It all started in 1860. Some foolhardy roughneck dropped a load of gun powder down an oil well to see what would happen. But instead of just a pyrotechnical boom he got an unexpected boon of extra petroleum. The name of this serendipitous daredevil is lost but his “crude” legacy remains. We call it fracking.

Predictably, it didn't take long before someone discovered that a bigger bang meant a bigger petroleum dividend; gun powder gave way to nitroglycerin. This was taken to the ultimate extreme in 1967 when a 29 kiloton nuclear explosive---that's equivalent to 58 million pounds of TNT- was used to frack a well.

The underground nuclear blast did indeed produce a flood of oil, but - fortunately - it was too radioactive to be used.

But we digress.

The next development in this novel way to squeeze more oil out of a well came in 1920 with the invention of directional drilling. At first it was used to tunnel under roads and rivers. But in 1975 the Department of Energy began funding ways to merge fracking and horizontal drilling.

Twenty years later plus $10 billion tax dollars for research and another $10 billion that Congress added in tax write-offs for the oil companies, the Department's gamble paid off; horizontal fracking worked.

This was the answer to the U.S.'s glutinous appetite for fuel. America, the Saudi Arabia of coal, became the Saudi Arabia of natural gas. Power plants run on coal switched to NG, as did factories and homes.

Even cars were expected to shift from gasoline to NG. Never mind the fact that a NG vehicle would cost $5,500 more than its gasoline driven counterpart or the fact that a bumper-bending accident could turn the high-pressure NG fuel tank into a bomb that would turn the car into shrapnel, enthusiasm steamrolled over sense.

And why not? Everything was falling in to place. The public was willing to pay an ever higher price for the luxury of NG. The price went from the year's average of $3.20/million Btu in 2002 to a record year's average of $9 in 2008.

It was bye-bye to dirty coal and smelly gasoline and hello to a new era of clean, abundant, and cheap NG made possible by breakthrough technology. A rosy future for NG was assured, until, that is, the unexpected happened---as it always does.

The bubble popped.

NG went from $9 in 2008 to $4 the following year. The average for this year is $2.70; that's 52 cents lower than the previous record low in 2002.

Chesapeake, we have a problem.

During the heady days of the NG boom, Chesapeake's high-flying CEO, Aubrey McClendon, was flipping gas leases for five and ten times what his company paid. But when gas prices plunged, Chesapeake was left with a debt burden of $12 billion in expensive leases and royalties. It needed capital and it needed it fast.

McClendon hyped his companies' reserves to entice investor money. But then the USGS slashed the gas reserves in the Marcellus by 80 percent. And the Colorado School of Mines warned there may be only 23 years' worth of economically recoverable gas left.

Energy expert Bill Powers went one step further. His book, Exploding the Natural Gas Supply Myth, pricked the gas balloon. Powers' book, based on three years of research, concluded, “the U.S. has between a five- to seven-year supply of shale gas.”

Chesapeake's stock and its shareholders took a pounding. The company's stock deflated from a high of $40/share in 2005 to today's $18.

Things couldn't get worse. But they did.

Wells in the Marcellus were proving to be notorious short-lived. A well in Dimock is illustrative. In its first year, it produced 158,000 thousand cubic feet, the second year it fell to 51,000, and the third year it was only 42,000. A production decline of almost 75 percent in three years.

Even Canada, the main source of NG for the U.S., has experienced a NG production drop of 25 percent since 2002.

But Chesapeake and lesser lights still managed to find a way to stay afloat. Enter the Ponzy scheme.

An insider in the NG industry quoted in the N.Y. Times said, “The shale plays are just giant Ponzi schemes and the economics just do not work.” This and many similar quotes raise the question, Could the real business of fracking be hype and attracting investors?

Chesapeake and its competitors are desperately hanging on waiting for investors willing to take a long shot and NG to top $4. At best, survival is a waiting game they can just as easily win or lose.

Sincerely,

Bob Scroggins

New Milford, PA