Is Natural Gas the Next Bubble ? Has Fracking Promised More Than It Can Deliver?
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Further scrutiny led Rogers to realize that Wall Street, similar to its selling of toxic assets during the real estate boom, had worked behind the scenes to manipulate prices in order to facilitate better fees for themselves.
She explores both of these findings and their implications in a new report, "Shale and Wall Street: Was the Decline in Natural Gas Price Orchestrated," which was released in February.
Rogers reveals how Wall Street drove the shale gas drilling frenzy by overestimating the amount of well returns, which resulted in prices lower than the cost of production for the operators who bought the drilling leases. Consequently, these operators borrowed millions of dollars on assets that either don't exist or may never be commercially viable to extract. Wall Street then also profited greatly via mergers and acquisitions and other transactional fees.
Rogers, founder and executive director of the nonprofit Energy Policy Forum, and a recently appointed primary member to the U.S. Extractive Industries Transparency Initiative for the Department of the Interior, makes clear that the investment banks didn't do anything illegal in performing these shale gas transactions.
Her issue, she said, is that there's absolutely no way the banks didn't realize those wells weren't performing anywhere close to projected numbers.
"Everything they did before the mortgage-backed securities bubble was legal, too," noted Rogers. "And we saw the consequences of that. But that's another good argument for why we need financial reform."
What may be most troubling to analysts like Rogers, however, is that the shale gas bubble won't just hurt operators and their shareholders. They say American consumers are next in line.
Rogers and other energy analysts agree that the industry's plan to export natural gas overseas to countries like China, where they can sell it for much higher prices, will inevitably drive up domestic prices.
In her report, Rogers cites financial analyst calls going back to 2007 and 2008, which reveal this was the natural gas industry's plan all along, while it continues to sell American consumers and utility companies on becoming ever more dependent upon natural gas.
If successful, she said, "We will have affected essentially exactly the same scenario that we find ourselves in with crude oil now -- much more dependent and at much higher price."
Rogers added, "So we get squeezed, but they make off like bandits."