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  The fracking industry is looking more and more like a typical economic bubble.

 Based on data compiled from quarterly reports, for the year ending March 31, 2014, cash from operations for 127 major oil and natural gas companies totaled $568 billion, and major uses of cash totaled $677 billion, a difference of almost $110 billion.
Oil and gas fracking companies went out and sold $73 Billion in assets to partly fill that gap, which pleased analysts, but also left them with more debt and fewer ways to pay for it.

 Of course the EIA was quick to dismiss the debt spiral of fracking companies.

 that piling on debt “to fuel growth is a typical strategy, particularly among smaller producers.” And besides, this ballooning debt would be “met with increased production, generating more revenue to service future debt payments.”
 The obvious problem with this statement is the nature of fracking - there win't be "increased production" coming.
   More and more wells are being drilled. More capital/debt is being used to get at that oil and gas. But production has stalled because the low-hanging fruit has already been picked. Unlike traditional oil drilling, shale oil taps out very quickly. That is simple geology.
 the average decline of the world's conventional oil fields is about 5 percent per year. By comparison, the average decline of oil wells in North Dakota's booming Bakken shale oil field is 44 percent per year. Individual wells can see production declines of 70 percent or more in the first year.
   Shale gas wells face similarly swift depletion rates, so drillers need to keep plumbing new wells to make up for the shortfall at those that have gone anemic.
 
 The IEA states that the shale oil business needs to bring 2,500 new wells into production every year just to sustain production, and these shale fields will increasingly become more expensive to drill, “a rising percentage of supplies…require a higher breakeven price.”
  With the extremely high decline rates in production, within a few years the same well might only be producing 10% of when they produced in the first year. That means that the debt used to make the well will still exist after the well has gone dry.
   Not only does that mean a build-up in debt-laden oil and gas companies, but also an industry that will increasingly be unable to find productive wells worth drilling.

  Just look at this chart below of fracking companies and interest they pay on existing debts.

 Of 61 fracking companies their debts have nearly doubled in the past four years while their revenue has increased just 5.6%.

  This is the second-to-last step in a investment bubble. The last step is when those companies have to borrow just to pay the interest on existing debts. Judging by the charts above, that day will arrive soon.

 What is likely to happen before the bubble bursts is a) a media campaign to sell the public how profitable the shale oil/gas business is, followed by b) the selling of assets to gullible investors.
   This will be followed by c) the search for scapegoats, and there is only one scapegoat here - environmentalists.

  The fracking business will go under because those evil environmentalists didn't allow us to drill under national parks, and poison everyone's well water. So if we just toss environmental regulations aside, the industry will return to profitability.
   This media campaign will happen sooner rather than later, so you might as well get ready. Investors with money-losing ventures will toss campaign donations at greedy politicians, because those donations will be just a small percentage of the money they stand to lose on their bad investments.

 Congress’s likely response: “Poor you! What can we do to help? How about some further exemptions to the Clean Air and Clean Water acts? Maybe a preemption of local fracking ordinances with a new industry-friendly national rule? Would you care for some drilling leases on millions of acres of federal land as an appetizer, while you’re waiting? They’re on the house.”
 The fracking model is hopelessly short-term and doesn't stand a chance of returning to profitability, but people might not realize that if the media campaign from step "a" is convincing.

  There will be a real economic cost when the fracking bubble bursts. Hundreds of thousands of jobs will be lost and many rural communities will lose their tax base. However, that is what is supposed to happen according the rules of capitalism.

  What we should be doing is using this short-term bump in energy production to develop greener, cleaner energy solutions so we can better withstand the end of this bubble and not to go back to being dependent on middle east oil, an increasingly unstable region.
   So where are those political leaders with vision? I'm not speaking of 20-years in the future vision. This bubble will probably burst within the next five years.

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Comment Preferences

  •  The fracking industry is very aggressive and... (12+ / 0-)

    ...organized.

    I listen to radio when I drive around LA and their advertising is increasing.

    Their message is "if we don't frack we will have to import energy".

    When I went to Bakersfield last month for a showing of Gasland 2 they planted 4 people in the audience.

    The anti-fracking movement is spreading but the money these sociopathic polluters have is a challenge.

    I hope they peak.  Money is all they care about.

    Daily Kos an oasis of truth. Truth that leads to action. UID: 9742

    by Shockwave on Sun Aug 17, 2014 at 09:05:38 AM PDT

  •  i wrote a short, cynical diary (7+ / 0-)

    http://www.dailykos.com/...

    honestly, i think all this fracking won't last very long.

    Once i read that every fracking E&O company was
    in negative cash flow, i knew it was a scam.

    If it was a good business, the E&O companies would
    run the wells as well. Sell some for diversity and to
    pad the balance sheet, but they'd sell 1/3rd keep 2/3rds
    and they would own the operations after
    a while.

    That these were all running negative cash flows back
    in 08 and never ending, well, that was a sign
    these were investor scams.

  •  In California, where I live, when people are asked (6+ / 0-)

    to further cut back water usage two things ALWAYS come up:

    1. Fracking and what a waste of water, and
    2. The lack of a moratorium on grading for new development given the huge amounts of water used in grading that's just getting sprayed on the ground... not to grow anything, just to keep dust down (which they have to do by law).

    People seem to be getting the first state-wide, and the second in areas (like mine) where grading is occurring.

    They ALSO are starting to get that people only use 10% of CA water, the rest going to industry and ag. I'm hearing a lot of pissedoffness about all this.

    So it isn't just environmentalists, per se, but also regular folks who are struggling to make sense of water usage in a parched state. And fracking isn't just opposed by environmentalists anymore. More people are getting it all the time.

    I'm not saying, btw, you are wrong on any of the things you posted. It's just that it's a bit more complicated, I think.

     

    The only hawk I like is the kind that has feathers. My birding blogs: http://thisskysings.wordpress.com/ and canyonbirds.net

    by cany on Sun Aug 17, 2014 at 09:24:05 AM PDT

    •  Fracking in CA is nuts....the potential issues (5+ / 0-)

      that this process can create in earthquake prone areas can costs us billions of $'s and thousands of lives and these companies and their exec's and investors will fade into the woodwork like the insects they are.  

    •  Fracking uses a tiny fraction of water in CA (0+ / 0-)

      Mostly because there is very little fracking in CA presently due to unfavorable geology.  Most oilfield water use in CA is for waterflooding and steam injection.  All oilfield water use in CA is tiny by comparison with agriculture.  

      In the Bakken, almost every well is fracked.  CA still drills more wells annually than North Dakota, but very few of them are fracked.  

      Fugitive dust control can be done in many CA locales with reclaimed water which would otherwise be discharged to the ocean, there is no requirement to use potable water for this purpose.  Roughly 5maf of municipal wastewater is generated annually in CA, where recycling water lags well behind states like Arizona.  The amount of water used in dust control is generally minor in comparison to future water use by the development, in any event.

      Iron sharpens Iron. Normal is a dryer setting. STOP illegal immigration NOW! -- Make it LEGAL. If Corporations are People--Let's draft them.

      by benamery21 on Sun Aug 17, 2014 at 04:52:32 PM PDT

      [ Parent ]

  •  Your diary quoted material.... (1+ / 0-)
    Recommended by:
    ban nock
    Congress’s likely response: “Poor you! What can we do to help? How about some further exemptions to the Clean Air and Clean Water acts? Maybe a preemption of local fracking ordinances with a new industry-friendly national rule? Would you care for some drilling leases on millions of acres of federal land as an appetizer, while you’re waiting? They’re on the house.”
    There isn't any exemption from regulation contained in Clean Air Act for the oil and gas industry at all.   This claim that the oil and gas industry is exempted from the Clean Air Act is an urban myth created and spread by Josh Fox and Gasland.

    In the same manner, there is no exemption for hydraulic fracturing fluids, petroleum liquids and produced water contained in the Clean Water Act.....another Josh Fox/Gasland fabrication.

    There is no basis in constitutional law for the federal government to become involved in prohibiting local zoning ordinances addressing the oil and gas industry.

    •  Would love to rec your comments but like (1+ / 0-)
      Recommended by:
      6412093

      a little ducking of you to provide no links  

      Move Single Payer Forward? Join 18,000 Doctors of PNHP and 185,000 member National Nurses United

      by divineorder on Sun Aug 17, 2014 at 10:19:54 AM PDT

      [ Parent ]

      •  It is a little hard to link to a non-existent (2+ / 0-)
        Recommended by:
        ban nock, divineorder

        provision in the Clean Air Act or Clean Water Act, as there is no provision in either of these acts that excludes the oil and gas industry from all regulation, except for the stormwater exemption in the Clean Water Act for the oil and gas industry (which does not affect or apply to hydraulic fracturing fluids, petroleum liquids and process wastewater and their discharge to waters of the United States).

        Section 112(n)(4)(A) of the Clean Air Act prohibits aggregation for major hazardous air pollutant source determination of emissions from extraction wells and compressor/pump stations with other similar equipment.  Section 112(n)(4)(B) prohibits listing oil and gas wells as an area hazardous air pollutant source.    However, neither of these two provisions prevent either EPA or states from imposing minor hazardous air pollutant source emission limitations and operational requirements on oil/gas extraction industry sources.

        While aggregation of minor HAP emissions to form a major HAP source is prohibited by Section 112(n)(4)(B), oil/gas extraction sources are nevertheless subject to aggregation under the Clean Air Act for non-hazardous air pollutants, like volatile organic compounds, nitrogen oxides, sulfur dioxide and carbon monoxide.  

        All hazardous air pollutants (HAPs) that are hydrocarbon compounds that are emitted by oil/gas extraction industry sources are nationally considered as volatile organic compounds, which are all subject to aggregation, emission limitations and permitting and control requirements.

        While the Safe Drinking Water Act exempts the oil and gas industry from a requirement to have an underground injection permit for a hydrocarbon recovery well that is being subjected to hydraulic fracturing (when diesel is not used), there is no exemption of SDWA for the oil and gas industry from other requirements of that Act which still apply.   EPA used the Safe Drinking Water Act for jurisdiction in the Parker County/Steve Lifsky matter shown in Gasland II and EPA's Inspector General found that this authority use was proper.   In addition, EPA regulations under the Safe Drinking Water Act require disclosure and prohibit confidentiality designations of all substances found to be contaminating potable water that EPA finds in any investigation or inquiry.

        Claims like those made in Gasland and by major national environmental groups insisting that the oil and gas industry and hydraulic fracturing are exempted from all regulation under the Clean Air Act, Clean Water Act and the Safe Drinking Water Act are clearly erroneous and are transparently deceptive marketing and communications to the public.....not factual scientific and legal declarations.

        Efforts to enact the BREATHE Act (H.R. 1154) being promoted to Democrats to make hydrogen sulfide a hazardous air pollutant under the Clean Air Act would actually cause a nationwide deregulation of this already regulated pollutant.  A diary on this topic is coming shortly.

      •  Hi divineorder (2+ / 0-)
        Recommended by:
        LakeSuperior, divineorder

        There are many instances of the Feds (and States) prosecuting frackers for clean air and water act violations, which would indicate the companies are not exempt from these laws.

        http://www.ogj.com/...

        http://www.pennlive.com/...

        http://www.alleghenyfront.org/...

        http://www.peoplesworld.org/...

        “The answer must be, I think, that beauty and grace are performed whether or not we will or sense them. The least we can do is try to be there.” ― Annie Dillard, Pilgrim at Tinker Creek

        by 6412093 on Sun Aug 17, 2014 at 02:51:01 PM PDT

        [ Parent ]

  •  I thought the 2nd-to-last step (4+ / 0-)

    was convincing the dumb money (i.e. the last 5 retail investors, and various pension funds) to go long on fracking (talk about your toxic investments). That way the banksters can keep the profits from the bubble, and socialize the losses from the pop.

  •  Fracking needs to be banned (3+ / 0-)
    Recommended by:
    Chi, gjohnsit, MizC

    (very) short term gain, long term consequences - degraded land polluted water, health issues etc.

  •  Well, that splains why theres so much pressure (3+ / 0-)
    Recommended by:
    gjohnsit, Sandino, patbahn

    on pols to allow fracking pretty much everywhere except in sight of Don Trump's golf course.

  •  if they are all going out of business (0+ / 0-)

    then I guess no need to worry right? I thought that talk of thousands of jobs and economies dependant on oil was just so much hyperbole though? Are there lots of jobs created or not?

    “Conservation… is a positive exercise of skill and insight, not merely a negative exercise of abstinence and caution…” Aldo Leopold

    by ban nock on Sun Aug 17, 2014 at 12:02:36 PM PDT

    •  They aren't "going out of business" (4+ / 0-)
      Recommended by:
      6412093, patbahn, Sandino, northsylvania

      They are in an unsustainable business model. Meaning that they will go out of business.

       Fracking has directly created around 450,000 good paying jobs.
         I don't know how many jobs were created indirectly.

       When this bubble goes bust its going to hit North Dakota and Texas very, very hard.
         

      "The oppressors most powerful weapon is the mind of the oppressed." - Stephen Biko

      by gjohnsit on Sun Aug 17, 2014 at 12:49:44 PM PDT

      [ Parent ]

      •  There was an article out which showed that the (4+ / 0-)

        average age in North Dakota had dropped sharply because of the young men who had come into the state to work the fracking fields. They are housed in barracks. It is not as if the industry has supplied long-term jobs to the standing population of the state.

        Pipeline and fracking jobs are all temporary jobs. For this, we ought not to hasten climate change activities.

        We have it within our power to make the world over again ~ Thomas Paine

        by occupystephanie on Sun Aug 17, 2014 at 12:55:39 PM PDT

        [ Parent ]

      •  Fracking natural gas has also indirectly created (3+ / 0-)
        Recommended by:
        gjohnsit, ban nock, Sandino

        tens of thousands of jobs for construction workers who are building huge plants that make products like polyethylene, using the cheap fracked gas as a feedstock.

        There are thousands of workers currently building LNG export terminals to freeze fracked gas and ship it to overseas customers.

        A single Louisiana county parish has $47 billion in gas-related construction projects pending.

        It could be the largest industrial construction boom in US history.

        “The answer must be, I think, that beauty and grace are performed whether or not we will or sense them. The least we can do is try to be there.” ― Annie Dillard, Pilgrim at Tinker Creek

        by 6412093 on Sun Aug 17, 2014 at 02:33:26 PM PDT

        [ Parent ]

        •  and the largest bust (2+ / 0-)
          Recommended by:
          6412093, Sandino

          when it happens

          •  Patbahn, you could be right. n/t (1+ / 0-)
            Recommended by:
            Sandino

            “The answer must be, I think, that beauty and grace are performed whether or not we will or sense them. The least we can do is try to be there.” ― Annie Dillard, Pilgrim at Tinker Creek

            by 6412093 on Sun Aug 17, 2014 at 10:40:41 PM PDT

            [ Parent ]

        •  My brother is a concrete guy up there. (2+ / 0-)
          Recommended by:
          6412093, Sandino

          He's from MO, but is living up there for now to do concrete work.

          He says it's nuts and that I was much more correct about economics and politics than he thought before based upon his experience up there.

          He feels like it's a real mad scramble to make money, but he sees the bullshit, and bubble nature.

          Apparently a 2 br house is renting for 6-8000 per month up there.

          Fracking is a scam.

          Democracy - 1 person 1 vote. Free Markets - More dollars more power.

          by k9disc on Sun Aug 17, 2014 at 04:06:37 PM PDT

          [ Parent ]

          •  K9disc, I hope your bro doesn't get stiffed. n/t (1+ / 0-)
            Recommended by:
            k9disc

            “The answer must be, I think, that beauty and grace are performed whether or not we will or sense them. The least we can do is try to be there.” ― Annie Dillard, Pilgrim at Tinker Creek

            by 6412093 on Sun Aug 17, 2014 at 10:41:32 PM PDT

            [ Parent ]

            •  Nah, he plans the jobs up there and is the right (1+ / 0-)
              Recommended by:
              6412093

              hand man of a Concrete company in MO.

              He'll be alright... now those young guys with no company support, they might have problems.

              Democracy - 1 person 1 vote. Free Markets - More dollars more power.

              by k9disc on Mon Aug 18, 2014 at 07:20:55 AM PDT

              [ Parent ]

        •  The natural gas glut due to fracking (3+ / 0-)
          Recommended by:
          LakeSuperior, ban nock, 6412093

          has also led to massive displacement of coal power by natural gas fired plants (although that has swung back somewhat), and to existing oil refineries setting records nationwide for production for refined product export (natural gas is used to fuel processes in the refineries, and is much cheaper here than globally, creating a significant, albeit temporary, competitive edge).  Slightly lower oil prices here also play a role, although significantly more crude is still imported than total product exports.

          Refinery inputs reached an all-time record in July 2014:

          http://www.eia.gov/...

          Production of NGL's associated with gas/oil are a big part of the petrochemical expansion.  The domestic price of ethane has crashed so hard that gas plants in some areas are leaving more of it in the gas stream, instead of stripping and shipping.

          http://www.eia.gov/...

          Iron sharpens Iron. Normal is a dryer setting. STOP illegal immigration NOW! -- Make it LEGAL. If Corporations are People--Let's draft them.

          by benamery21 on Sun Aug 17, 2014 at 05:19:12 PM PDT

          [ Parent ]

          •  For a petroleum refinery to operate most (3+ / 0-)
            Recommended by:
            ban nock, 6412093, northsylvania

            efficiently and in a cost effective matter, the use of pipeline-supplied natural gas is limited as much as possible by using refinery fuel gas whenever possible in heaters and boilers  [instead of pipeiine natural gas] which is produced within the refinery itself by separations and transfers in distillation towers, fluidized catalytic crackers and other refinery processes.

          •  benamery21 (0+ / 0-)

            The fracking boom has distorted all the markets and supplies. Thanks for the details.

            “The answer must be, I think, that beauty and grace are performed whether or not we will or sense them. The least we can do is try to be there.” ― Annie Dillard, Pilgrim at Tinker Creek

            by 6412093 on Sun Aug 17, 2014 at 10:42:52 PM PDT

            [ Parent ]

      •  which is why i was a bit ambivalent on keystone (1+ / 0-)
        Recommended by:
        gjohnsit

        once the fracking plays collapse,

        there won't be enough volume to justify shale oil recovery

        •  The real question (1+ / 0-)
          Recommended by:
          Sandino

          is how much damage they will do on the way down.
            Unless they get a strong pushback, I'm betting they will cause a LOT of damage.

          "The oppressors most powerful weapon is the mind of the oppressed." - Stephen Biko

          by gjohnsit on Sun Aug 17, 2014 at 04:03:42 PM PDT

          [ Parent ]

        •  Tar sands are a bigger driver than the Bakken (3+ / 0-)
          Recommended by:
          LakeSuperior, northsylvania, 6412093

          and don't have the same quick depletion rate.  If we build it, it will stay full unless policy changes to internalize the externalities of fossil fuels production and use.

          Iron sharpens Iron. Normal is a dryer setting. STOP illegal immigration NOW! -- Make it LEGAL. If Corporations are People--Let's draft them.

          by benamery21 on Sun Aug 17, 2014 at 05:21:30 PM PDT

          [ Parent ]

          •  Tar sands are also a "different" driver than the (2+ / 0-)
            Recommended by:
            ban nock, 6412093

            Bakken.    

            Bakken crude is light to intermediate low sulfur crude oil, unlike tar sands crude which is similar to conventionally produced heavy sour crude that the 830,000 barrels per day of Alberta tar sands crude that would be delivered for refinery input.....at the largest concentration in the world of refineries capable of handling such heavy sour crude.

            The energy companies want to use the additional 830,000 barrels per day of tar sands crude to be delivered by KXL to U.S. Gulf Coast refineries in order to reduce imports of heavy sour crude from Venezuela, Mexico and Saudi Arabia.

            The energy companies want to take the Bakken light and intermediate low sulfur crude and export it to Europe, South America and Asia, but they can't do that yet because the U.S. hasn't lifted its export license restrictions on crude oil.

            •  I hope the export ban stays in place (4+ / 0-)

              I'd like to see it applied to refined product too.

              I don't care about how much money oil companies make but I do wish we were more in control of our own energy supply and usage. I'd think we are still able to drastically reduce consumption without changes to economy. So much waste.

              “Conservation… is a positive exercise of skill and insight, not merely a negative exercise of abstinence and caution…” Aldo Leopold

              by ban nock on Sun Aug 17, 2014 at 07:01:57 PM PDT

              [ Parent ]

              •  Since there are already substantial U.S. exports (3+ / 0-)
                Recommended by:
                ban nock, northsylvania, 6412093

                of refined oil products, that would be a tougher nut to crack in getting than maintaining the present U.S. restrictions on crude oil export.

                While it is possible to use low sulfur light and medium crude oil in a refinery that has been modified to feed high sulfur heavy sour crude, you would probably have to shut down certain units, like cokers, vacuum distillation units and possibly some FCCUJ units, at refineries where this equipment was previously installed.  

                •  dam, there's that reality stuff again. (1+ / 0-)
                  Recommended by:
                  6412093

                  “Conservation… is a positive exercise of skill and insight, not merely a negative exercise of abstinence and caution…” Aldo Leopold

                  by ban nock on Sun Aug 17, 2014 at 09:50:12 PM PDT

                  [ Parent ]

                •  Meanwhile, (0+ / 0-)

                  The Kochs have converted their Corpus Christi refinery to handle light sweet crude from the Eagle Ford fields, while they wait for the elusive cheap Tar Sands.

                  “The answer must be, I think, that beauty and grace are performed whether or not we will or sense them. The least we can do is try to be there.” ― Annie Dillard, Pilgrim at Tinker Creek

                  by 6412093 on Mon Aug 18, 2014 at 10:09:09 AM PDT

                  [ Parent ]

          •  not enough water up there (0+ / 0-)

            they haven't really thought it through.

        •  What is the basis for your claim? Please explain. (0+ / 0-)
  •  Link on fracked gas construction boom (0+ / 0-)

    “The answer must be, I think, that beauty and grace are performed whether or not we will or sense them. The least we can do is try to be there.” ― Annie Dillard, Pilgrim at Tinker Creek

    by 6412093 on Sun Aug 17, 2014 at 02:35:57 PM PDT

  •  which stocks should i short? (0+ / 0-)

    i've been wondering for a while,

    Fracking has cheap money but at some point
    reality catches up.

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