Monday , December 17 2018
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You know things are getting desperate when…

Image: Faces of Fracking

The financial failure of the British fracking industry is becoming painfully obvious to all concerned.  In large part this is because – unlike its US counterpart – the UK fracking industry did not have access to the trillions of dollars of central bank stimulus conduited via the Wall Street Banks into any asset that had even the slightest prospect of producing an above inflation rate of return.

Even in the US, however, the fracking industry is looking decidedly vulnerable as volatility and risk return to the markets, and investors become increasingly worried about losing their shirts.

With global oil prices rising, the expectation had been that “technological advances” would propel the US frackers into the black for the first time.  It hasn’t worked out that way, however.  It turns out that almost all of the much lauded technological advance was in reality just the lowering of labour and supply costs in the face of a downturn.  With new wells being drilled, these costs have rapidly returned to pre-2014 levels.  Another so-called technological advance turned out to be simply shutting down all but the most productive “sweet spots” – again giving the impression that the industry was in a much better shape than it actually is.

It is against this backdrop that two rather desperate suggestions for at least cutting the losses made by the fracking industry made their way into the US media last month.  First, we learn from Clare Roth at WOSU Radio (who, apparently, stalwartly avoided uncontrollable laughter while penning the article) that:

“The first day of spring is bringing a Winter Weather Advisory in Central Ohio. And while the snow begins to come down, legislators in an Ohio House committee will be considering a new way to remove ice from the roads – using the byproduct of fracking.”

Only in America could politicians seriously consider using the toxic fracking fluid flow back from shale oil and gas wells to defrost road surfaces.  The fluid, you will remember, is so toxic that water treatment facilities refuse to process it (one of the many costs that has prevented UK fracking from taking place) resulting (in the US) in it being left to evaporate in storage ponds.  In any case, throwing liquid – even saline liquid – onto frozen road surfaces is not the brightest road safety measure anyone has come up with (below minus five degrees, even salt water begins to freeze, leaving the surface more hazardous than if it was left untreated).  This is why countries that experience snow and ice in winter opt for dry road treatments; primarily rock salt (which is more abundant than fracking fluid).

The second hare-brained idea for cutting the losses from fracking is the even crazier proposition to use the holes left in the shale plays as a dumping ground for the USA’s spent nuclear fuel.  According to Ashlee Vance at Bloomberg Businessweek:

“Richard and Elizabeth Muller have come up with one of the more unusual father-daughter businesses in recent memory. On March 20 they announced a startup called Deep Isolation that aims to store nuclear waste much more safely and cheaply than existing methods. The key to the technology, according to the Mullers, is to take advantage of fracking techniques to place nuclear waste in 2-mile-long tunnels, much deeper than they’ve been before—a mile below the Earth’s surface, where they’ll be surrounded by shale.”

Remarkably, the Mullers have raised $600,000 from investors – something that speaks more to the insanity of the soon-to-burst “everything bubble” than to any grounding in reality.  In the end, above ground nuclear waste storage is too cheap to compete against.  And while politicians periodically raise the idea of “safe” underground storage, the eye-watering costs always cause them to find some excuse for delaying the proposal at least until the other party is in government.

These two examples of March madness may turn out to be the product of no more than a slow month for news.  That said, growing insanity always marks the final phase of any bubble; and it is soon followed by an abrupt crash back down to earth.  A few more like these and you know it’s time to liquidate your assets and head for the hills.

As you made it to the end…

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