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What US fracking could learn from Welsh coal

As a young man I occasionally haunted the Great Western Hotel, located next to Cardiff Central railway station.  At that time, the walls of the back bar were adorned with photographs of old Cardiff.  Among these photographs was an image of Cardiff Bay just before the outbreak of the First World War.  The image showed row after row of coal ships waiting to berth on quays surrounded by empty coal waggons awaiting their next journey.

To my eye, this was not so spectacular an image.  After all, even then (1979) a large part of the South Wales coalfield was still being mined.  At the time that photograph of Cardiff Bay had been taken, the Welsh coal boom must have been at its height, with a huge empire to fuel and a growing steel and metallurgy industry voraciously consuming as much coal as it could get its hands on.

But I was mistaken.  Those weren’t British ships exporting coal across the British Empire or shipping it along the coast to the new metal works.  Those were Polish ships!  And they weren’t taking coal, they were bringing it!

The history of the Welsh coalfield was largely a history of technology fighting a losing battle with geology.  In the early days – when there was less competition and easier deposits to access – Merthyr had been referred to as “the Welsh Klondike” because of the way the coal (and iron and steel) boom had sucked in capital and labour from around the world.  But by the turn of the twentieth century, with the easy coal deposits gone and with growing competition from much larger mining regions in Europe and America, South Wales mining was effectively over… it was only a matter of time.

What the old photograph in the Great Western Hotel was telling anyone who cared to look was that by 1913 it had become cheaper to dig coal out of the ground in Silesia; transport it by rail to the Baltic coast; load it onto a Polish coal ship; and ship it all the way to Cardiff, than it was to dig coal out of the ground and transport it twenty miles down the hill!  In terms of market economics, Welsh coal mining was finished.

Of course, mining in Wales continued into the 1990s.  But this was only on the back of growing government subsidies.  By 1910, the Royal Navy was shifting from coal to oil-powered battleships – although much of the fleet continued to depend on coal. With the outbreak of war in 1914, Britain lost its access to European coal.  As the war progressed, the threat to shipping from German U-boats forced Britain to rely on home-produced coal.  A similar dependence occurred in the years 1939-45.  And in the post-war years, coal continued to be regarded as a strategic resource that had to be subsidised at all costs.  Later (through the 1960s and 70s) coal mining came to be seen as a form of Keynesian employment creation – maintaining the economies of mining communities that would otherwise collapse.  It was only after (relatively) cheap oil and gas from the North Sea freed the UK government from dependence on coal that they finally felt able to let the coal industry fail.

What has this to do with US fracking today?

Well, if you go to the contemporary USA you will find a massive fleet of around 10,000 rail tankers lying idle in sidings, most probably en route to their ultimate appointment at the scrap yard.  Next to these can be added more than 1,000 oil and gas drilling rigs that have been retired in the last two years.  These look all too reminiscent of those empty coal waggons by the quayside in Cardiff Bay in 1913.

And what of the Polish ships?  Head down to the oil ports along the coast of the Gulf of Mexico and you still find US domestic oil and natural gas liquids arriving by pipeline and rail – but the amounts are falling fast.  At the same time there are tankers queuing to unload at the dockside.  But these tankers – like the Polish ships in Cardiff Bay – have come a long way.  Not just from the Middle East, but from Nigeria, Canada and Azerbaijan.

The fracking boom was another example of an industry waging a losing battle of technology against geology.  What the growing stack of empty rail cars and drilling rigs is telling anyone who cares to look is that it is now more expensive to drill and transport oil from a couple of hundred miles away along developed rail and pipe lines than it is to drill it out of the ground in underdeveloped regions like Azerbaijan and Nigeria, transport it by rail or pipeline to a port (a considerable distance in the case of Azerbaijan), load it onto a ship, then sail it thousands of miles to the US refineries.  Like Welsh coal in 1913, US fracking is a busted flush…

Of course, the US government may continue to subsidise the fracking industry, and the Wall Street banks may opt to roll over the massive debt overhang rather than tolerate mass bankruptcies.  But there are limits on how far investors will allow this.  Since oil – like coal before it – is a strategic resource, the US government may even bail out the industry rather than let it fail, as they did with the banking and automobile industries.  But there are limits to how far the US Congress will allow the debt ceiling to rise to accommodate this – bailing out fracking can only come at the cost of reneging on other government-funded industries, services and pensions.

The South Wales coal industry was able to limp on for 90-100 years after it had become economically unviable – but only at the cost of huge government subsidies; and only then because of Britain’s dependence on coal during two world wars.  Whether the US government can afford to subsidise a fracking industry with no more than 5 years worth of oil and 8 years of gas reserves, and whose technology is fast losing the war against geology is a moot point.  But like Welsh coal before it, US oil is doomed… it is only a matter of time.

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