So what exactly are the economics of a shale gas boom? Let's
look at what is happening in the US, where the fracking industry is much
further down the road. An article by Nicole Foss in the "Automatic
Earth" column of Business
Insider says:
"The shale gas
bubble is a perfect example of the irrationality of markets, the power of
perverse short-term incentives, the driving force of momentum-chasing, the
dominance of perception over reality in determining prices, and the
determination for a herd to stampede over a cliff all at once.
"The perception of a gas glut has driven prices so low
that none of the participants are making money (at least not by producing gas)
or creating value. We see a familiar story of excessive debt, and the hollowing
out of productive companies dead set on pursuing a mirage."
Financial journalist Wolf Richter describes the economics of
fracking as “horrid”. Drilling is, he says, “destroying capital at an
astonishing rate” and drillers are left
with a mountain of debt just as production declines.
Arthur Berman, a petroleum geologist, says that in the Eagle
Ford shale in Texas, gas output per well declines so fast that to keep
production at the same level they must drill almost 1,000 new wells a year, each
costing between $10-$12bn. "I add all these things up and it starts to
approach the amount of money needed to bail out the banking industry. Where is
that money going to come from?” he asks.
A bit of research into the official figures underlines the
reality. In 1990, there were 269,790
natural gas wells in the United States (on and offshore) producing 1,938,977
million cubic feet of gas, that is 7.18 million cubic feet per well.
By 2011 there were 514,637 wells producing 2,536,889 million
cubic feet, that is 4.92 million cubic feet per well. If each thousand new wells
drilled cost Berman's estimate of $10bn dollars, that means a total investment
of around $245 billon.
The price of gas to US residential users was at its highest
in 2008 at $20.77 per thousand cubic feet when the boom was already underway. The
price at the end of 2012 was $12.62 dollars per thousand cubic feet. That is
higher than before the start of the gas boom - in January 1981 it was $3.94 as
the graph shows.
What we have is the anatomy of a classic bubble but the
Obama administration is oblivious, rubbing its hands at the short-term gains in
increased tax revenue, just as George Osborne is hoping to do.
And when the bubble bursts? They will be astounded when
companies collapse and enforced mergers take place. Capitalist economists and
governments never expect the collapse - they live in a fantasy land where,
whatever happened in the past, the future is rosy.
And whilst "drilling is burning capital at an
astonishing rate", we are told that it is impossible to raise the investment
for renewable energy to replace fossil fuels.
The question is, are we going to allow the frackers/wreckers
to destroy large areas of Britain, putting people's health and homes at risk, just
to inflate a bubble with no long-term economic benefit, no long-term energy
benefit, and a disastrous effect on climate?
Judging by the response at Balcombe and the creation of
dozen of local anti-fracking groups, the answer is a resound “No”!
Penny Cole
Environment editor
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