Hydraulic Fracturing is called "Fracking" or the method of drilling and injecting fluid into the ground at high pressures in order to break or fracture shale rock. There are more that half a million fracking wells in the United States. The process does not come cheap, which may be its Achilles Heel.
We Don't Miss You
Fracking (1947 to 2016)
What began as an experiment in 1947, according to Wikipedia, may end by 2016, as an unprofitable venture for the Frackers in the United States and elsewhere.
Precursors of this technology go back to 1860, before the Civil War. What made the technique less popular initially, was its expense and environmental concerns. What may kill it is not the rancor from environmentalists, but supply and demand. At least for the foreseeable future. The price of crude oil is now too low to support the Frackers – maybe.
Will the price recover in time to keep them in the black gold...shale?
Fracking and Oil Prices
Do you think 'Fracking' will keep energy prices low for the foreseeable future?
Jobs, Jobs, Jobs
At its peak, the Fracking Industry in the State of Pennsylvania alone may have created about 200,000 jobs. This according to an april 14, 2014 article in the NJ Daily by Clare Foran. Other estimates indicate that only about 30,000 jobs were directly related to 'fracking' and this was essentially less than 1% of all jobs in that state.
According to an earlier report from Bloomberg Businessweek, dated October 23, 2012, the Fracking Industry supported about 1.7 Million jobs in the United States at the time. These jobs included those employed even as waiters or the clerks at the local grocery. The optimism even had President Barack Obama indicating that by the end of the decade, the drilling alone would support over 600,000 jobs.
What a Fracker needs, however, is higher oil prices. If a barrel of oil stayed above 90 dollars, fracking would still be lucrative, according to a Washington Post article by Fred Barbash, dated January 26, 2015. Recently, crude oil prices have remained below 50 dollars a barrel. If this price decline continues, the cost of business may not justify keeping the fracking machines running.
Other sources, such as a Morningstar article titled "Supply Shock and Awe", dated January 12, 2015, by Guggenheim Partners’ Global Chief Investment Officer Scott Minerd, indicate that fracking would cease to be profitable if the price per barrel reached about $40.
Some forecasters, notably Harry Dent, see oil prices touching less than 40 dollars a barrel before recovering somewhat, but not enough to justify turning the fracking drills back on? In fact, with prices so low all fracking might cease. Thousands of jobs could be lost overnight.
How was the Fracking Industry Financed?
Banks loaned money to a booming industry. Banks also underwrote bonds, assisted with mergers, and even fnanced the homes of the oil industry workers. With their investments, banks shared in the profits. This may coming to an end. What will happen to the bonds issued? How will loans be repaid? According to Dent Research, there is about 500 billion dollars of leveraged loans to the Fracking Industry alone.
You also might have money in Fracking, if you invested in ETF's (Electonically Traded Funds). A fund of notice is the Market Vectors Unconventional Oil & Gas. At one point the fund had about 98 million invested in about three million shares, according to Investopedia. As of Novemem 15, 2015, shares were trading in 16.00 range. This, according to Van Eck Global.
An article in The Telegraph, "Oil price slump to trigger new US debt default crisis as OPEC waits", dated November 14, 2014, by Andrew Critchlow, gave a dimmer forecast. In his view, the debt bubble associated with the Fracking Industry could trigger other defaults. If this occurs, there might be a broader chain reaction. Critchlow indicated that the United States will not win the trade war with OPEC (Organization of Petroleum Exporting Countries) nations, namely Saudi Arabia. We'll see.
OPEC, of course has increased production and in the process, lowered oil prices. Why? Is it an attempt to break the Fracking Industry, hoping to run them out of business? How long can OPEC boost production? Are they operating at a loss? Some sources say yes. If so, when OPEC increase prices (decreases production) in order to recoup those losses, how long will it take the Fracking Industry to turn their drills back on, if they ever actually shut them off? Hours?
If the Fracking Industry implodes?
Thousands of people from all over the country uprooted their families, live in cramped overpriced apartments, in some cases, and chased the American dream. They have risked losing their livelihoods.
If Fracking fails, mortgages would not be paid. Bonds issued would be worthless. Loans from the banks would go unpaid. The ripple effect could actually be the thing which sparks the next market collapse...or not.
Who benefits from low oil prices?
In the meantime we, the citizens of the world, sit back and eat our dinners. We watch the news and enjoy this reprieve, brought to us by the Fracking Industry.
I don't know about you, but the fact that OPEC is losing money is not as important as watching Iran gasping for cash or seeing Russia's currency dipping to new lows or even as Venezuela is cast adrift in this economic joust. Unfortunately, like all good things, Fracking might come to an end or stall.
The end, however, probably will not mean that oil and gasoline prices will recover their past highs. OPEC hopes otherwise. Prices will adjust to a newer, lower level, for the foreseeable future, if my tea leaves are correct - so long as fracking remains viable.
Which nations finance terrorism? Iran for one. Each and every barrel of oil we can produce via fracking locally, is one less terrorist abroad. Lower prices means fewer Terrorist Training camps. Competition means less weapons accumulated in the hands of ISIS. ISIS needs oil monies.
Terrorists will need different sources of primary income. Perhaps the opium staple will assist, so long as their jihadis don't consume it all.
Last, but not least, the nations which finance those Information Technology specialists and Media types, will need to reduce their staff. Soon, we could see Jihadi webpages with very outdated information or less sites up, because they did not pay their internet bills.
If the oil money is tight, the Terrorist Investment Fund will lose value. Jihadi seed money might just disappear.
It would be a shame, if the Frackers lose this economic battle. I hope they are not discouraged. What they are doing is right. The environmental problems can be overcome, but terrorism will benefit if Fracking loses this fight.