See the westernvaluesproject.org

From the FracTracker Alliance, March 30, 2020

The COVID-19 health crisis is setting off major changes in the oil and gas industry. The situation may thwart plans for additional petrochemical expansion and cause investors to turn away from fracking for good.

Persistent Negative Returns

Oil, gas, and petrochemical producers were facing financial uncertainties even before COVID-19 began to spread internationally. Now, the economics have never been worse.

In 2019, shale-focused oil and gas producers ended the year with net losses of $6.7 billion. This capped off the decade of the “shale revolution,” during which oil and gas companies spent $189 billion more on drilling and other capital expenses than they brought in through sales. This negative cash flow is a huge red flag for investors.

“North America’s shale industry has never succeeded in producing positive free cash flows for any full year since the practice of fracking became widespread.” IEEFA

Plummeting Prices of oil AND natural gas are BOTH problematic

Shale companies in the United States produce more natural gas than they can sell, to the extent that they frequently resort to burning gas straight into the atmosphere. This oversupply drives down prices, a phenomenon that industry refers to as a “price glut.”

The oil-price war between Russia and Saudi Arabia has been taking a toll on oil and gas prices as well. Saudi Arabia plans to increase oil production by 2 – 3 million barrels per day in April, bringing the global total to 102 million barrels produced per day. But with the global COVID-19 lockdown, transportation has decreased considerably, and the world may only need 90 million barrels per day.

If you’ve taken Econ 101, you know that when production increases as demand decreases, prices plummet. Some analysts estimate that the price of oil will soon fall to as low as $5 per barrel, (compared to the OPEC+ intended price of $60 per barrel).

Corporate welfare vs. public health and safety

Oil and gas industry lobbyists have asked Congress for financial support in response to COVID-19. Two stimulus bills in both the House and Senate are currently competing for aid.

Speaker McConnell’s bill seeks to provide corporate welfare with a $415 billion fund. This would largely benefit industries like oil and gas, airlines, and cruise ships. Friends of the Earth gauged the potential bailout to the fracking industry at $26.287 billion. In another approach, the GOP Senate is seeking to raise oil prices by directly purchasing for the Strategic Petroleum Reserve, the nation’s emergency oil supply.

Speaker Pelosi’s proposed stimulus bill includes $250 billion in emergency funding with stricter conditions on corporate use, but doesn’t contain strong enough language to prevent a massive bailout to oil and gas companies.

Hopefully with public pressure, Democrats will take a firmer stance and push for economic stimulus to be directed to healthcare, paid sick leave, stronger unemployment insurance, free COVID-19 testing, and food security.

The industry is now grasping at straws

Fracking companies were struggling to stay afloat before COVID-19 even with generous government subsidies. It’s becoming very clear that the fracking boom is finally busting. In an attempt to make use of the oversupply of gas and win back investors, the petrochemical industry is expanding rapidly. There are currently plans for $164 billion of new infrastructure in the United States that would turn fracked natural gas into plastic.

There are several fundamental flaws with this plan.

One is that the price of plastic is falling. A new report by the Institute for Energy Economics and Financial Analysis (IEEFA) states that the price of plastic today is 40% lower than industry projections in 2010-2013. This is around the time that plans started for a $5.7 billion petrochemical complex in Belmont County, Ohio. This would be the second major infrastructural addition to the planned petrochemical buildout in the Ohio River Valley, the first being the multi-billion dollar ethane cracker plant in Beaver County, Pennsylvania.

Secondly, there is more national and global competition than anticipated, both in supply and production. Natural gas and petrochemical companies have invested in infrastructure in an attempt to take advantage of cheap natural gas, creating an oversupply of plastic, again decreasing prices and revenue. Plus, governments around the world are banning single-use plastics, and McKinsey & Company estimates that up to 60% of plastic production could be based on reuse and recycling by 2050.

Sharp declines in feedstock prices do not lead to rising demand for petrochemical end products.

Third, oil and gas companies were overly optimistic in their projections of national economic growth. The IMF recently projected that GDP growth will slow down in China and the United States in the coming years. And this was before the historic drop in oil prices and the COVID-19 outbreak.

“The risks are becoming insurmountable. The price of plastics is sinking and the market is already oversupplied due to industry overbuilding and increased competition,” said Tom Sanzillo, IEEFA’s director of finance and author of the report.

>>>>>>>>>>>>>>>>>>>>>>>>>>>>

See also: Proposed PTTGC Petrochemical Complex in Ohio Faces Significant Risks, Institute for Energy Economics and Financial Analysis, March 2020

“Financial outlook dims as financial and policy pressures mount”

The PTTGC Petrochemical Complex planned for Belmont County, Ohio by Thailand-based PTT Global Chemical (“PTTGC”) and Daimler of South Korea promises jobs, taxes and spinoff benefits to the State of Ohio and the people of southeastern Ohio. The project is also a critical element of a larger plan to establish a second U.S. petrochemical hub in the Ohio River Valley, akin to the Gulf Coast. This report highlights risks to the PTTGC project. The risks, left unheeded, strongly suggest that the plant will face financial distress when it opens and into the foreseeable future, reducing potential economic benefits.