The long read: The wildernes fable of Americas energy revolution, and the cowboy who made and lost billions on shale
Between 2006 and 2015, the vigor macrocosm was turned upside-down by an epic development in the oil industry few had foreseen. From the low-grade place, in 2006, when it imported 60% of its oil, the US became an oil powerhouse- eclipsing both Saudi Arabia and Russia- and by the end of 2015, was the world’s largest make of natural gas.
This remarkable transformation was come about by American entrepreneurs who figured out how to literally oblige open boulders often more than a mile below the surface of the earth, to produce gas, and then oil. Those boulders- announced shale, source boulder or close-fisted boulder, and formerly thought to be impermeable- were opened by combining two technologies: horizontal drilling, in which the drill bit can travel more than two miles horizontally, and hydraulic fracturing, in which fluid is gushed into the earth at a high enough pressure to crack open hydrocarbon-bearing rocks, while a so-called proppant, usually sand, supports the stones open a sliver of an inch so the hydrocarbons can flow. A fracking entrepreneur likens the process to creating hallways in an office building that has none- and then calling a ardour drill.
In November 2017, US production topped the 10 m barrel-a-day record set in 1970, back in the last gasp of the famous petroleum thunder. This year, it is expected to reach almost 11 m barrels per day, according to the US Energy Information Administration. The Marcellus Shale, which elongates through northern Appalachia, could be the second-largest natural gas field in the nations of the world, according to geologists at Penn State. Shale gas now accounts for more than half of total US production, according to the EIA, up from almost nothing a decade ago.
The apparent new era of American intensity abundance has already had a profound impact around the world. Economies that were dependent on the high price of oil, from Russia to Saudi Arabia, have begun to struggle. The place would therefore be impossible in the pre-2 014 nature of $100 -a-barrel oil, and is playing out in strange and unpredictable ways.
Since the 1970 s, US chairwomen from Gerald Ford to both Bushes emphasised the importance of” intensity independence”, although “the two countries ” had in fact become more and more dependent, including information on the Middle East. Under the Trump administration, the longstanding dream of America’s energy independence has taken a grander, more muscular turn. Secretary of the interior Ryan Zinke talks about opening more federal estates, including national parks, to drilling in order to ensure” energy dominance “.
” We’ve got underneath us more oil than anybody, and nobody knew it until five years ago ,” Trump told the press aboard Air Force One in the summer of 2017.” And I want to use it. And I don’t want that taken away by the Paris accord. I don’t want them to say all of that property that the United Nation has under its paw, but that China doesn’t have and that other countries don’t have, we can’t employ .”
But the shale success fib nearly became a disaster. While to date, most of the complaints about fracking have focused on environmental concerns, there’s a bigger and far less well known reason to doubt the most breathless predictions about America’s future as an oil and gas giant. The fracking of petroleum, in particular, remains on a fiscal foundation that is far less secure than most people realise.
Because so few fracking companionships actually make money, the most vital ingredient in fracking isn’t compounds, but uppercase, with business relying on Wall Street’s willingness to fund them. If it weren’t for historically low interest rates, it’s not clear there would even have been a fracking boom at all.
‘You can make an argument that the Federal Reserve is entirely responsible for the fracking thunder ,” one private-equity titan “ve been told”. That vistum is resembled by Amir Azar, a fellow at Columbia University’s Center on Global Energy Policy.” The real catalyst of the shale change was the 2008 financial crisis and the epoch of unprecedentedly low interest rates it ushered in ,” he wrote in a recent report. Another investor made it this road:” If fellowships were forced to live within the cash flow they induce, US oil would not be a factor in the rest of the world, and would have grown at a part to half the rate that it has .”
Worries about the financial fragility of the fracking revolution have simmered for some time. John Hempton, who runs the Australia-based hedge fund Bronte Capital, echoes having debates with his partner as the thunder was just getting disappearing.” The oil and gas are real ,” his partner “re just saying”. “Yes,” Hempton would respond,” but the economics don’t work .”
Thus far, the fracking industry has been more resilient than anyone would have dreamed. But questions about the sustainability of the boom are no longer limited to a small set of skeptics. Those disbeliefs now extend to the boardrooms of some large-hearted investors, as well as to the executive suites of at least a few of the fracking companies themselves. The fracking thunder has been fuelled predominantly by overheated investment capital , not by cash flow.
If the story of the fracking boom has a central character, it’s Aubrey McClendon, the founder of Chesapeake Energy, a startup that grow into a colossus. For a brief moment in biography, he most represented US fracking to the world. No one was more right and more wrong , no one bolder in his predictions or most spectacular in his collapses , no one more willing to risk other people’s fund and his own, than McClendon; or, as one banker who knew McClendon well gave it:” The macrocosm moves when people who like jeopardy taken any steps .”
” He was the good face of the industry- the passion, the clevernes, the adventurou ,” another former investment banker told me.” But he was also the bad face .” And that duality makes him a perfect personification of the US fracking revolution.