Power Hungry (39 page)

Once every few decades, the energy industry is forced to overhaul its thinking. New technologies or new discoveries replace the old ways, and the industry must quickly adapt to the new paradigm. In the 1930s, the East Texas Field turned the U.S. oil sector on its head. In the 2000s, the Barnett Shale did the same for natural gas.

Both fields proved the doubters wrong. Both fields were huge and both were located in northern Texas. And the discoveries of both coincided with a price collapse in their respective commodities and the commencement of worldwide financial calamities. Of course, there's an obvious difference between the Barnett and East Texas Field: The shale is a natural gas play, whereas East Texas was almost exclusively about oil. And yet, even accounting for that difference, the two fields are remarkably similar.

The two fields are geographically close to each other: The East Texas Field was centered around Kilgore, about 125 miles east of Dallas; the Barnett Shale pivots to the north, west, and south of Fort Worth, about 30 miles west of Dallas. Both fields shattered claims that the world was running out of hydrocarbons. In 1914, a U.S. government agency, the Bureau of Mines, predicted that world oil supplies would be depleted within ten years.
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In the 1980s, federal officials and some of the top people in the energy sector believed that the United States was running out of natural gas.
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Both fields are huge. The East Texas Field dwarfed all of the oil fields that came before it. Historian Lawrence Goodwyn described it as “one vast lake of oil 43 miles long and 3 to 10 miles wide. It was so big it was hard to think about.”
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It contained some 6 billion barrels of oil and was the largest oil field in the world known at that time.
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By comparison, the sprawling Barnett Shale makes the East Texas Field look almost dainty. The Barnett deposit sprawls across at least seventeen counties and covers some 5,000 square miles—that's nearly the size of the state of Connecticut.
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The size of the two fields led to a flurry of drilling activity unlike anything that had come before. In 1930, Columbus Marion “Dad” Joiner, a stubborn, Biblequoting promoter from Alabama, drilled his way into history by bringing in a massive gusher with the Daisy Bradford No. 3. About a year later, in October
1931, one well was being completed in the East Texas Field every hour. In the first half of 1931 alone, 1,100 wells were drilled. In 1932 in Kilgore, one city block contained 44 different oil wells. By the end of 1933, nearly 12,000 wells were sucking oil out of the East Texas Field.
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The activity in the Barnett Shale has not been quite that intense, but the drilling activity has been remarkable. In 2003, as the outlines of the shale play began to be understood, 47 drilling rigs were working in the Barnett Shale during an average week. By 2008, that number had soared to 182 rigs.
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Put another way, during any given week in 2008, about 10 percent of the wells being drilled in the United States were being drilled in the Barnett Shale.
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In 2003, the Barnett had about 3,000 producing wells. By the end of 2008, it had more than 12,000.
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The doubters had insisted that the Barnett Shale would never pay off. The shale was just too dense, too impermeable. Houston oilman George Mitchell's persistence (and sizable wallet) proved them wrong. He kept his drilling crews working on the Barnett Shale for years even though his own personnel were telling him it was a waste of money. Six decades earlier, Dad Joiner had silenced the critics who claimed that East Texas was devoid of hydrocarbons when his rank wildcat yielded a gusher in Rusk County.
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Both fields resulted in a surge of drilling, which quickly led to a flood of production and a collapse in prices. In 1930, the year that Joiner found oil, crude prices in the United States averaged $1.19 per barrel.
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By August 1931, oil was selling for 13 cents per barrel, and in parts of East Texas it was selling for as little as 3 cents per barrel.
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The development of the Barnett Shale and other major shale gas plays in the United States contributed to a similar price collapse. During the summer of 2008, the Barnett was producing about 8 percent of all the gas produced in the country.
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And that gas was being fed into a booming global economy that was reaching the tail-end of a long bull market. On July 3, 2008, near-month natural-gas futures prices hit a near-record $13.58 per thousand cubic feet.
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By April 2009, gas futures had fallen to about $3.50,
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and numerous forecasters were estimating the U.S. natural gas prices would stay under $4 for months, perhaps even years to come.

Just as the East Texas Field changed the American oil business, the Barnett Shale has fundamentally changed the U.S. gas business—and that change is just getting started.