Tag Archives: Fracking

Biden: OK to Frack for Natural Gas—Not OK to Burn It, by C. Boyden Gray

Carbon-free electricity generation will wipe out the main market for natural gas, and consequently, much of the fracking industry. From C. Boyden Gray at realclearpolitics.com:

The “fracking” revolution has unleashed an incredible American energy boom over the past decade. America is now the biggest producer of oil and gas in the world, beating Saudi Arabia and Russia. Fracking has contributed to an economic revival in areas of the country once in freefall. Pennsylvania is now second only to Texas in natural gas production, and Ohio is now fifth. This has reduced air pollution by displacing coal.

Joe Biden wants a counter-revolution, but he does not want you to know about it.

Candidate Joe Biden has sent mixed messages. During the primary debates, Biden and his running mate, Sen. Kamala Harris, said they supported a fracking ban. Their campaign, however, insists that the Biden plan would ban fracking only on federal lands, not on private lands. Fact checkers regularly parrot the talking point.

For the full picture, voters should take a look at Biden’s official clean energy plan. The Biden plan borrows the Green New Deal’s ambitious goal of a “carbon pollution-free power sector by 2035.” Burning natural gas—methane—inevitably emits carbon, so the Biden plan requires eliminating natural gas for electricity generation by 2035. 

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Convergence of Quandaries, by James Howard Kunstler

The shit is hitting the fan all at once. From James Howard Kunstler at kunstler.com:

And so, America has a new manufactured crisis, ElectionGate, as if all the other troubles piling up like tropical depressions marching across the September seas were not enough. Let me remind you what else is going on. The Wuhan pandemic is still on the scene, the economy is collapsing, a domestic race-war is escalating, the whole west coast is burning, and US oil production is crashing. Oh… and slow-moving tropical storm Sally is forecast to come ashore as a hurricane on the Gulf Coast today, dumping up to two feet of rain.

America needs a constitutional crisis like a hole in the head, and that’s exactly what’s being engineered for the holiday season by the clever folks in the Democratic Party’s Lawfare auxiliary. Here’s how it works: the complicit newspapers and cable news channels publish polls showing Joe Biden leading in several swing states, even if it’s not true. Facebook and Twitter amplify expectations of a Biden victory. This sets the stage for a furor when it turns out that he loses on election night. On cue, Antifa and BLM commence to riot all around the country. Meanwhile, a mighty harvest of mail-in votes pours into election districts utterly unequipped to validate them.

Lawfare cadres agitate in the contested states’ legislatures to send rogue elector slates to the electoral college. The dispute ends up in congress, which awaits a seating of newly-elected representatives on January 4, hopefully for Lawfare, mostly Democrats. Whoops…! Turns out the Dems lost their majority there too. Fighting in the streets ramps up and overwhelms hamstrung police forces in Democratic-run cities. January 20 — Inauguration Day — rolls around and the Dems ask the military to drag Trump out of the White House “with great dispatch!” as Mr. Biden himself put it so nicely back in the summer. The US military breaks into two factions. Voilà: Civil War Two.

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The Great American Shale Oil & Gas Massacre: Bankruptcies, Defaulted Debts, Worthless Shares, Collapsed Prices of Oil & Gas. by Wolf Richter

The carnage in the oil and gas patch has been gruesome. From Wolf Richter at wolfstreet.com:

The bankruptcy epicenter is in Texas.

The Great American Oil Bust started in mid-2014, when the price of crude-oil benchmark WTI began its long decline from over $100 a barrel to, briefly, minus -$37 a barrel in April 2020. Bankruptcies of US companies in the oil and gas sector started piling up in 2015. In 2016, the total amount of debt listed in these filings hit $82 billion. Bankruptcy filings continued, with smaller dollar amounts of debt involved. In 2019, the shakeout got rougher.

And this year promises to be a banner year, as larger oil-and-gas companies with billions of dollars in debt collapsed, after having wobbled through the prior years of the oil bust.

The 44 bankruptcy filings in the first half of 2020 among US exploration and production companies (E&P), oilfield services companies (OFS), and “midstream” companies (gather, transport, process, and store oil and natural gas) involved $55 billion in debts, according to data compiled by law firm Haynes and Boone. This first-half total beat all prior full-year totals of the Great American Oil Bust except the full-year total of 2016:

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The Great American Shale Oil & Gas Bust: Fracking Gushes Bankruptcies, Defaulted Debt, and Worthless Shares, by Wolf Richter

The shale boom is over, but not the financial fallout. From Wolf Richter at wolfstreet.com:

Texas at the epicenter. We’re witnessing the destruction of money that loosey-goosey monetary policies encouraged.

Following the sharp re-drop in oil and natural gas prices in late 2018, bankruptcy filings in the US by already weakened exploration and production companies , oilfield services companies, and “midstream” companies (they gather, transport, process, or store oil and natural gas) jumped by 51% in 2019, to 65 filings, according to data compiled by law firm Haynes and Boone. This brought the total of the Great American Shale Oil & Gas Bust since 2015 in these three sectors to 402 bankruptcy filings.

The debt involved in these bankruptcies in 2019 doubled from 2018 to $35 billion. This pushed the total debt listed in these bankruptcy filings since 2015 to $207 billion. The chart below shows the cumulative total debt involved in these bankruptcies since 2015.

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Fracking Blows Up Investors Again: Phase 2 of the Great American Shale Oil & Gas Bust, by Wolf Richter

Fracking may be the greatest thing to ever happen to US oil and gas production, but it’s having a hard time paying for itself, especially when the cost of copious amounts of debt is thrown into the calculations. From Wolf Richter at wolfstreet.com:

Including billionaires who thought they’d picked the bottom in 2016.

In 2019 through third quarter, 32 oil and gas drillers have filed for bankruptcy, according to Haynes and Boone. Since the end of September, a gaggle of other oil and gas drillers have filed for bankruptcy, including last Monday, natural gas producer Approach Resources. This pushed the total number of bankruptcy filings of oil and gas drillers since the beginning of 2015 to over 200. Other drillers, such as Chesapeake Energy, are jostling for position at the filing counter.

Chesapeake has been burning cash ever since it started fracking. To feed its cash-burn machine, it has borrowed large amounts and has been buckling under its debt for years, selling assets to raise cash and keep drilling for another day. But its debt is still nearly $10 billion. Its shares [CHK] closed on Friday at 59 cents.

On November 5, in an SEC filing, it warned of its own demise unless oil and gas prices surge into the sky asap: “If continued depressed prices persist, combined with the scheduled reductions in the leverage ratio covenant, our ability to comply with the leverage ratio covenant during the next 12 months will be adversely affected which raises substantial doubt about our ability to continue as a going concern.”

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The G-7 Blues, by James Howard Kunstler

Extended supply lines and the global economy’s dependence on fossil fuels creates an unstable situation prone to dramatic dislocations. From James Howard Kunstler at kunstler.com:

What’s at stake in all these international confabs like the G-7 are the tenuous supply lines that keep the global game going. The critical ones deliver oil around the world. China imports about 10 million barrels a day to keep its operations going. It produces less than 4 million barrels a day. Only about 15 percent of its imports come from next door in Russia. The rest comes from the Middle East, Africa, and South America. Think: long lines of tanker ships traveling vast distances across the seas, navigating through narrow straits. The Chinese formula is simple: oil in, exports out. It has worked nicely for them in recent decades. Things go on until they don’t.

That game is lubricated by a fabulous stream of debt generated by Chinese banks that ultimately answer to the Communist Party. The party is the Chinese buffer between banking and reality. If the party doesn’t like the distress signals that the banks give off, it just pretends the signals are not coming through, while it does the hokey-pokey with its digital accounting, and things appear sound a while longer.

The US produces just over 12 million barrels of oil a day. About 6.5 million of our production is shale oil. We use nearly 20 million a day. (We’re not “energy independent.”) The shale oil industry is wobbling under the onerous debt load that it has racked up since 2005. About 90 percent of the companies involved in shale oil lose money. The capital costs for drilling, hauling a gazillion truckloads of water and fracking sand to the rig pads, and sucking the oil out, exceed the profit from doing all that. It’s simply all we can do to keep the game going in our corner of the planet, but it’s not a good business model. After you’ve proved conclusively that you can’t make a buck at this using borrowed money, the lenders will quit lending you more money. That’s about where we are now.

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What Looms Behind, by James Howard Kunstler

Are we running out of fuel and technology? From James Howard Kunstler at kunstler.com:

Don’t hold your breath waiting for a coherent pre-election debate about the mother-of-all-issues facing this republic, namely, that we can’t afford the living arrangements Americans think of as “normal” anymore. This quandary has stalked us since the millennium turned. It thunders through all the activities of daily life, and the tensions emanating from it are so agonizing and difficult to face that our politics have deflected off into the kind of hysteria spawned by bad dreams.

As the great Wendell Berry pointed out years ago, this is about the nation’s home economics: energy and resources in, production out, surplus wealth saved. America had a brush with reality in 2008 when all the distortions of our home economics came together and whapped the country between the eyes with a two-by-four. Our energy-in was faltering. US oil production had fallen to a new low of under 4 million barrels a day and we were importing around 15 million. We papered over the problem with borrowed money in ever-larger amounts. This dynamic prompted ever riskier work-arounds on Wall Street, especially “innovations” in securitized debt, which invited criminal shenanigans. It blew up badly. Wealth vaporized. Industries collapsed. Homes and jobs were lost. Lives ruined.

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Shale Pioneer: Fracking Is An “Unmitigated Disaster”, by Nick Cunningham

If you’re paying $50 to extract $40 worth of oil, is that really a miracle? From Nick Cunningham at oilprice.com:

Fracking has been an “unmitigated disaster” for shale companies themselves, according to a prominent former shale executive.

“The shale gas revolution has frankly been an unmitigated disaster for any buy-and-hold investor in the shale gas industry with very few limited exceptions,” Steve Schlotterbeck, former chief executive of EQT, a shale gas giant, said at a petrochemicals conference in Pittsburgh. “In fact, I’m not aware of another case of a disruptive technological change that has done so much harm to the industry that created the change.”

The message is not a new one. The shale industry has been burning through capital for years, posting mountains of red ink. One estimate from the Wall Street Journal found that over the past decade, the top 40 independent U.S. shale companies burned through $200 billion more than they earned. A 2017 estimate from the WSJ found $280 billion in negative cash flow between 2010 and 2017. It’s incredible when you think about it – despite the record levels of oil and gas production, the industry is in the hole by roughly a quarter of a trillion dollars.

The red ink has continued right up to the present, and the most recent downturn in oil prices could lead to more losses in the second quarter.

So, questionable economics is not exactly breaking news when it comes to shale. But the fact that a prominent former shale executive – who presided over one of the largest shale gas companies in the country – called out the industry face-to-face, raised some eyebrows, to say the least. “In a little more than a decade, most of these companies just destroyed a very large percentage of their companies’ value that they had at the beginning of the shale revolution,” Schlotterbeck said. “It’s frankly hard to imagine the scope of the value destruction that has occurred. And it continues.”

The industry is at a bit of a crossroads with Wall Street losing faith and interest, finally recognizing the failed dreams of fracking. The Wall Street Journal reports that Pioneer Natural Resources, often cited as one of the strongest shale drillers in Texas, is largely giving up on growth and instead aiming to be a modest-sized driller that can hand money back to shareholders. “We lost the growth investors,” Pioneer’s CEO Scott Sheffield said in a WSJ interview. “Now we’ve got to attract a whole other set of investors.”

Sheffield has decided to slash Pioneer’s workforce and slow down on the pace of drilling. Pioneer has been bedeviled by disappointing production from some of its wells and higher-than-expected costs.

But, as Schlotterbeck told the industry conference in Pittsburgh, the problem with fracking runs deep. While shale E&Ps have succeeded in boosting oil and gas production to levels that were unthinkable only a few years ago, prices have crashed precisely because of the surge of supply. And, because wells decline at a precipitous rate, capital-intensive drilling ultimately leaves companies on a spending treadmill.

Meanwhile, as the financial scrutiny increases on the industry, so does the public health impact. A new report that studied over 1,700 articles from peer-reviewed journals found harmful impacts on health and the environment. Specifically, 69 percent of the studies found potential or actual evidence of water contamination associated with fracking; 87 percent found air quality problems; and 84 percent found harm or potential harm on human health.

The health impacts have been a point of controversy for years, pitting the industry against local communities. The industry largely won the tug-of-war over fracking, beating back federal and state efforts to regulate it. However, the story is not over.

In many cases, there is an abundance of anecdotal evidence pointing to serious health impacts, but peer-reviewed research takes time and has lagged behind the incredible rate of drilling. Now, the public health research is starting to catch up. Of the more than 1,700 peer-reviewed studies looking at these issues, more than half have been published since 2016.

One need not be an opponent of fracking to recognize that this presents a threat to the industry. For instance, a spike of a rare form of cancer has cropped up in southwestern Pennsylvania recently. The causes are unclear, but some public health advocates and environmental groups are pointing the finger at shale gas drilling, and have called on the governor to stop issuing new drilling permits. The Marcellus Shale Coalition, an industry group, said the request was “ridiculous.” The region is right at the heart of high levels of shale drilling, so any regulatory action coming in response the public health outcry could impact drilling operations. Time will tell.

In the meantime, poor financials are the largest drag on the shale sector. “And at $2 even the mighty Marcellus does not make economic sense,” Steve Schlotterbeck, the former EQT executive said at the conference. “There will be a reckoning and the only questions is whether it happens in a controlled manner or whether it comes as an unexpected shock to the system.”

 

 

Be Wary Of Unrealistic Shale Growth Expectations, by Nick Cunningham

It turns out the shale oil story isn’t quite the miracle it’s touted to be. From Nick Cunningham at oilprice.com:

U.S. shale drillers are facing a serious problem: Their wells are not producing as much oil and gas as they had anticipated.

When facing shareholder scrutiny, shale drillers have countlessly hyped the litany of technological breakthroughs, efficiency gains and innovative drilling techniques. Indeed, production from U.S. E&Ps has skyrocketed over the past decade, save for interruption during the 2014-2016 bust. But even then, shale executives argued that the downturn made them lean and mean, and that they would use their newfound frugality to ramp up production and profits.

But the hype has slammed into reality on a few fronts. First, after years of bankrolling the shale industry in hopes of juicy profits, Wall Street is starting to lose patience. Some companies turn a profit, but the industry on the whole has been losing money since its inception in the mid-2000s. Executives are once again promising that enormous profits are just around the corner, but you could forgive the skeptics for questioning whether that will turn out to be the case.

A second – and no less damning – development is starting to occur on the operational side of things. Shale companies are finding that the returns on pushing their drilling practices to evermore intense frontiers are beginning to fizzle. For years, drillers increased the length of their laterals, injected more and more sand and water underground, and packed wells closer and closer together. These techniques of intensification promised to produce more oil and gas for less money.

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America’s Oil Boom Is a Fraud, by Bill Bonner

Even at ultra-low interest rates, a lot of fracking in the US wasn’t making any money. From Bill Bonner at bonnerandpartners.com:

PARIS – We promised to end the week with a bang!

You’ll recall that Fed policy always consists of the same three mistakes… 1) Keeping interest rates too low for too long, resulting in too much debt; 2) Raising interest rates to try to gently deflate the debt bubble; and 3) Cutting rates in a panic when stocks fall and the economy goes into recession.

Well, here comes the Big Bang: Mistake #4 – rarely seen, but always regretted.

Mistake #4 is what the feds do when their backs are to the wall… when they’ve run out of Mistakes 1 through 3.

It’s a typical political trade-off. The future is sacrificed for the present. And the welfare of the public is tossed aside to buy money, power, and influence for the elite.

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