RE: Natural gas: The fracking fallacy

Sun, 21 Dec 2014 16:50:42 -0800 

 

 

From: [email protected] 
[mailto:[email protected]] On Behalf Of John Clark
Sent: Sunday, December 21, 2014 4:03 PM
To: [email protected]
Subject: Re: Natural gas: The fracking fallacy

 

On Sun, Dec 21, 2014  'Chris de Morsella' via Everything List 
<[email protected]> wrote:

 

>> The fact that just 5 years ago NOBODY predicted the huge increase in oil and 
>> gas production that occurred doesn't exactly fill me with confidence that 
>> those same experts who got it so wrong 5 years ago have got it right this 
>> time.


 J> John – Definitely *NOT* the same experts who got their hyper optimistic 
assumption predictions  so terribly wrong.

 

NOBODY was making  hyper optimistic predictions 5 years ago, everybody was 
running around screaming about "peak oil" and crying that we were all doomed, 
instead oil and gas production skyrocketed. So I ask you, when a self described 
expert makes a prediction that turns out to be spectacularly wrong how 
seriously should we take their next prediction? 

 

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. There 
is a whole lot of conflict of interest in this story; it is important to keep 
in mind the scale of this boom; to understand that huge fortunes were at stake 
and made. The investment banks are in this up to their necks, drunk on the easy 
money of quantitative easement. The derivatives mountain that has been built 
around the shale sector boom is huge; there are massive secondary financial 
bets and securitized debt, packaged up and sold as derivatives that have also 
mushroomed out around this market.

The thing to keep in mind is the scale of this boom. The financial scale of it. 
How much debt it has created and how this debt has been securitized. 

Ask yourself who is holding the risk? Who made the profit?

The shale bubble is a multiple trillion dollar bonanza for the smart money and 
a Ponzi scheme for the general public that – mark my words – will be left 
holding the bill for all those derivatives that now seem about to go belly up.

The shale gas boom has the smell of a manic bubble – and many insiders 
certainly made a lot of money from it. However when, ultimately, the long term 
numbers are crunched and the return on capital invested is figured out the 
fundamental false premise of the mania will become as clear to us (in ten 
years), as the Tulip mania became to the Dutch, after that quintessential 
bubble burst on them long ago. 

Outside of some small sweet spots the shale oil deposits do not yield a 
marginal rate of return on capital. The boom was also built upon and predicated 
on applying the historic data on depletion rates – derived from traditional gas 
wells – to fracked deposits. It turns out – unsurprisingly – that fracked wells 
behave differently from wells producing from traditional non-fracked porous 
deposits; their rates of depletion are *far* higher. Insider petroleum 
geologists have known this for a while, but the shale boosters preferred the 
look and feel of those traditional depletion curves and promoted that alternate 
reality.

 

 

 

 

> if you look at how interest rates for junk bonds for drillers etc. have 
> recently shot up, the picture becomes clear.

 

Very clear indeed!  Of course cost of buying a oil bond has gone down and thus 
the interest it produces has gone up, it's economics 101. As recently as 2011 
oil was going for $130 a barrel, today it's about $60, so obviously the cost of 
buying a bond that uses oil as collateral is going to go down and its interest 
rate is going to go up. Today the oil reserves of oil companies is worth less 
than half what it was worth in 2011, so it's going to cost more for oil 
companies to borrow money, and borrowing money is what a bond is all about.

 

Not just that John. 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.

 

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

Chris

 

John K Clark

-- 
You received this message because you are subscribed to the Google Groups 
"Everything List" group.
To unsubscribe from this group and stop receiving emails from it, send an email 
to [email protected].
To post to this group, send email to [email protected].
Visit this group at http://groups.google.com/group/everything-list.
For more options, visit https://groups.google.com/d/optout.

-- 
You received this message because you are subscribed to the Google Groups 
"Everything List" group.
To unsubscribe from this group and stop receiving emails from it, send an email 
to [email protected].
To post to this group, send email to [email protected].
Visit this group at http://groups.google.com/group/everything-list.
For more options, visit https://groups.google.com/d/optout.

Reply via email to