Spanish
Matt Mushalik: "While the mainstream media lulls the public into believing that US shale oil is a revolution, peaking oil production in many countries eats like a cancer through the oil supply system. The big problem is that more oil dependent infrastructure is being built which will not be needed when US shale oil peaks and the underlying decline is revealed."
Ambrose Evans-Pritchard: "The US Energy Department says oil and gas companies have been amassing huge debts drilling for marginal output in ever more hostile regions. Net debt rose $106bn in the year to March, on top of $73bn of asset sales. Yet revenues were stagnating even when crude prices were above $100. The fossil fuel nexus has spent $5 trillion since 2008, and much of this is at risk. It has in itself become a systemic threat."
Wall Street Fracking
Michael Webber "After the tech bubble and then the real estate bubble, Wall Street had to put its money somewhere. ... "They put a lot of it into domestic onshore oil and gas production"
In a previous post I discussed the fracking bubble, the low profitability of gas and oil wells exploited with this method and the little path that was left. Now, all financial bubble mounted around is coming to an end.
Oil price falls and instead stock markets crash and recession takes hold of the major economies of the world. The shadow of a new financial crack grows dramatically in the already hazy horizon of globalization.
While in Spain the Constitutional Court gives rulings pro-fracking and will modify the Hydrocarbons Law creating a new tax that tries to sweeten the fracking (approximating via TTIP) with percentages for municipalities and autonomous regions to swallow the pill, fracking lost gas in the US where, powered by a mentality of the gold rush and easy money from Wall Street, had become the ensuing speculative boom to the dot.com and subprime lending.
After the 2007 financial crisis, fracking fever became the business alternative to Wall Street, based on sophisticated financial engineering products designed to satisfy the greedy demand for financial markets overwhelmed by massive amounts of funds from massive QE (money making machine) orchestrated by central banks of the major economies in the world. Many of these operations are over the counter, so no one knows for sure the extent that may have reached this new financial bubble.
Of course, in addition to Wall Street, fever fracking is heavily subsidized by the government, which has corrupted the entire legislative and environmental health system to facilitate their expansion.
The graph illustrates well the economic and financial disaster of Wall Street fracking. The green curve represents revenue of 127 US fracking drilling companies while the blue adds costs that must be incurred to continue operating (note that between expenditures include "dividends" to be paid to investors for not leaving the business, which means that they pay dividends with debt sic!). The difference is covered by borrowing or selling assets. The accumulated debt has grown exponentially and could be around $ 300,000 million.
This huge debt bubble in the notoriously volatile segment of corporate credit markets means a new systemic risk to the world's largest economy.
But if previous bubbles managed to make the US the locomotive of the world, the current fracking bubble has failed to overcome US borders. Fracking is not working anywhere in the world (Poland, Ukraine, England, China, Australia, ...) despite the massive prospecting and exploration on all five continents by big oil companies. The only fracking that has worked (so far) is Wall Street Fracking in the USA.
1st chapter: The glut of gas
Fracking companies, indebted to the core, need to drill overtime to generate a revenue stream that will calm their creditors each time more nervous about the growing ball debt.
But the drilling fever has made plummeting gas prices in the US (not in the world since the US gas is not exportable because it does not have liquefaction plants operating yet) so that its price dropped 60% since 2008. The cheap gas has pushed economic growth. The electricity companies have passed from carbon generation to gas. Trucks, buses, taxis, etc., have also experienced the mutation; companies such as manufacturers of fertilizers and chemicals, which use gas as feedstock, suddenly find that the United States is an attractive place to install new factories, compared with, for example, in Asia, where gas is four times more expensive. Blessed fracking, thanks to the of Wall Street engine, is getting the miracle of industrial relocation.
Chapter 2: The oil option is knocking down the price of oil
Although the bankers made a lot of money and a handful of energy companies made fortunes out right at the peak of the market, most of the players in the industry have been caught fracking gas company with domestic gas prices in tatters and forced to sell assets and record huge losses in the value of their "reserves".
In his flight forward, gas fracking drilling companies have turned to oil fracking, since, unlike the domestic gas, oil price is dictated by the global market and therefore it should be less affected by the drilling fever.
Fracking oil is more expensive than gas so the debt ball is increased further and the feverish rush of fracking becomes a drilling frenzy.
Thus, courtesy of Wall Street, the US has significantly reduced its oil imports. But with overall depressive persistence and the dramatic economic slowdown of the BRICS, oil consumption in the world has plummeted.
In short, fracking's gas knocked down gas domestic prices and oil fracking is currently knocking the world price of oil and threatening to overthrow the Wall Street fracking, an irrational and polluter financial monster, the last creature of Wall Street.
Drill cursed, drill
A recent study by JP Morgan Asset Management, regarding the 12 largest oil shale basins in the US, only 80% are barely profitable with oil prices below $ 80 per barrel. Most troubling is that these optimistic projections do not include interest payments on the debt accumulated by fracking companies.
Oil production without fracking
Keeping the world price close to $ 100 a barrel would mean to reduce production and the first that should reduce production would be unconventional oil producers, ie the US.
But Wall Street fracking needs to continue drilling or die trying. If oil prices fall for an extended period of time most of the energy companies fracking will be forced out of business and ultimately declare bankruptcy (US 130 energy of fracking companies are medium category). That will the bubble burst of fracking whose real dimensions nobody has the faintest idea.
A new OPEC oil shock?
A miracle would be the OPEC cartel reducing its production quotas to support the price. Curious the world of senile capitalism, clamoring for a new OPEC oil shock (sic). Paradoxical capitalist globalization in which the fall in oil prices, rather than stimulate economies deepens depression.
With a barrel down $ 60 the only profitable conventional oil is Arabic. The rest of the oil extracted incurs in losses. For OPEC producing countries there is no use reducing their production while the rest increase theirs. In both cases incomes fall (though not as much as the mainstream media say, since the dollar's rise largely offset the fall in oil prices)
An ephemeral down
The gift of low oil prices for Christmas, thanks-Wall Street fracking, is going to be a milestone to remember. In the medium and long term escalation is served. Capital spending to get more oil to the surface has doubled between 2005 and 2013 (from 220 billion to 440 billion dollars), while production has increased by only 6% (5.4 million barrels / day) . Estimates of the cost of capital to meet oil demand over the next two decades would be about $ 2 billion so the price will escalate to levels that can not stand the squalid economies in depression.
We are entering uncharted territory
With oil prices declining recession expands globally. With the fracking bubble near to burst, and without another replacement bubble on the horizon, neoliberal globalization is deflating quickly. Without the fracking bubble US economy will lose its fragile recovery, while the European and Japanese are drowning in a morass of unsustainable debt. The wall of the BRICS is also crumbling. As happened after the crash of 1929, the Great Depression seemed to be controlled in 1937 but the depressive spiral again became harder.
With no more bubbles in the drawer, the second globalization is heading inexorably toward the mother of all great depressions, to global depression.
