And Corona virus not helping.
Institute for Energy Economics and Financial Analysis:
“The fracking sector as a whole has been struggling mightily throughout the decade to register positive free cash flow but for those based in Appalachia, the numbers have been even more dismal,” said IEEFA financial analyst and briefing note co-author Kathy Hipple.
Negative cash flows for the full year, at $466 million, actually represented the decade’s best performance for these companies. Yet only two of the eight firms in the IEEFA sample, Cabot Oil and Gas and EQT, were cash flow positive for the year. Five of the eight companies—Antero Resources, CNX, Chesapeake, Gulfport, and Range Resources—reported negative cash each year throughout the decade. Southwestern’s cash flow was negative in nine of the 10 years, including 2019.
“The paradox for the fracking sector is that the oil and gas production bonanza has been a cash flow bust,” said IEEFA energy finance analyst Clark Williams-Derry. “Q4 2019 was no exception.”
On an annual basis, U.S. benchmark gas prices peaked in 2008, at $8.86/MMBtu. But prices have dropped dramatically since then, falling to just $2.56/MMBtu on average in 2019, and well below $2.00 more recently.
For a brief period in March 2020, some Appalachian-focused gas producers saw their stock prices improve, even as stocks for other oil and gas companies plummeted. This bounce was propelled by an emerging narrative that lower oil prices would curtail drilling in the Permian, translating into reduced gas production from the U.S.’s most prolific shale basin. This comparative improvement in some Appalachian producers’ stock performance lost steam by late March, as natural gas prices continued to decline along with the price of oil, hitting $1.60/MMBtu.
“We expect gas prices to remain depressed for the foreseeable future and add to that decreased demand from the coronavirus pandemic and that spells continuing distress for producers in Appalachia,” said IEEFA’s director of finance Tom Sanzillo.
Bruce Robertson for Institute for Energy Economics and Financial Analysis:
GLOBALLY, RENEWABLE ENERGY IS THE CHEAPEST SOURCE OF POWER GENERATION. Increasingly, it will be more so. It is a matter of time. In China, this will happen as soon as 2027. In Australia it’s already the case. Wind and solar are already cheaper, even unsubsidised.
Inside the industry, gas executives see very little demand for their product beyond 30 years from now. The proposed Burrup project in Western Australia has a 50 year life. The Northern Territory fracking projects have a minimum 30 year life. But for both, it’s unlikely they will see their 30 year life out.
Prior to covid-19, the gas industry saw increasing demand for their product, even if only within the 30-year projected life span. It will take a long while for all of us to crawl out of the economic effects this virus will heave. It will last for years.
Then there is another issue: there’s an oversupply of gas. The global gas glut will not resolve now until about 2030. It was previously projected to resolve by 2025. So why would any gas company look to build new gas now?
THE LARGEST COST OF RENEWABLE ENERGY IS THE FINANCING. Running a solar plant, for instance, costs very little. In our current climate, financing costs are declining for renewables as interest rates fall, while financing costs for fossil fuels are going up. This is because the debt markets have lost patience. They are downgrading the debt of oil and gas companies.
Currently, the U.S. fracking industry is experiencing a flood of bankruptcies, and soon, some US$86 billion dollars of debt will be due. This will be very difficult for the industry to manage. When enough fracking companies go broke in the U.S., this will force prices back up, at which point gas will become uneconomic to produce.
Whether prices are low or high, it is not good for the fracking industry. Too low and they can’t make money, and too high and they lose market share to renewables.
Origin’s Kyalla fracking project in the Northern Territory’s Beetaloo Basin was pulled this week. It is not, however, just the virus that is stopping them.
Origin, via a consortium, have already invested $25 billion dollars at Gladstone LNG plants in Queensland. They need more gas to put through these plants. If they stop supplying those plants, they go bankrupt.
THE GAS INDUSTRY HAS BEEN GIVEN A FREE RIDE TO CONTINUE FOR SOME YEARS NOW, but they are pulling out because they don’t have the money to continue.
Continue reading “Fracking Cracking in US and Downunder”