Is Fracking Becoming Uneconomic?

Transition Tywi Trawsnewid, a ‘transition town’ group in Carmarthenshire, put on a film about fracking last night. Fracking is a dead-end technology but — one possible glimmer on a dark horizon — the economics are unstable.

Since the extract below was written, the oil price has slid further to $45-$50 a barrel. At this level, fracking is too costly to be ‘profitable’ (at least, in nations where there is any meaningful regulation).

From Solving the Grim Equation pps 86-87:
“The USA’s much-publicised ‘energy revival’, dependent on hydraulic fracturing – fracking — of oil-bearing shale rocks, has been over-magnified, yielding mainly debts and serious pollution….
…..Frackers are running out of cash. Bloomberg News analysed 61 fracking companies in 2014 and found that their debts had nearly doubled in four years, but their revenues rose just 5.6%. Possibly, if the crude oil price rose to $150 a barrel or more, some frackers would be able to repay their loans a little more easily, but an oil price at least 50% higher than the level current in September 2014 would slash demand and force societies to adopt less energy-intensive economies. The sliding oil price in the closing months of 2014 and into 2015 made fracking even less viable economically.
Bloomberg found that the 61 companies had debts of $164.6 billion by the first quarter of 2014. In several, interest payments ate over 20% of revenues. At one, Quicksilver, interest payments almost reached 45% of revenue.
“Drillers are caught in a bind,” said Bloomberg. “They must keep borrowing to pay for exploration needed to offset the steep production declines typical of shale wells.
“For companies that can’t afford to keep drilling, less oil coming out means less money coming in, accelerating the financial tailspin.”
If easier oil were to be found, no one would be fracking.
But the easy oil has gone.”

Cambria Books published my book Solving the Grim Equation in summer 2015

PDR

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