Natural Gas Glut: Wall Street Is Driving the Shale Gas Boom Like it Did the Housing Mortgage Scandal
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"Shale gas accounted for $46.5 billion in deals in the U.S. alone in 2011," explains Rogers. "The mergers and acquisitions market for shale assets exploded in the prior two years directly in sync with the downward descent of natural gas prices. In much the same way as mortgage backed securities bolstered the banks' profits before the downturn, energy M&A had now become the new profit centre within these banks."
Meanwhile, a variety of shale gas companies are beginning to post write-downs and losses while other firms have not renewed their leases or slowed down drilling altogether. Most firms switched to exploiting natural gas liquids in shale plays and then drove down the price of that resource too.
Few jobs, little stimulus
Although industry and government have trumpeted shale gas development as a miraculous economic engine that might even solve the common cold, the facts prove otherwise says Rogers.
"Retail sales per capita and median household income in the core counties of the major plays are under-performing their respective state averages in direct opposition to spurious economic models commissioned by industry."
Moreover, the capital intensive oil and gas industry creates a limited number of jobs. "Direct industry jobs (for onshore and offshore oil and gas) have accounted for less than one-twentieth of one per cent of the overall U.S. labour market since 2003, according to the Bureau of Labor Statistics," says Rogers.
In Texas, shale gas activity has cost taxpayers billions in road repairs and lost royalties as well as higher levels of air pollution and water contamination.
Shale gas is a classic energy bubble, concludes Rogers. It won't build any bridges to the future other than debt and a dangerous treadmill of accelerated drilling to keep production flat.
"The price of natural gas has been driven down largely due to severe overproduction in meeting financial analysts' targets of production growth for share appreciation coupled and exacerbated by imprudent leverage and thus a concomitant need to produce to meet debt service."