Problems of oil and gas industry do not bode well for the shale story.

JL column in Recharge: “The renewables industry has seemed awash with bad news since 2007. But don’t think that the oil and gas industry is escaping dire developments of its own. The oil price has remained enduringly high ($110 a barrel as I write) and surprising amounts of unexpected unconventional oil have been fracked from American shale. But as a Financial Times headline about Big Oil notes: “Analysts say investor interest has rarely been lower”.”
“Profits and production in the oil majors are slumping. The much-hyped fracked oil is actually part of the problem. “Shale-boom profits bypass Big Oil,” says The Wall Street Journal. Shell has invested $24bn in US shale in the expectation of a bonanza; it has had to write off $2bn of that, so disappointing have the results been.
Notwithstanding, few in the commentariat have been prepared to question the oil industry’s PR blizzard about shale oil being the route to “Saudi America”. I am reminded of the isolated few who questioned the banking industry’s hype of mortgage-backed securities in 2006. Now, as then, not many journalists look beyond the press releases.
John Dizard of The Financial Times is one who does. “ ‘Saudi America’ remains a Washington fantasy,” he wrote recently. Another is Ambrose Evans-Pritchard in Britain’s Daily Telegraph: “We have swung from oil panic [about supply] to complacency on slender evidence.” He concludes that peak cheap oil is here to stay.
Three to four million barrels a day have been knocked out of global supply by unexpected incidents around the world recently. This is some 4% of global production: more than double the combined output of the richest US shale-oil regions. Meanwhile, Saudi Arabian production is near record levels. The Saudis are pumping madly, more to produce oil to burn for electricity to run their air-conditioners than to try to stabilise the global oil price.
The high oil price ought to be working for the oil industry. It isn’t.
Meanwhile, the smell of a turnaround for renewables is clear in the air. “Time to renew interest in renewables?” asks the title of a Goldman Sachs report. “Renewables: a rising power?” reads a headline in The Financial Times. Deutsche Bank has produced a bullish report arguing that solar is about to enter a “third growth phase”. As for clean-tech generally, shares in electric car maker Tesla jumped 19% to a record high in early August. More ominous news for oil.
The shale-gas boom barrels on in America, where prices remain low as a result of the volumes produced. But the true costs are becoming clearer by the week. One of the engineers who developed shale fracking techniques has written in The New York Times that gas is a “gangplank to [global] warming and away from clean energy investments”.
Pollution revelations continue, with a study finding dangerous levels of arsenic in water near Texas drilling sites. The industry’s efforts to stem the haemorrhage of bad news reached new levels of absurdity when it emerged that a Pennsylvania family who were compensated for the poisoning of their land and home had signed a gagging order banning their two children from talking about fracking for the rest of their lives.
Some in the energy incumbency seem hesitant. Shale outside the US is overhyped, Shell chief executive Peter Voser has warned. The American shale-gas boom is a “one-off”, according to a BG Group executive.
None of this seems to have got through to the British government. Prime minister David Cameron now endorses fracking enthusiastically, professing that it will create jobs and lower gas prices. It has emerged that his top strategist, Lynton Crosby, is a gas lobbyist.
The chancellor, George Osborne, has instigated the most generous tax breaks in the world for fracking. His father-in-law, a member of the House of Lords, is a gas lobbyist.
Cuadrilla Resources duly prepared to drill for oil at the first site in the south of England in August, with a view to fracking if necessary. Outraged citizens descended on the site outside the village of Balcombe and the first arrests were made by police protecting the interests of the energy incumbency.
Ignore such protests, the government told planners contemplating licence applications for other sites. In their dreams. The first battle has just begun in a war that the incumbency is going to find unwinnable, for reasons that go well beyond social acceptability.
All the evidence for this article can be found at www.