Shale bubbles bursting (still)

For reasons I don't want to go into, I have been a little closer at looking at the fracking issue than your typical interested observer.  It is almost the perfect microcosm to illustrate the disconnect between our current political discourse, and reality.  In this particular case, the lack of a reality to back up the political hype falls on the Republicans.  Obamacare would suit fine if you wanted to balance the issue, but that is an issue for another day.  After all, you actually have to get successfully started to have a collapse.

 

There have been numerous warnings that fracking is not all that it seems.  Results on the ground were so underwhelming that Chesapeake Oil, one of the main promoters of the (not new) technology fired its founding CEO recently.  You had the Wall Street Journal reporting some time ago that internal emails, of the oil and gas people indicated that the value of the wells, was not as great as had been anticipated, and that costs were too high to make them profitable.  Then you had the U.S. government geologists, reassign the clueless accountants estimates of 100 years of supply being closer to 33 years.

 

And now we have further confirmation from reality:

Shale Grab in U.S. Stalls as Falling Values Repel Buyers
Matthew Monks, Rebecca Penty & Gerrit de Vynck, Bloomburg, 18 August 2013(hat tip: Archdruid)

The spending slowdown by international companies including BHP Billiton Ltd. (BHP) and Royal Dutch Shell Plc (RDSA) comes amid a series of write-downs of oil and gas shale assets, caused by plunging prices and disappointing wells. The companies are turning instead to developing current projects, unable to justify buying more property while fields bought during the 2009-2012 flurry remain below their purchase price, according to analysts.

The deal-making slump, which may last for years, threatens to slow oil and gas production growth as companies that built up debt during the rush for shale acreage can’t depend on asset sales to fund drilling programs. The decline has pushed acquisitions of North American energy assets in the first-half of the year to the lowest since 2004...

North American oil and gas deals, including shale assets, plunged 52 percent to $26 billion in the first six months from $54 billion in the year-ago period, according to data compiled by Bloomberg. During the drilling frenzy of 2009 through 2012, energy companies spent more than $461 billion buying North American oil and gas properties, the data show.

Shale oil and gas is a classic bubble.  Rolling Stone (in an article I missed at the time) made note of the issue a while back.  It is a sad state of affairs when your best economic, on the ground, reporting comes from a magazine that started as a rock and roll fanzine. 

 

Shale oil is giving us a nice little temporary lift.  But rather than using it to get ourselves out of our import dependence, we get complaints (again from Republicans) that our alternatives need to be competitively priced.  Based on the article, it is going to take four years for the bubble to clear.  That is more than enough time to kill a lot of viable (if they exist) alternatives.