Fracking is more resource-intensive than conventional drilling. Companies drilled at a frenetic pace to try to recoup costs, but in the process they produced a glut of gas, further driving prices — and profits — down.
“The reality is that the shale boom peaked without making money for the industry in aggregate,” found a report from the financial advisory firm Deloitte. “In fact, the U.S. shale industry registered net negative free cash flows of $300 billion, impaired more than $450 billion of invested capital, and saw more than 190 bankruptcies since 2010.”
And while exports of liquified natural gas are rising, The New York Times reported that “future profits may be meager.”
The COVID-19 pandemic has delivered another huge hit, along with an oil price war between Saudi Arabia and Russia that sent oil prices to record lows in March. Last month BP announced they would trim $17.5 billion off their assets as energy demand falls.
It’s a harbinger of things to come.
“BP said that the aftermath of the new coronavirus pandemic would accelerate the transition to a lower-carbon economy, in line with the goals of the 2015 Paris climate agreement,” Reuters reported.
The Energy Landscape Shifts
For years environmentalists have warned that oil and gas reserves would end up being stranded assets for energy companies when a shift to a less carbon-intensive economy makes those fossil fuels unburnable.
We are beginning to see this taking shape with these recent pipeline decisions. All of these projects have been in the works for at least six years. And in that time the urgency of the climate crisis has come into sharper view and a number of states have decided to push ahead with clean energy commitments, despite federal opposition to action on climate change.
Some of these states are the same places where new pipelines have been proposed.
“We certainly saw that with the Atlantic Coast Pipeline,” says Sabath. “States like Virginia and North Carolina are moving quickly now toward clean energy and zero-carbon goals that are inconsistent with gas and oil infrastructure. It doesn’t make sense to have major projects that would lock you into carbon emissions that will not be permitted in your state in a couple of years.”
In March Virginia passed the Clean Economy Act to make the state’s electricity sector carbon free by 2045. And in 2018 North Carolina’s Gov. Roy Cooper signed an executive order to help spur a transition to a clean energy economy in his state.
People and Politics Hold the Power
Ups and downs in the oil and gas industry aren’t new. But the collision of crises in this current moment — the pandemic-induced demand reduction, the political and financial realities of climate change, surging clean energy, and legal reckonings on high-profile projects — are a steep challenge.
How well oil and gas companies rebound — if they do at all — may largely depend on November’s election.
But beyond politics, there’s one other big factor that will determine how this all plays out: the people.