2020: Fracking’s bankruptcy

Absorbed by the events of the U.S. elections, a fact of great magnitude has passed unnoticed by us, such as the collapse of fracking, that form of extraction of fossil fuels that they wanted to sell us as a solution. Fracking collapse happened in the US due to different factors like its hyper-inflation, the reduction of the resources themselves, the debt, the effect of the Covid-19 crisis and the price crisis that the oil market has been suffering. With the collapse of fracking, the problems for the US economy, for its energy system, and therefore for the world, are multiplying, since oil and now gas also rule the world economy, as it has been shown on numerous occasions. Moreover, now the companies in bankruptcy claim that they cannot afford the costs which the disaster caused, leaving behind an unprecedented economic and environmental legacy.

Less than a year after reporting the bankruptcy of US fracking companies, they have multiplied. At the time we shared the bankruptcies of EP Energy, Chesapeake Energy, Ranch Energy Corp. Bellatrix Exploration and Murray Energy (close to Trump) (2). Since then, from January to the end of August 2020, another 36 US companies related to fracking have declared themselves bankrupt with an accumulated debt of more than $50 billion, as Oilprice and Rainforest Action Network reported in their report “Fracking Fiasco: The Banks that drove the US Shale Bankruptcy”(3). The report predicts the collapse of another 150 companies in the next two years.

The effect of company closures has precipitated the abandonment of 1.98 million wells that constitute an ongoing environmental threat and disaster. The fracking has already led to the release of large volumes of gas that much was lost to the atmosphere and much was burned: it is estimated that 23% of the produced gas! Besides its contribution to climate change (the gas is basically methane, the most powerful greenhouse gas) this gas contributed to many more explosions.

However, if a large part of the capital was already being used to pay the salaries of managers during the exploitation of the fracking, with the bankruptcy millions of dollars have been used to compensate them, showing that their enrichment is prioritized to solving their multiple impacts. And we must remember that if anyone is responsible for the company going bankrupt, it is the managers, and if anyone is responsible for the impacts committed, too. If in some way they can justify their astronomical salaries is so, but it is demonstrated once again, that they want their millions but without assuming the responsibilities.

Along with these companies, the first to suffer have been banks and investment and pension funds that backed fracking finnacially. Wells Fargo suffered its first losses since the 2008 crisis in the second quarter of 2020: 2.4 billion dollars. It did not blame the pandemic but the oil and gas sector (4). Since the end of 2015 (Paris Climate Agreement) Wells Fargo has been the largest US fracking banker with $ 49 billion for 50 companies. More than one fifth of the total US financing. And along with JPMorgan Chase, Citi and Bank of America, it accounts for more than half of US fracking financing (53.5%). And let’s remember: they have financed it because the government has allowed it, which we all know what government has been during these last years, and because Wall Street has backed it.

This shows how banks and financial companies have financed the sector despite warnings of its economic unsustainability and its unacceptable social, environmental and climate impacts. With oil prices constantly devaluing, fracking oil and gas producers could not make enough profit, so current loans instead of profits are paid for with future ones. So, until we get to the current situation, where there is nothing to get. The financiers ignored the warnings because they paid for the immediate benefit, “a history of short-term greed that stifles long-term rationality”, Oilprice and RAN explain in their report. Without a doubt, it is the story of a bubble, where everyone joins a new market at the beginning, which attracts investment and with it, prices and profits, hiding reality from investors, and thinking that “it won’t touch me”, or “if others invest, it’s because it’s safe”.

This report also shows the volume of this fiasco, which is estimated at 361 billion dollars, the result of an investment of $1.18 trillion dollars and only $ 819 billion profit between 2010 and 2020 (5). The companies analyzed have now a debt of $120 billion to expire between 2021 and 2025. Months before the appearance of the coronavirus, a former oil executive advanced that the oil and gas fracking industry had destroyed 80% of the capital invested since 2008 (6).

A new chapter of capitalism that will have irremediable consequences in the US and world economy. A clear sign that an activity only happens if there is financing. The umpteenth demonstration that capitalism, and especially liberalized, neo-liberalism, far from being infallible is a failure paid for with debt, public money and institutional and political imposition. Another demonstration that it is not possible to leave the transnational corporations alone, as neoliberalism demands, managing politics and the economy because they are not moved by general aims but by particular ones. Another demonstration that this system is irresponsible with society and with the environment, with the Planet on which we depend for our individual and collective survival. And a new crisis that is occurring a few years after the crisis of 2008, which also occurred in the US, because of another (housing) bubble and the speculation of the financial institutions, allowed by the passivity of the state and global institutions, and which is occurring without appearing to have learned anything. And a new crisis that is occurring again in the economically most powerful country in the world, and which later dares to lecture everyone else and impose its say, while it solves the solution by squeezing out in debt its own empoverished countries and other countries a little more. Once again.

Bankruptcy yes, but lucrative results for CEOs too

Meanwhile, with the bankruptcy we have witnessed a transfer of public capital to the fracking companies, but it went straight to their managers’ accounts, instead of being used to liquidate the companies or to pay for the damages committed. The US oil and gas industry has benefited from the government’s coronavirus relief package with between $9 billion and $13.8 billion. (7)

The Dakota Oil and Gas Regulator decided to invest $16 million directly in the fracking companies, and in addition for new wells, instead of any measures against the coronavirus or the situation it has caused, or the cleaning of abandoned wells (800 wells have been drilled without being fractured) (8). Thus, up to $200,000 has been allocated to each company that wants to start fracking activities, as a way to encourage that industry and to create jobs, destroyed while the pandemic. Obviously, the decision is justified because this is the most profitable economic activity in that economy.

Texas fracking company MDC Energy filed for bankruptcy in February 2020 with debts now exceeding the value of its assets by more than $180 million. The company would need more than $40 million to clean up its wells, yet, as the New York Times reports, it was able to pay its CEO $8.5 million in consulting fees (9).

Whiting Petroleum, another of the fracking companies operating in North Dakota sought bankruptcy protection in April, but six days before its bankruptcy filing it approved about $15 million for its CEOs. Chesapeake Energy filed for bankruptcy in September, but a few weeks earlier had paid $25 million in bonuses to its executives. Diamond Offshore Drilling got a $9.7 million tax rebate as part of the government’s Covid-19 stimulus policies, only to declare bankruptcy the following month. It paid its CEOs the same amount as cash incentives. This is clear evidence of the direct transfer of public funds into the pockets of a few.

Fracking was the panacea

Fracking was the panacea for the energy crises, on the one hand because of the need for energy alternatives in the current model, for adding fuel to the reducing fossil ones, and on the other hand, because of the desire for energy sovereignty of many economies. And obviously, because of the overdimensioning of its benefits and how they were presented. In that sense, the Basque government also took the bait, and they sold it to us as the way to make the best of a resource that we possessed and that would guarantee our energy autonomy, as we are, at present, totally dependent on foreign gas and oil.

From being US the country that started the extraction of oil and its applications in different activities, t went to a drastic decline of deposits. 1971 was the peak of production with 9.6 million barrels. By 1973, the year of the energy crisis, it began to decline, to follow a downward trend since then. Between 1985 and 1989, US dependence on foreign oil increased from 26% to 47%. The lowest year of production was 2008 with 5 million barrels. But that year also saw a boost in the technique of hydraulic fracking extraction.

 

Thanks to fracking, the United States managed to get half of the oil it consumed this way, and regained first place among the oil-producing countries, thus in some way underpinning its global hegemonic position. US got the remaining 40% oil from mainly from the Middle East, Venezuela, Mexico and Canada. From there also its need to control other producing countries and even promote wars and death. They went as far as predicting that thanks to fracking US would be energy independent by 2030.

Fracking is a much more expensive type of extraction because oil and gas are found in much smaller quantities and much more dispersed, and also because it involves much more products, technology and infrastructure. On the other hand, the extracted oil and gas are of worse quality and much more polluting (both in the extraction and refining, as in the consumption, and in this case in its transport too). The environmental aspect is not totally assumed by the extractive companies, so it does not affect neither the price nor their profit. Eager to find markets for its fracking oil, the US altered and destabilized oil prices, which has also had an effect against it, and has tried to “impose” it through treaties and other tricks, as was proposed here with the TTIP.

The crisis of fracking within a volatile market

The crisis that now faces fracking is just one more case of the constant turmoil that the oil sector has suffered due to its instability, and the lack of predictability and solutions. Sometimes even situations outside the industry itself, such as political and social events, affect fully and globally the oil market. This is what has happened in recent years with the price war from the US, which has finally come to affect them. To this is now added a new conflict related to the crisis of Covid 19 and the proposals for reducing oil production, and caused by the lack of agreement between Saudi Arabia and Russia, and their decisions.

The initial US production of fracking oil and its introduction into the international market caused a 70% reduction in prices, and its collapse between 2015-16 (one of the three biggest decreases since World War II). From 2015 onwards, the growth of oil demand worldwide began to fall, and it fell precipitously from 2017 to 2019, and even more now with Covid19. In 2018 the US became the world’s largest oil producer thanks to its fracking production.

The beginning of fracking in the US has to be placed at a time when the peak of oil is reached worldwide (2005-06), and therefore, despite the high cost of oil, despite the high rate of energy return fracking represents, at the time, it contributed thousands of barrels of oil. At that time, there were no considerable additions either in production or in the discovery of new deposits. Therefore, it had an enormous effect on the US economy and therefore on the global economy as well. It must also be understood in the context of the global economic crisis of 2008, caused in large part, paradoxically, by the US itself.

Then, oil prices plummeted in 2019, and then US oil production, mainly focused on fracking, collapsed at the beginning of this year, 2020. The Covid 19 crisis has been the shock, since with the confinement, energy consumption was reduced (10). In this context, Saudi Arabia also proposed a reduction in production, which Russia did not accept. Saudi Arabia declared war by lowering the price to 8 dollars a barrel, especially for clients of Russian oil. The decision had an effect on the oil market, but above all on fracking oil.

Rise and fall of fracking in Bakken, fracking epicenter in the US

In 2000 there were approximately 23,000 fracking wells in the United States, which by 2015 rose to 300,000. Fracking then accounted for 51% of U.S. crude oil and 67% of natural gas (11). In the United States, the largest area of extraction was the Bakken Basin, an area with shale substrates that coincides with the states of North and South Dakota, Montana and two Canadian provinces (Manitoba and Saskatchewan).

Bakken allegedly accumulated 7.38 billion barrels of oil, of the 13 billion spread across the country. This gave rise to this recent fracking fever, which happened without accepting fracking’s limitations. At the same time, if this technique and resulted fuels were chosen, it was because conventional oil was reduced after reaching its peak, a fact that is evident in the US. By May 2017 there were 11,681 fracking wells in North Dakota (12). 11,681 fracking wells in an extension of 178,694 km2 (to discount all the Eastern zone in which this activity does not take place). Those aerial photos of hundreds of plots with oil wells at a short distance from each other are from there. While in South Dakota, there were only 211 wells (2016).

Fracking accounts for all of North Dakota’s oil and gas extraction, and accounted for half of its income. Thanks to fracking, unemployment in North Dakota was only 2% in March 2020, but by April 2020 it raised already to 9.1% (13). The fracking fever in the Bakken Basin has lasted only 10 years.

The North Dakota government has shown little rigidity towards the companies in terms of their environmental impacts. Now that they are declaring bankruptcy one after another, all those impacts remain there, for the state to deal with.

Since there was no oil infrastructure in the region, most of it had to be improvised, which, together with the rush for profit and the lack of regulation and oversight, resulted in environmental chaos. The lack of other possibilities such as pipelines and the need for so many of them due to the dispersed nature of the extraction, forced companies to use roads and trucks as a way to get the oil and gas out of the fields. This meant damage to those roads and the multiplication of traffic accidents. For the train, there was a lack of infrastructure, so new ones were planned, which will probably never be built. Meanwhile, they used the conventional railway net and the tank trains used to transport corn oil. This led to a number of accidents: derailments and spills resulting in fires, which earned them the nickname of “train bombs”. The first major derailment occurred on July 6 2013, resulting in a massive explosion, 47 deaths and the destruction of much of downtown Lac-Mégantic (Quebec) (14).

One of the most important environmental, political and ethnic conflicts in the country also occurred in Dakota, that of the Standing Rock reserve, caused by the crossing of the DAPL pipeline, also for fracking oil. DAPL poses a great environmental and social threat, as it is preceded by dozens of cases of broken pipelines and their related spills and contamination. Before starting its official activity, DAPL already caused its first spill.

The curse of resources

The situation now facing North Dakota and by extension the United States is what in many other countries with oil or mineral resources has become known as the Resource Curse (15). This notion refers to the harm that comes from being rich in a resource, so that instead of having a positive impact on the economy, it becomes negative. On the one hand, it creates economic dependence on an item, and when this diminishes or if its market fluctuates, the economy where this resource is extracted from suffers. On the other hand, large amounts of this wealth are allocated to the same sector, neglecting other investments, and the economy is not freed up either. In addition, the benefits of these resources are monopolized by the elite so that they do not benefit the local population, who on the other hand suffer the environmental effects of the extractive industry and the deterioration of their environment and means. The only solution is to opt for a more diversified economy but focused on society itself and its needs, so that it is more stable and sustainable.

But fracking is not the only cause of the current environmental and climate crisis: it is a disaster that adds up. The current abandonment of wells adds to the existing millions worldwide releasing gas and contribute greatly to global warming. In Colombia, like the oil expert end activist Andrés Gómez warns, the panorama of abandoned conventional wells is alarming. In three of the important extraction fields of the country there are an estimated 2,307 abandoned wells and 366 contingencies were registered in three years (16). In the case of the USA, it is estimated that more than 3.2 million oil and gas wells have been abandoned. And they are linked to methane emissions by a volume of 281 kilotons (2018) (the equivalent of the climate damage of consuming about 16 million barrels of crude oil) (17).

Fracking multiplies the risks and impacts because it is a much more intensive form of extraction, because of the chemicals that it requires to break down the oil or gas from the rock, because of the huge volumes of water that it requires and which contaminates, because it consists of breaking up the subway rock, thereby altering its structure and allowing leaks and seepage that contaminate aquifers, sources, etc., as well as causing seismic movements. All of these affections have been widely collected in reports and documentaries such as those of Gasland.

This is neoliberalism in a big way. The companies want to act without restrictions by the state in terms of licenses, regulations, etc, and thus multiply profits (executives of oil/gas companies and Wall Street financiers), but when the time comes for damage to the environment, and to communities and individuals, they evade their responsibilities, so that it is the state, people, whom bear the costs. Let it be society that suffers the damage, and let it be society that pays for those costs with public money. This has been the constant in an oil extraction that stands out for being more expensive than any other, and which obviously was not carried out until now because all the others were cheaper. But together with the economic injection and the financial bubble they created around it, they managed to keep fracking going.

Add to that the technological control that US companies had, and the interest of a showcase like that in US, to be able to sell it to the world and benefit from it big time. The Far West elixir seller’s trick worked halfway: many countries saw the wolf’s paw. Some after trying it, others after seeing the results, both in the US and in neighboring countries, and many only came to their senses after massive citizen mobilizations. These were the cases of Germany, Bulgaria, Denmark, France, Ireland, United Kingdom (2019), Romania, Tunisia, Holland, or even states of the US (New York, Vermont, Maryland, Oregon, Washington, Florida) and Canada (New Brunswick), as it has been in several communities of the Spanish state, where the moratorium was lifted in 2019 (18).

In this sense, it should also be noted that the United States has benefited from supporting a technique that in many places has been rejected because of its effects, just as it benefits from its official position on the climate emergency.

From Trump to Biden

Donald Trump is not only the president of the United States, but also a magnate, one of the main millionaires in the country, and therefore, with a very specific philosophy, but above all, with very specific personal interests. In the case of fracking, even more so, because he had invested in different companies that promoted this technique or, equally, in oil companies (19). Trump has (had) investments in BHP Billiton, Halliburton, Schlumberger, Chevron, Occidental Petroleum, EOG Resources, Conoco Phillips, Shell and in the owners of the controversial pipelines responsible for transporting these oils, such as Energy Transfer Partners and Phillips 66, owners of DAPL, and Kinder Morgan, owner of the pipeline of the same name (20).

 

In addition, its environmental advisor, Harold Hamm, was none other than the founder and president (until January 2020) of the largest fracking company in the country, Continental Resources. Hamm made multi-million dollar donations to the Trump campaign (21). Continental Resources is one of the largest fracking companies that operated in North Dakota, pocketing billions of dollars. Donald Trump was also a shareholder in this same company, so his decision, for example, to restart the DAPL was seen as a self-serving decision. He got rid of his shares once in government, but obviously not of his ties to Hamm.

Given the situation caused by Trump and his interests and support for fracking, we should add that, although the situation may vary due to the crisis in which the sector is immersed, the recently elected president of the US, Joe Biden, already made it clear in his ellection campaign that he would not prohibit fracking (22).

(1) Mikulka, J. “The Bakken Boom Goes Bust With No Money to Clean up the Mess” (8-08-2020)

www.desmogblog.com/2020/08/08/bakken-fracking-oil-boom-bust-hess-cleanup

(2) “Frack off! Again!” (07-01-2020) www.naiz.eus/en/iritzia/articulos/frack-off-again

https://rebelion.org/frack-off-again

(3) “Fracking Fiasco: The Banks That Fueled The U.S. Shale Bust”

www.ran.org/wp-content/uploads/2020/09/RAN_OCI_Fracking_Fiasco.pdf

(4) Ditto

(5) Ditto

(6) Ditto

(7) “¿El fin del petróleo? La pandemia redunda en la abundancia de combustible fósil, pero el dinero de rescate de COVID-19 fluye a la industria petrolera”

https://aplaneta.org/2020/09/03/el-fin-del-petroleo-la-pandemia-anade-a-la-abundancia-de-combustible-fosil-pero-el-dinero-de-ayuda-de-covid-19-fluye-a-la-industria-petrolera

(8) Kusnetz, No. 28-10-2020. “The $16 Million Was Supposed to Clean Up Old Oil Wells; Instead, It’s Going to Frack New Ones” https://insideclimatenews.org/news/28102020/north-dakota-coronavirus-stimulus-funding-fracking-oil-wells

(9) Tabuchi, H. 13-10- 2020. Fracking Firms Fail, Rewarding Executives and Raising Climate Fears. The New York Times.

www.nytimes.com/2020/07/12/climate/oil-fracking-bankruptcy-methane-executive-pay.html

(10) See more in “¿El fin del petróleo? La pandemia redunda en la abundancia de combustible fósil, pero el dinero de rescate de COVID-19 fluye a la industria petrolera”

https://aplaneta.org/2020/09/03/el-fin-del-petroleo-la-pandemia-anade-a-la-abundancia-de-combustible-fosil-pero-el-dinero-de-ayuda-de-covid-19-fluye-a-la-industria-petrolera

(11) https://ballotpedia.org/Fracking_in_North_Dakota

(12) Ditto

(13) Cobb, K. North Dakota blues: The legacy of fracking. 30-08-2020

www.resilience.org/stories/2020-08-30/north-dakota-blues-the-legacy-of-fracking

(14) “Vertidos de petróleo” https://spip.ecologistasenaccion.org/article22790.html
and “Fracking: la resistencia mundial continúa” https://rebelion.org/fracking-la-resistencia-mundial-continua
(15)
See for instance the book by Alberto Acosta (Ecuador) “La maldición de la abundancia : un riesgo para la democracia” https://rebelion.org/docs/122604.pdf or the article by Gregorio Iriarte (Adital) about similar situation in Bolivia because of the abundance of resources such as minerals, gas and now lithium, in CENSAT (Colombia).

https://censat.org/es/noticias/la-maldicion-de-los-recursos-naturales

(16)Gómez, A. “El ‘fracking’ de Duque: quiebras masivas y más contaminación” Las 2 Orillas.

www.las2orillas.co/el-fracking-de-duque-quiebras-masivas-y-mas-contaminacion
(1
7) See more in “Millones de pozos de petróleo abandonados están perdiendo metano, una amenaza climática” https://aplaneta.org/2020/09/27/millones-de-pozos-de-petroleo-abandonados-estan-perdiendo-metano-una-amenaza-climatica

(18) Herrera, H. 2020. The legal status of fracking worldwide. GHRE. ghre.org

and the Permanent Peoples’ Tribunal Session on Human Rihts, Fracking and Climate Change

(19) www.greenpeace.org/usa/in-case-you-were-wondering-donald-trump-has-multiple-ties-to-the-dakota-access-pipeline

(20) See more at www.forbes.com/sites/timdaiss/2016/11/26/trump-owns-stake-in-hotly-disputed-3-8-billion-oil-pipeline-conflict-of-interest-looms/?sh=2eefe23a5d00

(21) See donations:

www.opensecrets.org/donor-lookup/results?name=Harold+Hamm&page=1

(22) “¿El fin del petróleo? La pandemia redunda en la abundancia de combustible fósil, pero el dinero de rescate de COVID-19 fluye a la industria petrolera”

https://aplaneta.org/2020/09/03/el-fin-del-petroleo-la-pandemia-anade-a-la-abundancia-de-combustible-fosil-pero-el-dinero-de-ayuda-de-covid-19-fluye-a-la-industria-petrolera

 

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