11 November 2020

The Guardian: “How America’s ‘most reckless’ billionaire created the fracking boom”

Because so few fracking companies actually make money, the most vital ingredient in fracking isn’t chemicals, but capital, with companies relying on Wall Street’s willingness to fund them. If it weren’t for historically low interest rates, it’s not clear there would even have been a fracking boom at all.

You can make an argument that the Federal Reserve is entirely responsible for the fracking boom, one private-equity titan told me. That view is echoed by Amir Azar, a fellow at Columbia University’s Center on Global Energy Policy. The real catalyst of the shale revolution was the 2008 financial crisis and the era of unprecedentedly low interest rates it ushered in, he wrote in a recent report. Another investor put it this way: If companies were forced to live within the cash flow they produce, US oil would not be a factor in the rest of the world, and would have grown at a quarter to half the rate that it has.

The price of natural gas began to plunge in 2012, and in 2014, the price of oil followed suit. Falling prices quickly exposed the weak underbelly of US shale – its high costs and ravenous need for capital. Once-booming US production hit the skids. The so-called rig count – the number of rigs drilling for oil and gas at a given time – fell from 1,920 rigs in late 2014 to a low of 480 in early 2016. We think it likely that to find a lower level of activity would require going back to the 1860s, the early part of the Pennsylvania oil boom, Paul Hornsell, head of commodities research for Standard Chartered bank, wrote in a research note. By mid-2016, US oil production had declined by 1m barrels a day.

Bethany McLean

Hard to believe that the headline is not referring to Elon Musk, but apparently there is plenty of room in the United States for reckless billionaires, in this case fracking tycoon Aubrey McClendon. Another segment of the economy artificially inflated by cheap capital while the rest of the world has to bear the environmental consequences.

Infrared image last year of an MDC Energy well pad leaking methane
An infrared image last year of an MDC Energy well pad leaking methane (which is invisible to the naked eye). This month, the site has continued to leak gases, government violations show. Jonah M. Kessel/The New York Times

Fast forward to 2020, the collapse of the fracking industry has only accelerated, leaving behind millions of abandoned oil and gas wells leaking methane emissions, while top executives become richer and are not held accountable, shielded by bankruptcy laws.

Oil and gas companies in the United States are hurtling toward bankruptcy at a pace not seen in years, driven under by a global price war and a pandemic that has slashed demand. And in the wake of this economic carnage is a potential environmental disaster — unprofitable wells that will be abandoned or left untended, even as they continue leaking planet-warming pollutants, and a costly bill for taxpayers to clean it all up.

Still, as these businesses collapse, millions of dollars have flowed to executive compensation.

It seems outrageous that these executives pay themselves before filing for bankruptcy, said Kathy Hipple, an analyst at the Institute for Energy Economics and Financial Analysis and a finance professor at Bard College. These are the same managers who ran these companies into bankruptcy to begin with, she said.

Hiroko Tabuchi

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