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Image: Bryan Burke

Grangemouth fracking terminal – vision of the future or waste of money?

In a glowing article for the Falkirk Herald, Stuart Barber makes some remarkably optimistic claims about the future of the Ineos refinery in Grangemouth:

“In five days time a cargo ship the length of two football pitches will dock at the Ineos jetty in Grangemouth to off load nearly one million cubic feet of fracked shale gas.

“It will be the first of many shipments from the United States carrying ethane sourced from wells thousands of miles away in the Marcellus basin, a shale rock formation covering 104,000 square miles which includes large parts of Pennsylvania, West Virginia, Ohio and upstate New York.

“Jim Ratcliffe, the billionaire owner of Ineos, has signed contracts to ensure he receives a similar delivery every three weeks – for the next 15 years – to feed his refinery.”

The US ethane – which may be supplemented by fracking products from UK drilling – will be processed for use in a range of products from packaging to car parts, to medical applications and construction and some renewable technologies.

There may, however, be a very large flaw in this multi-billion pound investment.  The US shale plays do not contain 15 years’ worth of recoverable shale gas; and the UK may not have any.  Like so many shale investments, this one appears to be based on the corporate hype that US energy companies have used to mislead investors into believing in the myth of “Saudi America” and the “century of energy independence”.

This myth is perpetuated by deliberately confusing “resources” with “reserves”.  The resource is the amount of gas thought to be trapped in the shale rocks.  This may well amount to hundreds of years of US consumption.  But you can’t cook or heat a building with gas that is thousands of feet underground, and trapped within rock formations.  This is where the idea of a reserve comes in.  A reserve is the amount of gas that is recoverable at today’s prices; and companies are under a legal obligation to accurately report their reserves to the US Securities and Exchange Commission.

Image: Bloomberg

Image: Bloomberg

This is why we must take seriously the calculations of Texan energy specialist Arthur Berman; who has used SEC data to calculate the current US reserves of shale oil and gas.  According to Berman, at today’s prices there are just eight years’ worth of gas reserves at current rates of US consumption:

“Shale gas plays were supposed to provide 100 years of supply but there never was 100 years of gas.  It was a story told to promote the erroneous idea that the U.S. had so much gas that it could afford to squander and export this valuable natural resource.

“Meanwhile, E&P companies destroyed billions of dollars in shareholder value. They did this by knowingly producing gas into a non-commercial market and then, diluting shareholders by issuing more stock to fund more drilling and production.”

If the glossy investment brochures created by the US energy industry are corrects, then the Grangemouth development can look forward to a thriving future.  But if the data reported to the SEC, and the analysis of experts like Berman prove closer to the mark, it may soon prove to be £1 billion that could have been better spent elsewhere.

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