by Jim Emberger, Telegraph Journal (edited version), 13 Sept 2019
Corridor Resources claims that provincial ‘regulatory uncertainty’ prevents it from finding shale gas investors. Brunswick News‘ editors endorsed this argument, dismissing the idea that simple market forces could explain the lack of investors.
Yet, the Higgs government, and its supporters, have now promoted multiple shale gas and bitumen projects, all of which have failed because they misread market forces. This isn’t an enviable record for those who portray themselves as business-savvy. Perhaps, they are blinded to actual market signals by ideology, or absolute faith in an old maxim that fossil fuels are always a good investment.
But as the Wall Street Journal (WSJ) noted, “The once-powerful partnership between fracking companies and Wall Street is fraying as the industry struggles to attract investors after nearly a decade of losing money.”
“New bond and equity deals have dwindled to the lowest level since 2007.” In 2018, companies raised less than one-third than they did in 2012.
Steve Schlotterbeck, former CEO of major gas producer ‘EQT’, recently told a petrochemical conference, “The shale gas revolution has frankly been an unmitigated disaster for any buy-and-hold investor in the shale gas industry.”
Major shale gas producers “have destroyed on average 80 percent of the value of their companies since the beginning of the shale revolution,” and 172 Exploration and Production companies have gone bankrupt, since 2015.
The Institute for Energy Economics and Financial Analysis reported in March that 29 large, public shale gas companies outspent their income by $6.7 billion in 2018, and had a negative cash flow of $181 billion from 2010 to 2018.
Corridor’s failure to find investors simply reflects the industry’s financial circumstances, which have caused Canadian drillers to continuously cut their number of new wells. Shale is a bad investment!
Other market headwinds include serious global responses to the rapidly unfolding climate crisis.
The European Investment Bank (lending arm of the EU) has proposed ending all funding to fossil fuel infrastructure projects by the end of 2020. It joins major financial institutions worldwide in warning that investments in fossil fuel infrastructure will likely lose a lot of money.
Wall Street has also noticed the direct link between methane (natural gas) and climate. The WSJ covers studies showing that methane leaks from U.S. oil and gas operations have the equivalent greenhouse gas impact of 69 million cars, and were 60 percent higher than U.S. EPA estimates.
An American Geophysical Union study concludes that methane reductions from the oil and gas industry are “essential” to meeting global climate goals.
Even more damning, a brand new study attributes a large portion of recent global warming specifically to the methane emissions from shale wells, stating that, “The commercialization of shale gas and oil in the 21st century has dramatically increased global methane emissions.” The main culprit is the USA, but Canada ranks second.
The WSJ warns that growing concern over methane could derail plans for an energy world order based on international LNG sales. Mr. Higgs, take note.
Need we ask why investors for shale projects are hard to find?
On the other hand, crying ‘regulatory uncertainty’ is the easy, clichéd, self-serving excuse for project failures, particularly if it can be linked to political opponents or First Nations. There is no regulatory uncertainty at play. Everyone associated with Canadian resource development knows that serious First Nation consultations are required.
The feared ‘uncertainty’ is about consultation outcomes, because any serious consultation must address the science and history of fracking. On every facet of fracking – water use and contamination, wastewater, earthquakes, air pollution, public health, climate, etc. – the industry’s track record is as bad as its finances.
Scientists and physicians who reviewed a compendium of over 1400 studies on fracking concluded that they could see no way it could be done safely.
After a year of testimony, The People’s Permanent Tribunal – an international institution overseeing human rights – ruled that “fracking is in violation of our Right to Water, Right to Health, our Right to Security of Person, and even our Right to Information and Participation.”
The Tribunal called for a global ban, and condemned jurisdictions that have revoked moratoriums.
My organization sued the last PC government on similar grounds, and could well return to court, adding more uncertainty for investors.
The only certainty for shale investors is that the riskiness of their investment is in direct proportion to bad news about shale. Currently the market news is abysmal, and the climate, environmental and health news is so bad that several major US presidential candidates are calling for a total ban on fracking.
The realistic way to regulatory certainty is to enact a permanent ban on fracking, giving us a clear path to the renewable energy market.
BNP Paribas, the world’s eighth largest bank (by total assets), informed its investors that, “We think the economics of renewables are impossible for oil to compete with.” The economics of oil “are now in relentless and irreversible decline.”
The market forces are speaking. The government needs to listen.
Jim Emberger is spokesperson for the New Brunswick Anti-Shale Gas Alliance