Fracking for oil and natural gas is expensive

From Allied News, Grove City, PA, June 28, 2018

On Saturday, June 2, Marcellus Outreach Butler hosted a presentation by John Detwiler titled “The Financial Threat to Fracking” at the Butler Library.

John, a registered professional engineer, has worked as a business executive and strategic consultant for the natural gas and electric utility industries, and is a former faculty member of Carnegie Mellon University.

His presentation focused on how the fracking industry is slowly driving itself out of business with its reckless habits and exorbitant spending. Using actual data taken from the websites of Range Resources, EQT, and other drilling companies, John laid out the precarious situation that the fracking industry is in, and how its collapse could leave us worse off.

John’s program came in the wake of a hot topic in Butler County: Rex Energy’s recent filing for Chapter 11 bankruptcy.

Many in the area are wondering what will happen if Rex ultimately folds, and if their situation is unique, or emblematic of the entire fracking industry. During the program, it seemed increasingly clear that Rex is not a unique case.

The fracking industry as a whole is in a very precarious financial situation. Driven by an insatiable need for capital investment, these companies keep soliciting loans from lenders, driving themselves deeper into debt.

The process of constructing a well pad and drilling the wells costs several million dollars, and most of that money is acquired from lenders and investors.

Now that the initial gas boom of 2008-2012 flooded the market with a glut of natural gas and drove down prices, many companies are struggling to make sufficient money off new wells to pay back their investors.

Not only has the price of natural gas declined, but production has as well. Unlike other formations, production levels in the Marcellus Shale decline rapidly after the well is drilled.

According to John, the production of an average Marcellus well declines by 50 percent in only four months, and can drop to as low as ten percent of initial production in as little as two years. Due to this downturn, the national active drilling rig count has declined from 1,600 in January 2009 to less than 200 in January 2018, and now much of the gas and its liquid by-products like butane and ethane extracted in our area are destined for export to Europe and Asia.

Are the gas industry’s financial hardships good news for those fighting it? Not necessarily. Like a wild animal, when backed into a corner, the fracking industry also lashes out in desperation. Pittsburgh-based driller EQT, as well as Encana Energy, are in the process of developing half-mile-long “super well pads” that can house up to 60 wells in a single location, tapping multiple formations in every direction. These types of pads may soon be coming to western Pennsylvania, which sits atop not only the Marcellus, but also the Utica and Upper Devonian shales. And if companies do begin to fold, who will be responsible for cleaning up their messes and maintaining their existing infrastructure?

We don’t yet know what the future holds for Rex Energy or other smaller operators in our area, but John Detwiler painted an uneasy picture. In its Oil Patch Bankruptcy report issued on March 31, 2018, Haynes and Boone, LLP, listed 144 North American oil and gas companies that have declared bankruptcy since 2015, resulting in $90.2 billion of secured and unsecured debt, and Rex has just joined their number. It seems that what started out as a boom is, like always, quickly going bust.

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See also: “Millions Own Gas And Oil Under Their Land. Here’s Why Only Some Strike It Rich” : NPR, March 15, 2018

China has dangled an $84 billion capital investment offer to blind us -- incredible!

Essay by S. Tom Bond, Retired Chemist & Resident Farmer, Lewis County, WV

While in China, President Trump signed Memorandum of Understanding (MOU) agreements talking about investing $250 billion in the U. S. One MOU is for China Energy Investment Corp. to invest $83.7 billion in shale gas development and chemical manufacturing projects in West Virginia over two decades, according to a statement from the WV Department of Commerce. For comparison, West Virginia’s Gross Domestic Product (GDP), the worth of all goods and services produced in the state for a year, is in the neighborhood of $66 billion.

A MOU is not a contract, little more than a statement saying “we are thinking about this project.” We should do a lot of thinking about this one. Over the last 46 years, U. S. capital has flowed to China, and the Chinese have managed to accumulate very substantial capital themselves.

However, the Communist party has maintained firm control and Xi Jinpeng, Trump’s opposite number, was elevated to the same status as Mao Zedong. As thoughtful citizens know, some three-fourths of the disposable part of U. S. tax money goes into our military, designed to resist the advance of Communism, including China and North Korea. Russia is still strongly influenced by Communism.

That U. S. investment has built up China at the same time we have built up a military to defend against them, witness the “pivot to Asia.” Doesn’ this seem to be self-contradictory? The result is that China is a rising power. The headline says “China GDP Growth Eases to 6.8% in Third Quarter 2017.” For the U. S. the corresponding figure is at a more or less constant 2.8%.

Consider the proposed big deal in West Virginia. Chinese companies competing with American companies? Will they bring their own workers, as they have for projects in Africa? Will they hire American workers, pay American wages and benefits, work them American standard hours, etc.? Won’t they want cheap Chinese labor (remember Trump’s statement “I am always going to put America first, the same way that I expect all of you in this room to put your countries first.”) Remember the old adage “ He that pays the piper calls the tune.” Will the Chinese give that up?

Then there is the language problem, and our submerged racial attitude toward our smaller, yellow skinned, brothers with different customs. If they would be forced to give up the advantages of bringing their own labor, they will have to have supervisors in contact with the businesses that do the extraction (or they are less careful managers than all that money justifies). How will American bosses react to having Chinese bosses?

Now to the particular problem in West Virginia. The Chinese need the energy desperately, along with raw materials for the chemical industry that comes up with the gas, such as ethane and propane, and they certainly can use any profit they get, since they still have a huge number of people who haven’t benefitted from their recent economic expansion. And extraction leaves the pollution, sickness, broken roads, contaminated aquifers and other environmental problems, in West Virginia, just as American investment avoided pollution, and the rest of it in China when we sent capital and got their products. You can’t have large scale fossil fuel extraction without those problems. We would build up their strength (against our military) and reduce our mineral reserves, and make this resource colony (our State and Nation) less valuable and less productive for the future.

Ever hear the phrase, “The Capitalists will sell us the rope with which we will hang them.” Sounds familiar, doesn’t it? And doesn’t it seem to apply in this case? It is attributed to Vladimir Lenin. You remember his politics, don’t you? Perhaps a lot of serious thought should be given to this MOU.

See also: Why $84 Billion From China Can’t Buy a U.S. East Gas Hub – Bloomberg