[ I’ve meant to post more but haven’t gotten around to it, but there are quite a few other summaries of house and senate hearings on energy in category Experts/GOVERNMENT/Congressional Record U.S.
Alice Friedemann www.energyskeptic.com author of “When Trucks Stop Running: Energy and the Future of Transportation”, 2015, Springer and “Crunch! Whole Grain Artisan Chips and Crackers”. Podcasts: KunstlerCast 253, KunstlerCast278, Peak Prosperity]
E42. January 9, 2015. Fracking is jeopardizing the environment and the U.S. Economy. Congressional Record.
House Representative Jim McDermott: I rise today to express my growing concern about the economic issues of fracking. The once booming oil fracking market could be headed for a bust. If a bust in the oil fracking sector does happen, it could create massive losses on Wall Street and for investors on Main Street in 2 ways.
- Fracking oil drillers issued massive amounts of debt to construct the necessary wells. With the price of gas falling, many oil fracking drillers now face cash shortfalls. As a result, it is becoming more and more difficult for frackers to meet their debt servicing obligations. If the debt servicing obligations are not met, investors on Main Street and Wall Street could be left holding billions of dollars of worthless bonds.
- Many companies took out derivatives contracts against market fluctuation, insuring stable cash flow. Losses are mounting on these contracts as oil prices fall. Wall Street banks that own many of these contracts will have to absorb massive losses. The unexpected shock of falling oil prices may destabilize the balance sheet of these big banks, creating the conditions for another financial crisis.
Below is an article from Truth-out.org that further explains this issue by Ben Ptashnik, Russia blamed, U.S. taxpayers on the hook as fracking boom collapses:
“…When gas fracking first popped onto the scene, grandiose claims were made that the United States had 100 years of gas supply in shale, or 2,560 trillion cubic feet. And Wall Street rode that initial estimate. But in fact, no statistical evidence con- firmed the hyped claims of a 100-year shale gas supply…
By 2013, the U.S. Geological Survey refined that down to 481 trillion cubic feet—less than a 19-year supply based on 2013 rates of production.
Meanwhile oil fracking, which is separate from gas fracking, also needed huge injections of capital, and oil prices to stay at $85 a barrel or higher on average to break even. Many of the shale oil wells that have sucked up a huge amount of investment have also turned out to have short lives and their operators required continued infusions of capital to drill new wells to keep afloat, even as prices tumbled due to the glut they them-selves created.
Falling oil prices will place a huge stress on the world’s junk bond market as energy companies now account for 15% of the outstanding issuance in the non-investment grade bond market. The plunge in the prices of crude could trigger a ‘‘volatility shock large enough to trigger the next wave of defaults,’’ according to Deutsche Bank.
This explains why the Obama administration—with complicity of both congressional Democrats and Republicans—managed in the wee hours of the morning to slip a loophole into the supposedly ‘‘must-pass’’ cliff-hanger omnibus budget bill. This toxic Trojan horse, passed in December 2014, now includes a minor footnote provision that might cause taxpayers to pick up the tab on more than a trillion dollars (yes, trillion) if the energy market bubble implodes, which it must if oil stays at half the price it fetched just six months ago.
After last minute, heavy lobbying on the budget bill by Jamie Dimon of JPMorgan Chase and an army of 3,000 Wall Street lobbyists, it appears that once again sufficient insecurity and fear had been spread among the political class regarding destabilization of the financial markets (or withdrawal of campaign financing). They allowed a last minute amendment that killed Dodd-Frank protections, and allowed U.S. taxpayers to be shaken down to cover Wall Street’s shale gambling debacle.
The heavy-handed move by the financial industry has outraged progressives and libertarians alike. It seems that these Wall Street criminal could not resist the easy cash from Ponzi scheme market bubbles, and so they have stuck it to the U.S. public once again: Preposterously huge bonuses, Porsches, pricey call girls, and million-dollar Manhattan condos were at stake. [And why not?] After all, not a single one of those con artists went to jail last time.
Wall Street is now flooded with fracking industry derivatives contracts that protect the profits of oil producers from dramatic swings in the marketplace. Derivatives are essentially insurance policies taken out by the oil industry to guard against fluctuations in the cost of fossil fuel supplies. Dramatic swings rarely happen, but when they do they can be absolutely crippling. Derivatives taken out to ensure prices don’t go down are now creating billions in losses for those who sold such bets on the market; someone is going to have to absorb massive losses created by the sudden drop in oil on the other end of those insurance con- tracts. In many cases, it is the big Wall Street banks, and if the price of oil does not rebound substantially they could be facing colossal losses.
The big Wall Street banks did not expect plunging home prices to implode the mort- gage-backed securities market in 2008, and their current models also don’t have $60 oil prices included in projections. The huge losses may send a shock wave into the entire financial industry. It has been estimated that the 6 largest ‘‘too-big-to-fail’’ banks control $3.9 trillion in commodity derivatives contracts, those same gambling instruments that brought us the 2008 housing collapse. And a very large chunk of that amount is made up of oil derivatives. Combined with the huge flood of shale junk bonds on the market, the derivatives could initiate a bubble burst that could turn into a financial market implosion.
Denial. Same as 2014/5/6 A few years ago people were talking about peak oil, as if all of the oil that could be discovered had been discovered in the world; we were running out. Well, obviously, that has proven not to be true (Senator Cornyn, Texas).