Energy News

Half of US shale drillers may go bankrupt

Half of U.S. shale oil producers could go bankrupt before the crude market reaches equilibrium, Fadel Gheit, said Monday.

The senior oil and gas analyst at Oppenheimer & Co. said the "new normal oil price" could be 50 to 100 percent above current levels. He ultimately sees crude prices stabilizing near $60, but it could be more than two years before that happens.

By then it will be too late for many marginal U.S. drillers, who must drill into and break up shale rock to release oil and gas through a process called hydraulic fracturing. Fracking is significantly more expensive than extracting oil from conventional wells.

"Half of the current producers have no legitimate right to be in a business where the price forecast even in a recovery is going to be between, say, $50, $60. They need $70 oil to survive," he told CNBC's "Power Lunch."

 And the reason for the dramatic fall in prices?

Oil prices have fallen about 70 percent from their highs in the summer of 2014. The rout accelerated after OPEC, led by top oil exporter Saudi Arabia, declined to enforce production cuts among members of the cartel, a strategy that has supported crude prices in the past.

Gheit said he believes the Saudis will not allow prices to recover until they "take care" of U.S. shale producers, who have contributed to global oversupply as American production has more than doubled since 2008.

The Saudis are also looking to settle the score with Russia and Iran, both of whom are on opposite sides of regional conflicts and are dependent on oil revenues, Gheit said.

It's also killing Venezuela, the Marxist led kleptocracy in Latin America whose economy is almost entirely dependent on oil exports. With so much good coming from the low prices, I hate to whine about American shale oil producers, but we will need them eventually. Can the strong half rebound after the Saudis lose control of OPEC again, as has usually ended the oil droughts? I hope so.

And the Obama administration's War on Coal claims a casualty as Arch Coal files for bankruptcy

The beginning of bankruptcy proceedings for the nation’s second-biggest coal company cast another dark cloud over the economy of Wyoming and other states in the top coal-producing region, following a bankruptcy filing by another major coal operator last year.

Arch Coal Inc.’s Chapter 11 reorganization announced Monday won’t affect employee pay or benefits, cause mines to close, curtail production, or interrupt deliveries, the St. Louis-based company said in prepared statements.

Arch officials didn’t rule out mine closures or layoffs based on long-term trends, however, and it remains unknown when and how the industry might somehow halt its downward spiral.

And why can't they sell coal for a profit?

Many utilities have been switching from coal to natural gas to generate electricity. Besides being cheaper, natural gas emits less greenhouse gas, a major consideration as utilities look to comply with tough new government regulations to try to control global warming.

I'm not at all against replacing coal with natural gas as a fuel; it's a better one for several reasons, but I would prefer that the switch over occur naturally as a result of market forces than by government

“The plight of the coal industry has been hard to watch. Unrelenting pressure from federal regulations and policies coming out of D.C. are pushing companies to a financial brink,” Gov. Matt Mead’s spokesman David Bush said by email Monday.
. . .
Not everybody was glum about the bankruptcy filing. The group WildEarth Guardians, which has contested several coal leases in the West on the grounds that coal contributes to climate change, called on Arch to wind down business altogether.

“There is no future for coal, and it’s time for Arch Coal to be honest about this with its shareholders, its employees, and the American public who sustain so much of the company’s operations,” Jeremy Nichols of WildEarth Guardians said in a news release.

May you freeze hungry in the dark.