Is the Fracking Industry About to Go Bust?

Wishful thinking? Maybe not according to two Resilience reports that cite the Wall St. Journal and other credible financial sources as pointing to a dramatic fracking bust….and soon. May it be true. I did it, a short blog.

Resilience Points to Immanent Fracking Bust

Retake has been reporting regularly on the status of the gas and oil boom in southeast NM. The chart at left depicts historic levels of daily US oil production as reported by the Energy Information Association. It shows a sharp increase with the arrow heading up steadily since Jan. 2017. The most recent Legislative Finance Committee projections show gas and oil revenues generating almost a billion dollar surplus for the state in the next budget cycle.

But in an article originally published in DeSmog Blog and republished yesterday in Resilience, Justin Mikulka cites a wide array of financial reports that suggest that the fracking business may be headed for some rough waters. In Will the Fracking Industry Peak Before Ever Making Money, Mikulka makes the point that for a decade the fracking industry has been investing aggressively in technology and infrastructure designed to reduce production costs, but while those investments have indeed achieved the desired reductions, the greed of the industry is its own undoing.

The shale oil and gas industry, which has driven the recent boom in American oil and gas production, has been on a more than decade-long money-losing streak, with estimated losses of approximately a quarter trillion dollars. Those losses have continued in 2019.

Resilience, Will the Fracking Industry Peak Before Ever Making Money

That is Trillion with a T. And a bit further on, Mikulka adds:

This failure to generate profits led to the Financial Times recently reporting that shale investors are having a “crisis of faith” and turning away from U.S. oil and gas investments. That’s been bad news for frackers because the entire so-called “shale revolution” was fueled by massive borrowing, and these companies are increasingly declaring bankruptcy, unable to pay back what they borrowed because they haven’t been turning a profit. “

Resilience, Will the Fracking Industry Peak Before Ever Making Money

But if production is up and costs are down, why is there no profit to be had? As Mikulka makes clear, it is corporate greed at the heart of the problem. The industry has nearly exhausted its drilling of what is categorized as “Tier I” drilling sites. Tier I sites are those that yield the greatest production with the least cost. But the industry has made a habit of adding more and more wells, in closer and closer proximity and now is finding that this concentration is significantly reducing productivity of the Tier II wells and other wells that are left. As a result, having borrowed enormously to reduce costs, productivity is not meeting expectations and so investors are getting worried.

Perhaps the surest sign of desperation among shale firms is the issue of “frac hits” or “child wells,” an issue DeSmog flagged over a year ago. These companies are aware that if secondary or “child wells” are drilled too close together around the primary, or “parent well,” the fracking process can damage the nearby wells. And they also know that, as a result, these wells do not perform as well as those with greater spacing.
Nevertheless, they continue to do it. “

Resilience, Will the Fracking Industry Peak Before Ever Making Money

And so, good old capitalist greed is undermining profitability. Couldn’t happen to a nicer group of folks.

Reports of increasing gas and oil investment in southeastern NM, investments in hotels, state investment in roads, and other indicators suggest that the Permian boom is real and sustainable. But the reports from so many financial analysts pointing to the fragility of the fracking industry, suggests the critical need for NM to begin earnestly planning a just transition. Gas and oil booms turn to busts very quickly and we’d be well advised to be prepared. And that bust can’t come too soon as–sad to say–it won’t be the result of concerns for the planet that cause us to keep it in the ground. That decision will be made based upon what all economic decisions are based upon: greed. Once there is no money in extraction, then extraction will cease. May it be soon.

Click here to read the full report.

In solidarity, Paul & Roxanne

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2 replies

  1. It might be one gigantic scheme, a combination of greed, wishful thinking, and propaganda. They have drawn in plenty of gullible investors. The industry has been heavily subsidized too. Soon enough it won’t be economically feasible, but the ones who got in on the ground floor will walk away with piles of money. Once the original easy to get oil and plays out, it will be cost prohibitive to continue. Of course the rest of us will be left to clean up the mess, or live with the consequences, like contaminated water supplies, and environmental destruction.

  2. Glass-Half-Empty-Man here: What worries me is that the workers in the fracking industry may well believe the right-wing spin that their pending job loss is the fault of us evil liberals. I wish we could get the word out to all those people that it’s the corporations, not the environmentalists, who are making their jobs disappear.

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