything is in decline, overestimated and over-promised, and we’ll be left in the dark without adequate energy to turn around.

Bill Powers may not be a fractivist per se – he’s on the board of Arsenal Energy – but, he surely falls into the latter category. He has published a book on the subject, pals around with Art Berman and just wrote a piece in Forbes arguing disaster awaits unless we turn to distributed energy (solar panels and the like). It’s an interesting article and the philosophy of distributed energy is appealing but there are some gaping holes in his theories.

Bill Powers has a Bachelor of Science in Business Administration from Georgetown University (1993). Here’s how he describes himself:

Bill Powers an independent analyst and private investor. He is the former editor of the Powers Energy Investor, the Canadian Energy Viewpoint and the US Energy Investor. He has published investment research on the oil and gas industry since 2002 and sits on the Board of Directors of Calgary-based Arsenal Energy. As a true contrarian, Powers uses independent and verifiable sources to come to conclusions that may not be the conventional wisdom of the day.

The Arsenal Energy website says he’s “a founder and asset member of Powers Asset Management, LLC since June, 2005″ but the SEC says the firm is inactive, and there’s little else in the way of background on the guy except that he says he’s been investing for 25 years, which means he must have started in high school, I guess. Arsenal Energy is involved with oil and gas development in Alberta, British Columbia and North Dakota. It is a fairly small conventional oil and gas producer.

This may account for the Powers “contrarian” attitude, but one suspects it’s more a matter of grabbing attention and what better way to do it than holding yourself out as a maverick so anti-gas groups can seize on your opinions and promote them for you? Regardless, what matters much more than Powers’ motivation is his credibility. Does he have a case? Well, let’s look at some of his previous predictions.

Four years ago, back on June 29, 2010, Powers said this about Texas production (emphasis added):

The Lone Star state is country’s largest natural gas producer by a factor of three. Despite laying claim to a portion of the Haynesville shale play and the rapidly growing Eagle Ford shale play, Texas natural gas production is coming unglued. According to the Texas Railroad Commission, natural gas production in Texas dropped 13.45% (over 3 billion cubic feet per day) between January 2009 and January 2010 and preliminary data on more recent months indicates production declines have continued. The study that I have done indicates that production from the country’s largest producer will continue to drop for at least the next two years. As goes Texas production, so goes North American production (production from the State is 50% larger than production from all of Canada).

Here’s what really happened over the next two years, according to the Energy Information Administration (EIA):

Bill Powers

Bill Powers was not only wrong about Texas natural age production as a whole but failed to predict the spectacular contributions of Texas shale gas, which far more than made up for declines in gas produced from conventional wells. Judging shale wells based upon conventional experience is, according to others in his field (see “Why Bill Powers Is Dead Wrong”), a fundamental problem with the way Bill Powers analyzes things. Critics accuse him of “applying conventional oil field metrics to unconventional fields” and that seems to be the case here.

Let’s look at some more of those Bill Powers predictions:

February 25, 2003:Barring a big discovery near existing infrastructure, which is very unlikely since this is what every petroleum geologist is looking for, we have very little chance of drilling our way out of today’s natural gas supply situation.”

Another chart will suffice to address that prediction, as the Barnett Shale was already taking off by 2003 and this is what it did for the next eight years (production increased by a multiple of 8X):

Bill Powers - Barnett

October 1, 2009:  “As an aside, in December 2007, I was at an industry conference in a very snowy Pittsburgh where I listened to a representative of Range Resources discuss how his company was fully committed to the Marcellus and was putting the full resources of the company into its development. Given all of the company’s efforts and money put into the Marcellus and their continuous promotion of the play, I find it very odd that Range Resources has not been able to achieve more than 80 million cubic feet per day (mmcf/d) of production two years later. Therefore, based on the slow ramp up of production from the Marcellus, I expect the play to be producing approximately 500 mmcf/d in June 2011.”

We now know what happened in June, 2011. The Marcellus Shale play produced  4,703 mmcf/d, according to the EIA. That’s more than nine times what Bill Powers projected. It now produces 15,884 mmcf/d.  As for Range Resources, well, it now produces over 1,000 mmcf/day by itself, twice what Bill Powers predicted for all of the Marcellus Shale play.

January 6, 2010: “I came to the conclusion that we are headed for a severe supply deficit after I examined the production profiles of the major conventional and unconventional fields in the US and Canada. By June of 2011, only 19 months from now, we are on pace to suffer a reduction in US gas supply of approximately 8.5 billion cubic feet per day (bcf/d) – approximately 13% of US supply.”

Here’s what actually occurred:

Bill Powers Failed Gas Predictions

Natural gas production wasn’t down by 8.5 billion cubic fee per day in June, 2011. It was up from 70.8 billion cubic feet per day for December, 2009 (the month when Powers was apparently his “19 months from now” prediction) to 77.1 bcf/d, an increase of 6.2 bcf/d or 8%. Bill Powers was off, in other words, by 14.7 bcd/d in the wrong direction.

Ok, so the guy got some pretty serious predictions wrong. Could he be correct now? There’s always that possibility, of course. Nothing goes on forever, things changes and trends reverse. We get some further insights into the Bill Powers way of thinking with this statement from the this sentence in the Forbes article:

More importantly, given that America is the most thoroughly explored petroleum producing country on earth, it is very unlikely new shale gas fields lie in wait of discovery.

Putting aside the fact this sounds a lot like that Patent Office remark of many decades ago that everything had been invented, it sounds even more like what he said in February, 2003 above; namely that “since this is what every petroleum geologist is looking for, we have very little chance of drilling our way out of today’s natural gas supply situation.” Eleven years later, he’s making the same pitch seemingly oblivious of all that has happened – the shale revolution. New discoveries are being made every day, as we learned just last week with Shell’s success in developing Utica Shale wells most of thought weren’t possible. We’re also seeing operators explore multiple formations and levels from the same well pads. And, we’re seeing ever bigger “monster wells” and lower costs of production.

Bill Powers also makes a big deal over the recoverable reserves numbers, interchanging EIA and USGS data that measure different things and are dynamic measures that depend upon technology and price. Yet unknown technology is constantly extending the boundaries of what is recoverable. That is why people who have famously made careers out of predicting when we’d run out of things have all been not just wrong but stupendously wrong, as when, in 1939, the US Department of the Interior said that American oil supplies would last only another 13 years. Thomas Mathus (who later rejected his own theories) lives in the hearts of all know-it-alls, as the success of the now irrelevant Limits of Growth book proved in the 1970’s.

Prices also determine reserves. When prices go up, more gas is theoretically economically recoverable, so reserves grow. When prices go down, less gas is theoretically economically recoverable, so reserves shrink. It’s basic economics and it tells us almost nothing about where things are headed. We do know that if production slows, prices will increase and either more gas or other energy sources will be developed in response. We’ll never run out of the stuff because prices will direct us to where we need to go. It’s the lesson of history.

Where will it be that we’ll go? I confess I don’t know for sure – I’ll make no foolish predictions to embarrass me later. I do fully expect distributed energy to be part of our future because it makes so much sense from a security perspective, but it will depend on the prices and right now shale gas is the future because the economics work. Could that change? Sure, but we can just as easily find new sources and ways to recover natural gas economically. The record of the last decade proves it and not one bit of it was predicted in advance by Bill Powers. Nothing Bill Powers has said, in fact, amounts to more than the latest version of the Mathusian argument, another “peak oil” fantasy of “problem huggers” as our buddy, Nick Grealy, calls them.

Let’s also remember one other thing. Distributed energy doesn’t have to be solar or wind or any of those other renewables the “problem huggers” insist are the only solutions. No, it can be home electricity generation using natural gas or it can be a natural gas well on your own property. Many readers will recall Jennifer Huntington, the plaintiff in the Middlefield case simply wanted to drill a gas well on her own property to help run her own farm. It would not have involved high-volume hydraulic fracturing but was stopped by a band of zealots in charge of the Middlefield Town Board who were determined not to let any natural gas development occur anywhere near their tony Cooperstown area homes.

Those are the zealots to which Bill Powers has played with his arguments in this HuffPo interview, for example. It’s a great gig, I guess, but it seems to me the arguments employed by Bill Powers against shale gas are more applicable to his own theories, which have been consistently wrong and sooner or later he’ll run out of believers. It’s the law of physics isn’t it?

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16 thoughts on “Bill Powers’ Powers of Prediction Overrated

  1. Tom, as usual, no discussion can start without an ad hominum attack. While I love your consistency, it’s would be better to stick to substance.

    Your comments about Bill’s production trend predictions for gas in Texas are interesting but the reality is he was right about conventional gas and gas from oil wells. Given the nature of the shale gas business it is hard to predict where the rigs will show up next. But I wouldn’t get all excited about what really happened since we both know that production rates from hydraulic fracturing decline rather precipitously. Soap bubbles last longer on a humid day, but the shale gas bubble gets no such relief.

    I have a suggestion for a fresh approach. Why not address the issues instead of the personal disparagement, or in this case, your cherry picking a few mistakes from the vast list of energy predictions that Mr. Powers has made over the last decade.

    Let me help. And since I know you’re too busy to read his book, lets stick to just the points he made in the Forbes article:

    1. The majority of shale gas basins in America are already exhibiting declining production.

    2. Based on any reasonable method of accounting, a 100-year supply of shale gas is a pipe dream.

    3. Based on 2013 rates of production, US shale gas resources represent a 19-year supply.

    4. EIA is overstating America’s total shale gas resources by a factor of four.

    5. The Barnett shale, production peaked in 2012 and has been declining steadily despite rising natural gas prices.

    6. Physics and geology trump economics when it comes to gas production in mature areas.

    7. Evidence used to demonstrate improved drilling/fracking efficiency is flawed.

    8. Because of the growth in domestic industrial markets for natural gas (manufacturing, fertilizer, etc.) the approaching drop in production will result in a rapid increase in prices.

    9. Today’s level of shale gas production is woefully unsustainable.

    10. The bursting of the shale gas bubble will lead to a violent price spike.

    I hate bothering you on a Sunday but readers want to know.

    I’d further point put that short of drilling ones own gas well (as you suggest) shale gas is not going to be part of the “distributed power revolution” that Bill speaks of.

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      • I’ve already addressed them and, of course, linked to the Forbes article where anyone can read them, but you ignore the fact Powers has been spectacularly wrong and I can’t stop you from believing what you want to hear. Frankly, you’re becoming extraordinarily boring and tedious in that regard and I’m just ignoring you, which is what I mostly intend to do from here on out, Cliff.

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        • Oh dear, Tom, I’m heartbroken, but do understand your frustration. I fear I’ve diminished the reverberations in your little echo chamber.

          My reason for itemizing Bill’s points was so you could methodically try to refute them. Instead, you continue with the spectacularly wrong statement that he is spectacularly wrong. I understand that you don’t like to hear his predictions, but let’s not forget who is the expert.

          Anyway, until properly refuted, his points stand and I worry that your sponsors will be upset.

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    • “Given the nature of the shale gas business it is hard to predict where the rigs will show up next.”

      No it is not. At least 75% of the domestic rigs in the country are operated by Public E&P’s, who publicly state how many rigs they plan on running, where they’re going to run them and how long a rig takes to drill a well. Drilling Info has a map which shows where 95% of the nations rigs are located on a daily basis.

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  2. Overrated. Overhyped. Over the top. I can think of a lot of words to described this movement and its supporters in the press.

    Here are some pictures speaking a thousand words from where it is that my world has met your own Tom.

    https://www.facebook.com/LoveNYDontFrack (Love NY-Don’t frack it up– these folks will be doing a special fact free feature on the rockaways soon.)

    https://www.facebook.com/photo.php?fbid=10204762830293250&set=a.10204762823493080.1073741972.1312313911&type=1&theater
    (Occupy the Pipeline/Sane energy/ Food not fracking/ People’s puppets of Occupy Wall Street— doing what it is that they do so well– The photographer posing as a photojournalist.)

    I have seen this for the last two years. Small groups of people who rotate pretending to lead one organization or another, the same small amount of people showing up for events and quasi experts and occupy puppet makers as educators. That is the antifracking movement in a nutshell in NYC.

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  3. You gotta love those peakers. “Production would be down if it were not for the fields where production is up.”

    I say the Marcellus will be producing over 20 bcf/d by the end of 2017 if not sooner. Anybody want to bet against me? Cold hard cash. We’ll ask Tom to be the escrow agent.

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  6. Bill Powers has got to be one of the funnier peakists around. He actually thinks last winters short term price spike validates his doomer predictions.

    I imagine he ekes out a marginal living with this sort of thing. Perhaps he has family money to invest/squander.

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