Process Not What It Seems

INDUSTRY QUESTIONS STILL LINGER FOR GOVERNMENT

By Fran Alexander

Posted: July 10, 2011 at 6 a.m.

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Ah, the talented Mr. Ponzi. The financial scheme bearing his name is one built on first convincing a few investors there are substantial returns to be made on a product or process, and then cleverly setting the hook by paying them a large promised interest with money coming in from more and more investors.

As long as new customers provide the funds needed to pay the interest and only small amounts are withdrawn (most folks usually reinvest in their same accounts), the investment fraud can continue.

However, because there are few, if any, real profits or earnings in a Ponzi to keep it solvent, when too many people decide they want their money at one time, as they did in 2008’s economic squeeze, the Ponzi house of cards comes crashing down.

Those running such schemes, like Bernie Madoff in recent times and Charles Ponzi in the 1920s, either get caught or skip the country.

The New York Times’ June 25 article by Ian Urbina, “Insiders Sound An Alarm Amid a Natural Gas Rush,” has caused quite a stir in gas and financial circles.

The sentence that may have made folks especially uneasy read, “The word in the world of independents is that the shale plays are just giant Ponzi schemes and the economics just do not work.”

Communications between “executives, industry lawyers, state geologists and market analysts” were “obtained through open-records requests or provided ... by industry consultants and analysts.” My guess is that finally a few people decided they were not on a sure path to heaven, and it was time to release some information exposing problems.

This article, in an ideal world, should have caused as large a collective gasp in the public as Wikileaks, but so far there have been no news reports about any initiated government investigations nor has anyone been hauled off to jail for twisting the tail of the sacred cow of homeland energy.

Maybe the working philosophy in Washington right now is that the less said the better, when it comes to closely analyzing the actual costs of producing natural gas by fracking shale thousands of feet underground, costs which some say are greater than what the gas is selling for.

The Ponzi questions arise when trying to figure out how long this can go on without government subsidies shoring up yet another industry, surely one most taxpayers would consider to be plenty profitable on its own.

Perhaps we could call such subsidies, “socialized energy care.”

The company line in promoting massive natural gas production is supposedly gas is our nation’s answer to energy needs, is a job generator, and it will save of the lives of our military personnel fighting for oil — er, scratch that for “liberty and freedom” — in foreign lands.

Those notions are so attractive to all of us that as a society we eagerly buy into what they’re advertising without asking why these deals sound too good to be true.

As long as energy companies continue to buy leases, pay some royalties, sell some gas and tell us how many billions they are generating in the national economy, we tend to go along for the ride.

But whistleblowers within and outside the industry are saying gas reserves are not holding out as long as projected so investment decisions are being made on “lofty forecasts,” which could overestimate the values of the companies.

(An easy-to-understand explanation of this process can be heard on my.brainshark.com/ Ponzi-Gas-Frackers-8298212. This is a presentation called Frackonomics 2.0 by James Northrup, a former oil/gas industryplanning manager.)

“Not so,” say some of the extraction leaders like Aubrey McClendon, CEO of Chesapeake Energy, who claims they are “awash” in gas and selling it cheaply to consumers.

But cheapness is actually a big problem for them because low prices do not make stockholders happy so producers are now looking to sell liquefied natural gas to other countries to get prices up.

So much for “energy independence” for our nation, the mantra of majorettes like T. Boone Pickens.

If finite resources are extracted at enormous physical damage to the land, water and air, as well as to human health and financial stability, and then sold abroad in order to make the industry profitable, we will not wind up independent or secure at all, but environmentally and financially broken.

Think “banana republic” as in “raped, pillaged and plundered.”

This is not a pretty Ponzi.

FRAN ALEXANDER IS A FAYETTEVILLE RESIDENT WITH A LONG-STANDING INTEREST IN THE ENVIRONMENT AND AN OPINION ON ALMOST EVERYTHING ELSE.

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