Media

I had planned to ignore last week’s awful Wall Street Journal op-ed in which sixteen “concerned scientists”, few of whom do any climate science research, flimsily slammed basic climate science and invented some pretty specious energy economics. But a response from thirty eight climate scientists that the Journal published this week made me think twice. The climate scientists, after making it clear that they speak from relevant authority, rightly slam the “concerned scientists” for using a patina of scientific credibility to substantiate their empty arguments. Then they explain what the vast majority of those who spend their professional lives picking through the data actually believe. But, in the final sentences of their piece, they go a step further: “In addition, there is very clear evidence that investing in the transition to a low-carbon economy will not only allow the world to avoid the worst risks of climate change, but could also drive decades of economic growth. Just what the doctor ordered.” “Very clear evidence”? Perhaps someone can point me to that. There are certainly frequent claims from politicians and advocates along these lines. There are even some papers (invariably controversial) that offer suggestive arguments. But there is nothing remotely approaching “very clear evidence” – certainly not the sort of evidence that the letter writers would (rightly) expect in the climate science literature where they themselves publish. What was that that they were saying about authority and expertise? I know, like, and genuinely admire several of the authors of both pieces. But both dangerously use earned authority in their areas of expertise as a substitute for careful argument in other fields. (To be clear, at least two of the thirty eight letter writers are economists; that said, the typical reader will simply see thirty eight "authorities" endorsing the statement.) The original authors do this far more egregiously that the respondents, but both succumb to the same unfortunate temptation. This phenomenon doesn’t only show up when climate scientists lecture on economics or particle physicists assert that only they know how the atmosphere works – it appears all over the climate debate. Clean energy entrepreneurs regularly assert that because they’ve created solar jobs, they know that more solar energy is good for the U.S. economy. Oil barons are similarly authoritative in asserting that their industry experience tells them that a transition away from fossil fuels would be economically ruinous. Too many economists will assert that this or that policy won’t affect investors’ and consumers’ behaviors, since that’s what their theories tell them, even if investors and consumers themselves can tell you from experience (and hence some authority) that that is dead wrong. Other economists will tell you that they know that cutting emissions will be cheap, when smart political scientists can readily point out that real world politics will likely lead to considerably more expensive policies. This isn’t an argument for why people should only write in areas where they have PhDs. After all, if that were the standard, I’d be out of a job. But if people want to invoke authority (something that should be kept as rare as possible), they ought stick to areas where they’ve earned it, rather than sliding into ones that seem closely related to uninformed readers but that actually aren’t all that similar. Otherwise, they’d be well advised to stick to careful argument. This would leave the writers of the original Journal op-ed without much to say on an opinion page (save their observations about the unpleasant culture in some university departments), this week’s respondents focusing on climate science, and everyone better off.

When Foreign Policy ran an essay in September declaring that “the Americas, not the Middle East, will be the world capital of energy”, it was a novel, if questionable, thesis. Two months later it’s basically conventional wisdom. Articles in the New York Times, Washington Post, and Financial Times have advanced similar arguments. The newest installment ran in the Wall Street Journal yesterday under the headline “Big Oil Heads Back Home”. The article puts a new twist on the already old argument by focusing mainly on what the boom in oil production in the Americas means for oil companies. In doing so, it’s on more solid ground than others have been. The shift over the past decade or so in opportunities for international oil companies has indeed been enormous, with investment increasingly directed toward stable, mature economies rather than to ones that present massive political risk. For the oil business, the recent changes have been fundamental. Not so much, as I argued a couple months ago, for the international energy system more generally. The center of gravity of that world remains in the Middle East for some pretty fundamental reasons (discretionary investment, spare capacity, low cost supply, a volatile security situation) that are unlikely to change soon. Why, then, the persistent claims of a massive shift? I think the Journal article inadvertently hits on a big part of the answer: people are confusing the fortunes of the oil industry with those of the international system. Our most knowledgeable oil analysts are often in or close to industry. They can become prone to occasionally conflating the fortunes of industry with those of the system more broadly. I don’t mean to suggest any taint; I’m just suggesting that when you spend a lot of your time thinking through what developments mean for industry, you’re likely to give special weight to those dynamics in your broader analyses. To be fair to the author of the Journal article, he attempts to substantiate his assertion that the shift “could have far-reaching consequences for the politics of oil”, arguing that “with more crude being produced in North America, there’s less likelihood of Middle Eastern politics causing supply shocks that drive up gasoline prices”. That’s true, but the change is relatively small, and certainly not earth shattering. Another, say, five million barrels a day of North American production, if it displaced a similar amount from the Middle East, would cut Middle Eastern production by about a quarter, and hence reduce the threat of disruption from the region by a similar amount. In practice, larger North American volumes would have a lower impact on Middle Eastern supplies: come OPEC cuts would come from elsewhere in the world; increased North American production would also deter some high-cost production elsewhere; and, if increased production lowered prices, it would lead to increased consumption, making everyone more vulnerable to whatever supply shocks occurred. Bottom line? Rising oil production in advanced economies is undoubtedly changing the map for international oil companies. It’s wrong, though, to claim a similarly decisive change for the world of oil more generally.

Business Insider published an interview today with Tesla founder Elon Musk in which Musk makes a striking claim: “You have enough electricity to power all the cars in the country if you stop refining gasoline,” he asserts. “You take an average of 5 kilowatt hours to refine [one gallon of] gasoline, something like the [Tesla] Model S can go 20 miles on 5 kilowatt hours.” It’s a claim that I’ve seen pop up frequently in recent weeks, often framed as an assertion that electric cars use less electricity than normal ones. There’s only one problem: It’s not true. The math behind the claim is simple. Refinery efficiency is about 90 percent and the energy content of a gallon of gasoline is about 132,000 Btu. Put that together and you have about 13,000 Btu of energy cost per gallon of gasoline produced, which is equivalent in energy terms to 4 kilowatt hours. (The 6 kilowatt hour claim is based on outdated efficiency figures.) But this is flawed in two big ways. The first is that most of the energy used by refineries doesn’t come from electricity; only about 15 percent of it does. That cuts the electricity-used figure down to about 0.6 kilowatt hours. The second is that conversion of fuel to electricity is pretty inefficient. A process loss of energy equivalent to 0.6 kilowatt hours translates to an actual electricity loss of around 0.2 kilowatt hours. This is consistent with refinery data. The Department of Energy estimates that refiners used 47 TWh of electricity in 2001 to produce refined products from 5.3 billion barrels of oil. Assuming  that you get 42 gallons of refined products from each barrel of oil, this works out to about 0.2 kilowatt hours of electricity used for each gallon of gasoline produced.

Bill Nordhaus has an interesting essay on energy in the New York Review of Books. He reserves his most forceful arguments for attacking the idea that “foreign oil” matters: “Virtually no important oil issue involves US dependency on foreign oil. Whether we consider pollution, macroeconomic impacts, price volatility, supply interruptions, or Middle East politics, our vulnerability depends upon the global market. It does not depend upon the fraction of our consumption that is imported.” This worldview is conventional wisdom among most economists whose work doesn’t focus narrowly on oil. Their instinct is understandable given the tendency of many politicians to grossly overstate the benefits of domestic oil production. Ultimately, though, it’s wrong. Take a look at Saudi Arabia. Does Saudi vulnerability to oil markets look like U.S. vulnerability? Of course not. Is that because the Saudi economy is less oil intensive than the U.S. one? No. It’s because when oil prices rise, Saudi Arabia has a big way to benefit. I’m not saying, of course, that the United States can (or should want to) become Saudi Arabia, or even Norway for that matter. But there is a continuum, and it’s wrong to claim that domestic production doesn’t matter at all. Let’s break things down along the same lines that Nordhaus does: Pollution. Nordhaus is correct that this doesn’t depend on import levels. Macroeconomic impacts. Import levels matter, though perhaps not as much as many assume. Over the long run, everything else being equal, lower imports are generally good for the economy. This is not because it’s inherently bad to “ship money overseas” – after all, trade is usually beneficial. But trade for the sake of trade is not. If, for example, you’re importing something because of ill-conceived regulation at home, that’s a bad thing; also, to the extent that oil is overpriced, importing oil is bad for the U.S. terms of trade. In the short run, Norhaus is closer to being correct. There’s a very strong case to be made that, even if the United States produced all the oil it consumed, the short run macroeconomic distortions from oil price shocks would significantly outweigh the gains from greater producer revenues. That said, those gains in producer revenues wouldn’t be zero: they would help blunt the macroeconomic impact, even if wouldn’t eliminate it. Price volatility. Nordhaus is mostly right: the United States is exposed to the same price volatility no matter where it buys its oil from. But there are two caveats. First, to the extent that the United States underdevelops its domestic supplies, the world oil market may find itself relying more on supplies from more volatile parts of the world. (Of course, many will argue that U.S. politics and regulations make its oil supply unreliable too.) Second, price volatility doesn’t really matter in an of itself – what matters is the economic impact. On that count, see the previous point. Middle East politics. Score one for Nordhaus: the United States is going to be entangled in the region for a long time, regardless of what its oil policies are. That said, the less vulnerable the United States becomes to oil market disruptions, the more freedom of action it will enjoy in the region. It’s easy to overstate the importance of oil imports. But that doesn’t make them unimportant. If U.S. oil policy could do only one thing, it would be wise to focus solely on reducing consumption, and to ignore the production side. In practice, there’s no reason why it can’t address both.

I’ve always been skeptical of the oft-heard claim that “green jobs” are “good jobs” – that is, that green jobs somehow pay better than other ones. A recent Brookings Institution study, though, takes a rather thorough look at the “clean economy”, and concludes quite emphatically that green jobs do in fact pay better than the typical U.S. job. That invites an obvious question: Why? A decent part of the answer, perhaps unsurprisingly, lies in the sorts of educations that clean energy jobs appear to demand. The Brookings study finds that 93.1% of clean economy jobs are “high skill” or “moderate skill”, in contrast with only 71.7% in the overall economy. Everything else being equal, industries that require more education and skills will pay better. There are big limits, though, to the economy-wide impact that different skills/education demands can have on wages. If jobs for people with, say, college educations pay better, and clean economy jobs tend to require college educations, then clean economy jobs will tend to pay better. But unless more people start attending college, the total number of Americans earning those higher wages won’t actually rise. The same is true for moderately skilled workers. Of course, over the longer term, the availability of more jobs that demand more skills will create greater incentives for people to seek more education. But the presence of more green jobs won’t transform high school dropouts into PhDs, or into technical college graduates for that matter. In any case, the skills/education profile of fossil fuel jobs is even stronger than that of green ones. That’s why another statistic is all the more striking: ClimateProgress reports that low-credentialed workers (high-school degree or less) with green jobs do surprisingly well. According to their numbers, 41.5% of people with fossil fuel jobs, and 47.9% of those with green jobs,  have low credentials and get paid an average of $12 per hour. Somewhat surprisingly, though, 28.7% of green workers with low credential make a (stronger) average wage of $15 per hour, in contrast with only 13.2% of fossil fuel employees. The Brookings study also reports that clean economy jobs for “those without post-secondary degrees… provide higher wages than typical ‘low-skill’ jobs”. What gives? First, a caution: the Brookings study and the one reported by ClimateProgress use different definitions for green jobs. Moreover, they use different methodologies for determining average wages. That said, another set of figures from the Brookings study provides a clue. The Brookings authors report that most clean economy jobs aren’t the stereotypical ones in wind energy or home insulation retrofits. The biggest clean economy sectors are waste management and treatment, mass transit, and conservation (working mainly for the U.S. government), which together account for nearly 40% of clean economy jobs. (Wind, if you’re interested, accounts for about 1% today.) What do these have in common? They’re public sector jobs – and they then to be heavily unionized. (Let me make sure I’m being clear: this interpretation is mine, not the Brookings authors, who don’t flag the union vs. non-union issue.) My guess is that this is a big part of the explanation for why clean economy jobs appear to pay better to people with similar levels of education. To be fair, I doubt that this is the whole story. In particular, downward wage pressures are much higher lower in tradeable sectors than in non-tradeable ones, so the balance of jobs types in a growing clean economy should have broader consequences for U.S. wages. That said, the Brookings study shows that clean economy jobs are actually more export-intensive than the economy as a whole, which suggests that this effect might run the other (i.e. negative) way. But back to the unionization issue. There’s nothing wrong with the fact that clean economy workers might benefit from greater unionization rates (though I’d want to see more careful research before converting my hypothesis into a fact.) But it does call into question the degree to which one can extrapolate from current figures to project future wage gains from growth in green jobs. People installing solar panels or performing home retrofits – the poster children for the green jobs, good jobs mantra – probably aren’t going to be unionized, nor are others involved in providing energy services (though regulated utilities tend to be fairly union-heavy). It may be unlikely, then, that they’ll have any special advantage over others with similar educations. In the end, if the number of green jobs grows, it will be good because it will be a sign that the economy is becoming cleaner. Unless the United States gets its educational and labor systems in order, though, it’s unlikely to address the stagnant incomes of middle class Americans that have so many people rightly worried.

The Natural Gas Subcommittee of the Secretary of Energy Advisory Board has published its 90-day interim report (PDF) on “Improving the Safety and Environmental Performance of Hydraulic Fracturing”. It is an exceptional piece of work. Anyone who wants to understand the environmental consequences of shale gas development, and the tools available to manage them, should read it in its entirety. I won’t rehash the substantive contents of the report here; its executive summary, and various news reports, do a good job of that already. But I do want to flag an important observation about the political dynamics of shale gas development, from the body of the report, that may be missed: The Subcommittee has been struck by the enormous difference in perception about the consequences of shale gas activities. Advocates state that fracturing has been performed safety without significant incident for over 60 years, although modern shale gas fracturing of two mile long laterals has only been done for something less than a decade. Opponents point to failures and accidents and other environmental impacts, but these incidents are typically unrelated to hydraulic fracturing per se and sometimes lack supporting data about the relationship of shale gas development to incidence and consequences. An industry response that hydraulic fracturing has been performed safely for decades rather than engaging the range of issues concerning the public will not succeed. That’s right on the money. Alas, in what one can only hope is an attempt at self parody, API has responded to the report thusly: “DOE’s recommendations should be informed by an understanding, first, that shale-oil and gas development is already well regulated and safe, and, second, that it could create hundreds of thousands of new jobs, generate billions of dollars in additional revenue for our government and enhance our energy security.” Quite the logic: development is already safe, therefore any study should be informed by the fact that development is already safe, and should come to the conclusion that it is already safe, which means that the study should recommend nothing. Some others from industry, to their credit, have been more circumspect in their responses. [UPDATE: Erik Milito at API responds in the comments. He argues that I’ve misunderstood his remarks, and gives further clarity to API’s position.] Not to be outdone, more strident members of the environmental community have responded by largely ignoring the content of the report, which is pretty tough on industry, in favor of personal attacks on the subcommittee members. (As with industry, some other folks from the environmental world have responded more constructively.) An article in the New York Times, meanwhile, seems to take credit for prompting the creation of the subcommittee in the first place. That, I can quite confidently say, was not the case. John Deutch, who chairs the subcommittee, summed up the report nicely in an interview with the FT: ‘Our report is a compromise, and in that sense it will make nobody happy,’ Mr Deutch said. ‘This report is the only balanced discussion that I’ve seen of the shale gas industry.’ That’s true. If sensible people on all sides look past the fact that they don’t like everything in the report, they might even find the beginnings of a blueprint for compromise.

I wrote yesterday about the troubling revelation that the New York Times relied on emails authored by an EIA intern as a key source for a hard-hitting recent article on shale gas while presenting that intern as an “official”. Later yesterday, in a move that can only be described as baffling, EnergyInDepth, a prominent industry-backed website that defends the natural gas industry and fights regulation of hydraulic fracturing, piled on – by stridently attacking the intern. I won’t rehash the five hundred plus words that EID spills on its critique of the work done by the intern (now a junior analyst) on an EIA website and in mocking his stated views of social justice. I certainly won’t follow their lead in linking to the young man’s Facebook page. I’ll just point out what should be obvious to the people behind this ugly campaign: this is low. There are a lot of people wondering why the editors at the Times have their backs up so strongly against those who have critized the paper. These sorts of nasty personal attacks are a non-trivial part of the reason why. That doesn’t excuse shoddy reporting by any stretch. But lashing out against reporters and interns alike is an awfully ineffective way to win friends. There are a decent number of industry people who read this blog; heck, EnergyInDepth’s twitter feed linked here just yesterday. Many of them are sensible, responsible folks. I hope that those people understand how wrong this strategy is, and that some of them use the influence they have over operations like EID to turn down the heat. Here’s an idea: Industry would be much better off focusing its efforts on trying to craft smart compromise approaches to shale gas regulation rather than attempting to humiliate EIA interns. The shale gas industry is obviously diverse. If too many people in it choose the low road, though, they will have only themselves to blame for their declining public standing.

I’ve been wary of wading back into the brouhaha over Ian Urbina’s New York Times shale gas series – after all, I’m a policy analyst, not a media critic. But a couple pieces about natural gas published in the Times over the weekend make it impossible to resist. This past Sunday saw a second hard-hitting piece from the newspaper’s public editor, this time about a June 27 story that claimed to document disturbing dissension (and potential conflict of interest) within the U.S. government regarding its bullish take on the prospects of shale gas. Short version of the problem revealed by the public editor: the Times story relied heavily on redacted emails, but the redactions turn out to be severely misleading. The most prominent source in the article was variously an intern and a junior staffer when he wrote the emails that the story quoted; he was identified in three different ways in the article, making it appear that comments were coming from three different sources, when if fact they were all from the same guy; and parts of some emails that were relatively favorable to shale gas were redacted too, without explanation. The story editors, as they did two weeks ago, don’t see anything wrong with what they did. This, more than anything else, is what disturbs me. Why? Because the series continues – as do its problems. This past Saturday, the Times published the first new installment since the problematic June articles. The latest story is mostly about how the SEC is asking several shale gas companies to document their resource estimates. That’s a perfectly responsible thing for a regulator to do, and for a newspaper to report, though as former Pennsylvania DEP Secretary John Hanger notes, the article could have done with less self-congratulation. My problem is with the last part of the story, which ominously reports that “federal agencies have also begun discussing concerns about the long-term productivity of shale gas wells”, and cites a recent National Energy Technology Laboratory (NETL) newsletter to back that up. The story doesn’t link to the newsletter, but here it is. A careful look makes clear that the story has distorted what that newsletter says. It’s been a long time since I properly fisked an article, but here goes (all quotes from the Times; I haven’t skipped anything): “Some federal agencies have also begun discussing concerns about the long-term productivity of shale gas wells.” This is not news. The NETL newsletter is mostly a summary of technical research being sponsored by the lab. But federal research agencies have (rightly) been discussing concerns about the long-term productivity of shale gas wells for as long as they’ve been involved in funding fracking research, i.e. for a very long time. Contrary to the insinuation in the Times article, they haven’t just “begun” discussing these things, and they aren’t doing this because they’re afraid that shale gas is a mirage – they’re doing it, as the newsletter makes clear, because they believe that public R&D funding can help make gas extraction cheaper and more environmentally acceptable. As a corollary, one shouldn’t expect the USG to revise its shale gas projections downward as a result. “For example, the 2011 summer newsletter of the National Energy Technology Laboratory, a research arm of the Department of Energy, says that technology needs to improve in the Barnett shale in Texas, and in other shale gas areas, for these shale gas wells to be more economically viable.” Fine. This is almost tautological. It shouldn’t surprise anyone that lots of wells that are drilled will turn out to be losers. Nor is it news that better technology will move some wells from the loser column to the winner one. There is no indication in the newsletter that NETL means anything more than that. “Shale gas wells often decline sharply after their first year, but many in the industry had remained optimistic about the wells’ ability to produce at a slow but steady rate for decades. Others have doubted these assumptions, which may not be holding up. ‘A crucial challenge for the industry today,’ the newsletter said, is that only a ‘fraction’ — a third or less — of wells show “sustained long-term production,” which makes it difficult for companies to make money on this drilling.” Gadzooks – it’s the smoking gun! NETL is worried that high decline rates “make it difficult for companies to make money on this drilling”! Except… the newsletter never says that. Take a look at the relevant research abstract, which runs from page 15 to 17 of the newsletter. Yes, it points out that single well productivity is a crucial challenge facing the industry, and it claims that only a minority of wells to date appear to show sustained long term production. (There isn’t enough detail in the research abstract – in particular, the sample is not specified – to interpret exactly what that means.) But there is absolutely no claim offered as to whether it’s easy or hard for companies to make money as a result. The economic judgment is purely Urbina’s -- though that’s pretty much impossible for Times readers to tell. (UPDATE: So that I’m being fair to readers, I’ll take a cue from one of the commenters, and quote this passage from the NETL newsletter: "A crucial challenge for the industry today is that play economic viability depends on total field production and only a fraction (~30%) of shale gas wells show sustained long term production." I read this as a frame for the research that doesn’t make a net assessment one way or the other. I suppose some can read it as saying that companies can’t make money. Also: counter to the impression that this is a current assessment, it turns out that this is basically reproduced from a grant application that was approved in 2009.] “The newsletter added that many of the wells produce poorly and others drop in production sharply after an early period of heavy production.” I don’t doubt it. Why anyone thinks this is news is another question. If Urbina means to imply that these factors haven’t been recognized in the serious estimates of shale gas potential that are out there, he’s mistaken. Take a look, for example, at page 12 of the recent MIT “Future of Natural Gas” study: there’s a big chart showing that well productivity varies wildly, and that many wells in fact produce poorly. MIT – and others – come to their upbeat assessments of shale gas in spite of the challenges that resource faces, not ignorant of them.

Britain’s phone-hacking scandal is raising questions about the power and reach of Rupert Murdoch’s media empire. For Columbia University’s Nicholas Lemann, the episode proves the value of expanding public media.

I’ve been pretty consistent in defending shale gas from some of its most vocal opponents. But that doesn’t mean I think that the shale gas industry is all roses. In a new essay for The New Republic, I observe that the industry is increasingly losing public confidence, not only to its own harm but also to the detriment of the public interest. Why? As I put it in the article, “The problem with the attacks on shale gas isn’t that the gas producers need our sympathy; it’s that we’re in need of their product.” What, then, to do? Industry has increasingly been waking up to public antagonism, but its response has focused mainly on p.r. Talk, however, is cheap. I argue in the piece that if industry want to recapture the high ground, it’s going to need to embrace some unpleasant regulation: “Many of the attacks have been unfair—but their impact is real. The burden now falls on the shale industry to restore the public’s confidence. Rather than denying or bemoaning their woes, shale gas producers should be calling for firm but sensible oversight of their activities, both at the state and the federal level.” I go on at some length to describe what a sensible mix of federal and state regulation might look like. I’m skeptical that the federal government can do a great job in an industry that varies greatly from state to state, so I call for a mix of federal minimum standards and robust state implementation, along with federal capacity building for state and local authorities. My recommendations focus on well casing and wastewater disposal; in retrospect, I’d have added air quality near drilling sites to my list of areas for concern. Industry is obviously diverse: there are good guys and not so good ones. I know that some people in the business (usually the good ones) will use that to defend themselves against criticism. But the reality is that public opinion lumps them together; the only way to bring the bad guys up to scratch is to make good behavior mandatory. In any case, please do take a look at the essay, and let me know what you think. P.S. If you haven’t seen the New York Times public editor’s excoriation of the paper’s recent shale gas reporting, take a look: the critique is fair yet devastating. Then, if you want your head to explode, read the article editors’ response. Apparently, some at the Times believe that there’s no such thing as an energy expert who hasn’t been captured by industry or its opponents. Worse, if there indeed are people who don’t buy either side’s hype, it does a “disservice” to readers (their words, not mine) to present those peoples’ views. Amazing.

An official of MTN, a mobile telecommunications company, registers a SIM card as he attends to customers at a makeshift SIM card registration centre in Nigeria's capital Abuja August 3, 2010. (Afolabi Sotunde/Courtesy Reuters) Judith Asuni of Academic Associates Peaceworks and Jacqueline Farris of the Shehu Musa Yar’Adua Foundation have recently released a comprehensive report, “Tracking Social Media: the Social Media Tracking Centre and the 2011 Nigerian Election” (PDF), where they attempt to evaluate the impact of social media and information communication technologies such as mobile phones, SMS, Facebook, and Twitter on Nigeria’s recent elections. Although the April polls were the first to include widely available social media, Nigeria now holds the continent’s record for most tracked reports of social media use during an election, with nearly half a million examples cataloged by the proprietary software at the Social Media Tracking Centre. On the day of the presidential election alone, the centre collected over one hundred and thirty thousand tweets and public Facebook posts. Though Nigeria is sub-Saharan Africa’s most populous country, for technologies so new this is an accomplishment, and it underscores Nigeria’s leadership in the use social media on the continent. Asuni and Farris acknowledge the difficulty of determining if social media actually altered the outcome of elections. They do point to some anecdotal evidence: in one instance, a ‘citizen observer’ tweeted about possible election rigging in Imo state, which motivated trained observers to investigate and then caused a relative flurry of online discussion, possibly contributing to the defeat of the candidate accused of rigging. Conversely, their report also includes an SMS message that is intended to motivate sectarian hatred and “may have contributed to the killings of as many as four hundred Muslims in southern Kaduna.” This has happened in the past in Jos, which Asch Harwood and I wrote about last year. At a broader level, there clearly has been a transformation with respect to how Nigerians participate in elections. The authors point to increased participation of young voters, the improved ability of traditional media houses and citizen observers to disseminate information quickly, the heightened linkages among Nigerians who might never interact as well as with INEC and civil society, and the capability to measure the volume and content of communication. Nevertheless, the electoral outcome was significantly determined by the people who have always run Nigeria. Should these developments continue, they could have a significant and positive impact on the development of democratic institutions. My research associate, Asch Harwood, has also attempted to grapple with some of these issues here and here. Read the whole report here.

[Dear new readers: This post is part of a blog on energy and climate issues. Click here for the full blog.] The New York Times’ war on shale gas continues with two more big stories by Ian Urbina. The front page of the Sunday paper featured “‘Enron Moment’: Insiders Sound Alarm amid a Natural Gas Rush”, complete with pullquote “Word in world of independents is that shale plays are just giant Ponzi schemes.” That was followed today by “Behind Veneer, Doubt on Future of Natural Gas”. Both articles are based primarily on piles of emails, the first from industry sources and the second from EIA staff. I hate to say it, but on the whole, both pieces are of pretty poor quality. That’s a shame, because both – particularly the first one – had the potential to raise some important issues for debate. I can’t say that I’ve read through all of the hundreds of pages of documents that the Times has posted on its site. But I’ve gone through a good enough slice of them (including all the emails that the Times references in its articles) to get a feel for how Urbina went about using them in his stories. There’s a pattern: Urbina was clearly looking for negative views of shale gas, and had no problem finding them. Given the massize size of the industry, and the number of financial bets being placed upon the sector, that shouldn’t be a surprise. What is a surprise is that Urbina hasn’t done much to put them in context. I’m going to focus on the Sunday story here, because it’s much more interesting, and because some of its sources raise some genuinely important issues, which I’ll get to in a few paragraphs. In contrast, today’s story is mostly a mix of some frustrated EIA analysts’ complaints and some healthy internal EIA debate taken wildly out of context. Three Problems Back to the Sunday story. The first bit of context worth noting is that the story relies heavily on geologists’ concerns about shale gas economics. That should be a red flag. There are very few emails from industry accountants or economists in the story. The geologists’ critiques follow an irritating pattern: most of them basically say that projected levels of gas production are implausible at current natural gas prices. This, of course, is beside the point: no one serious think that today’s gas prices are going to hold forever. (If this technique sounds familiar, that’s because it is: it’s the way that some of the more simplistic arguments for peak oil operate.) The question is whether production can continue at large volumes at reasonable prices. I don’t see anything in the emails that argues against that. I should be clear: there are also emails from investors and a few non-geologists. Some of them even raise legitimate concerns (I’ll come to those in a moment). Others are more ridiculous: one investor, for example, notes that his emails to producers have gone unanswered, and concludes that they must have something to hide. But the guy also admits that he’s never invested in oil and gas. Perhaps the producers simply thought that he wasn’t worth their time. My second problem is that the story conflates several issues. There’s an extended part that talks about how landowners in some parts of Texas have gotten hurt by falling prices for their mineral rights.  Indeed that is a real issue for those people who have been hurt. It is not clear what its relevance is to overall shale gas prospects. Heck, falling prices for mineral rights would help make the shale gas industry more stable (and gas prices lower) over the long haul. The third problem is that many of the emails come from 2008 and 2009, when shale gas was still a much murkier industry. Lots of the technical debates that are played out in those emails have come a long way since. In particular, the steep initial decline rates for shale gas well were indeed surprising to many at the time. But they are not today – steep initial declines are standard in industry and analyst understanding of shale gas economics. The Times story implies that it’s got news on how these wells operate, that that this news might force a revision of analysts’ assessments. But what it presents isn’t news in 2011, and hence the impact on assessments of shale gas ought not be nearly as significant as one might superficially expect. The Times descriptions of the emails (not just in the article, but in the document database)  also betray a serious lack of understanding of the industry. For example: UBS cautions gas investors to “not get excited”, which the Times takes as a warning against gas producers in general; if fact, it’s a warning against people who are betting on higher gas prices, which the analyst thinks are unlikely given the abundance of shale gas (i.e. completely contradicting Urbina’s thesis). Another great one: Dan Yergin is apparently a member of the news media, not the head of a large consulting firm. The Real Issues But enough nitpicking: What are the legitimate issues raised in the emails? I see at least three. The first is that SEC rules for estimate reserves may lead to an overstating of some companies’ resources. I don’t understand this space well enough to comment on this particular issue, but I hope to read more from those who do. The second is that the current spot price for natural gas is deceptively low because companies are hedged. Many companies sold much of their production forward when gas prices were much higher than they are today. That allows them to continue operating despite the fact that some of their wells might be uneconomical if they had to sell all their gas at the current spot price. (Of course, if those producers hasn’t sold so much gas forward, the spot price itself might be higher today.) Despite what the Times implies, this is not news to anyone who follows the sector. Many of us have believed for a long time that the natural gas price required to support the current level of production is a decent bit higher than the spot price is today. This doesn’t change the bottom line for serious analyses of policy implications. The third issue is the one raised in the featured quote about “Ponzi schemes”. It is rather amazing that despite the Times’ focus on that quote, it never bothers to actually explain what the Ponzi scheme metaphor refers to. Here’s what it’s talking about: The shale gas industry contains many independent drillers. They often taken on a lot of debt to finance their activity. In particular, they take on a lot of debt in order to buy more leases. (My understanding is that leases tend to be the most expensive part of shale gas development these days.) But leases don’t help them service that debt – they need cash flow to do that. And to generate cash flow they often need to pump and sell natural gas. (They can also raise cash by selling some of their leases, which also feeds the Ponzi metaphor, but there is a limit to this.) What that means is that drillers have an incentive to produce gas even when, all in, it isn’t really economical at current prices. Alas, this feeds into a loop: gas floods the market, driving prices down even further, which creates an incentive for even more new drilling in order to meet cash flow needs. This is compounded by the fact that some operators are required to drill within a certain period of time in order to hold on to their leases. This is obviously unsustainable: at some point, the cost of production – including leases and profit – needs to be less than the price of gas. That’s part of why many independents are trying to sell themselves to bigger players (who can finance development through their balance sheets rather than with debt, and which can wait more patiently for prices to rise a bit). It’s also part of why some of them are selling off assets. (Unless it’s only selling its lemons, this is not fundamentally different from any growing company selling off some of its equity in order to raise cash.) I have no doubt that some of these companies will fail to last long enough to either see higher gas prices or to sell themselves to entities that have the patience to hang on until the current gas glut gets worked through. Those companies will go bankrupt. (One might even be excused for referring to some of their business models -- but not the whole industry -- as Ponzi schemes.) So what? The Times repeatedly confuses the fortunes of various risk-hungry independents with the fortunes of the industry as a whole. Some investors will lose lots of money; some banks will regret having made loans. That’s life. It’s not clear why I should feel too sorry for them, or why the Times is so worried about saving their hides. (Also: If shale gas is unsustainable at current prices, not only will prices rise, lease costs will drop, making production less expensive and allowing gas prices to settle lower than if lease costs were permanently fixed. Most land that’s being used for shale gas isn’t nearly as valuable for alternative uses; lease prices should thus be pretty elastic.) At What Price Shale Gas? Ultimately, the biggest issue that the piece raises concerns natural gas prices, not overall viability for the industry. (I say “raises” loosely, since the article doesn’t actually make clear that this is the real issue.) Do we have a world of four dollar gas in our future? Or will prices rise to six or seven or eight dollars in a few years, once acreage is consolidated under bigger players who can finance lease costs through their balance sheets and hence might have less incentive to pump out ever more gas in the short term? These questions matter: they have important implications for natural gas policy, climate policy, and for decisions regarding natural gas exports. So it’s a shame that the article obscures them, because it’s allowing industry officials to ignore the real issues. In a long Facebook post last night, Chesapeake CEO (and uber-shale gas impresario) Aubrey McClendon hits back at the article thusly: “It is also ludicrous to allege that shale gas wells are underperforming as we sit awash in natural gas, with natural gas prices less than half of what they averaged in 2008.  I also note that CHK and other shale gas producers are routinely beating our production forecasts – how can shale wells be underperforming if shale gas companies are beating their production forecasts and as US nat gas production has recently surged to new record highs (in fact, in 2009, thanks to shale gas, the US passed Russia as the largest natural gas producer in the world). Also, isn’t it completely illogical when this reporter argues that shale gas wells are underperforming, yet acknowledges that gas prices are less than half the price they were three years ago. ” A proper read of the evidence cited in the article might provide ready answers to these questions: Gas prices might be low because drillers have an incentive to produce even if their wells are underperforming; high production might be evidence for the article’s contentions (which rest on there being incentives to produce more gas in order to generate cash flow), rather than against them; and it’s totally consistent for wells to be underperforming and to have cheap gas at the same time, so long as there are plenty of wells operating for other reasons. Let me be clear: I’m not saying that the entire industry is being propped up by the dynamics that the Times article is based on. I haven’t done the detailed economics: perhaps prices would be 5% higher; perhaps they’d by 50% higher. But the Times hasn’t done the economics either. And by choosing to indulge in hype rather than digging down into the real substance, it’s missed an opportunity to spark a useful debate too.