RE: Natural gas: The fracking fallacy

['Chris de Morsella' via Everything List]

 

 

From: everything-list@googlegroups.com 
[mailto:everything-list@googlegroups.com] On Behalf Of John Clark
Sent: Sunday, December 21, 2014 7:01 PM
To: everything-list@googlegroups.com
Subject: Re: Natural gas: The fracking fallacy

 

On Sun, Dec 21, 2014 , 'Chris de Morsella' via Everything List 
<everything-list@googlegroups.com> wrote:

 

>You are out of touch on energy matters my dear fellow. The EIA and even more 
>so many investment houses such as Goldman Sachs for example where making 
>spectacular predictions about the extent of the capacity of the shale deposits 
>in the continental US; predictions that have proved spectacularly wrong.

 

That's true, they were spectacularly wrong. Back in 2011 they bought oil at 
$130 a barrel because they predicted the price of oil could only go up. Today 
it's selling at $60 a barrel. So I repeat me request, after that epic disaster 
explain to me why I should pay attention to their latest prognostication

 

I was specifically referring to published reserve estimates by the EIA, as well 
as by Goldman Sachs and other institutions heavily vested in – and that have so 
far very much profited from -- this tight oil & gas sector bubble. 

You seem to be referring to futures. That is very different. What you refer to 
is simply a bad bet in the market; what I am referring to is shoddy 
unprofessional reporting at best (the EIA), but quite possibly fraudulent 
promotion of false projections and inflated reserves in order to profit from 
bamboozled investors. When the research arm of an investment house is leading 
the booster charge – “America the Saudi Arabia of Shale” etc. and is knowingly 
using these false projections and rosy projections in order for its investment 
arm to lure investors into believing they will profit and to make money from 
servicing the bubble it helped to create… that smells unethical and like 
something that should be illegal.

 

 

> The shale gas boom has the smell of a manic bubble 

 

Manic!? Bubble!? The price of gas is dropping like a rock, how in hell is that 
a bubble?

 

The entire tight oil & gas sector is in the initial stages of a major collapse 
in the US and Canada (tar sands) that is going to have major implications for 
the wider economy and may cripple our brittle too big to fail crony financial 
system of New York Fed favorites. Wait till we tax payers get the bill when 
these institutions begin imploding on the coming wave of bankruptcies in the 
tight oil & gas sector triggering an even larger financial tsunami off all of 
that worthless paper vanishing from their balance sheets. You will perhaps have 
a clearer idea then of what I intend by bubble.

 

>  How do you think drillers financed the very significant capital expenditures 
> required in order to horizontal drill and then frack a deposit? There is a 
> very big pile of debt; debt that will never yield a return, now that the 
> market has collapsed.

 

As I explained, the collapse of oil prices is very bad news for oil drillers 
and those who made a bet on them, but very good news for nearly everybody else. 
 

 

No it isn’t. This kind of wild swing in the price of oil is jeopardizing the 
continuity of future supply and development of upstream reserves. What the 
world needs is a steady and slowly rising price of oil, that reflects its 
increasing scarcity. This kind of wild swing is hugely damaging and you and I 
and everyone will pay for it when it swings the other direction and the 
upstream supplies that would have been there – given a steady predictable price 
scenario – are not there.

It takes many years sometimes even decades to fully develop a new field.

For example this current wild price swing is literally killing the North Sea 
oil sector. The whole upstream pipeline of capital allocation and development 
for bringing reserves to market in five to ten years or so of time has been 
badly de-railed.

The very fact you portray this wild price swing in such a vital commodity as 
energy as being a good thing for everyone else betrays your quite casual 
understanding of the energy sector and the very long time frame planning that 
goes on in that sector. If you do not grasp how swings like this wreak havoc on 
projects that may be still many years from market then finance is not your 
strong suite either.

 

 >> New technology, in particular fracking, has been very bad news for the oil 
 >> companies bottom line even if it's good new for the economy as a whole.

 

> Who do you think is doing the fracking?

 

Oh I don't know, I would guess  companies that are in the oil and gas sector.

 

> I’ll give you a hint… companies that are in the oil and gas sector.

 

And why would they do that? Because they know that if they don't somebody else 
will. Selling twice as many barrels at a third the price is bad, but selling 
the same number of barrels at a third the price is worse.  

 

Yeah go set up a drilling company John. It’s as easy as pie. Let me see 
horizontal drilling, fracking… all easy to do… hehe. The drilling companies do 
it because they have the expertise, knowhow, capital, suppliers, logistical 
heft, specialized sector financial, legal and lobbying capacity and so forth to 
prevail. 

The Saudi’s have their reasons for collapsing the global price for oil, and it 
also happens to align with current US strategic military objectives vis a vis 
Russia, Iran, Venezuela, Bolivia all of which are high price producers (need 
oil to float around $100 per barrel)

There are some very good reasons for the Saudi’s to take a short term hit now 
including: 1) driving the US tight oil sector (seen as a key competitor) into 
the ground; 2) punish Russia for not supporting the Saudi vision for a Sunni 
dominated Syria; 3) Put the squeeze on Iran as well (which is a higher cost 
producer). They can do it now because it is in alignment with US imperial 
interests in Eurasia… IMO. What you see as being dumb I see as being 
diabolically clever.

The Saudi’s will cash in; it will take a few years to squeeze out a lot of the 
higher priced producers and strangle upstream projects in the womb, but once 
they have cleared the decks they will be able to jack the prices up and up. 
There will be no short term response, no ability to bring supply online without 
years of lead time to bring it on-stream. Wonder if you will still think they 
are stupid then.

-Chris

 

 

  John K Clark 

 

 

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