Wednesday, March 11, 2020

Trump considers giving federal aid to fracking companies threatened by coronavirus-fueled oil war

UPDATE: The Trump administration is strongly considering extending federal aid to shale oil producers (some of whom also drill for natural gas) that have been hurt by falling oil prices, The Washington Post reports. Cornell University professor Robert Hockett, who advised Sens. Bernie Sanders and Elizabeth Warren on economic policy, said bailing out frackers would be "absurd," when "We are in the midst of a crisis where people are literally having to skip work and may miss paychecks or face medical debt" because of the coronavirus. 

However, Jared Bernstein, an Obama-era economic advisor to Joe Biden, noted that the Obama administration helped many firms with low-interest loans during the 2008 financial crisis, and said he would prefer that aid to oil companies come in the form of loan guarantees rather than cash bailouts, the Post reports.

The already unstable American shale-oil industry, which relies on horizontal hydraulic fracturing deep underground, is under threat because of a coronavirus-fueled game of chicken between Russia and Saudi Arabia.

Demand for energy is falling worldwide as people cut back on travel and production in the wake of the coronavirus epidemic. Too much supply and not enough demand for oil have lowered prices. Over the weekend, Saudi Arabia urged other members of the Organization of the Petroleum Exporting Countries to cut production in order to boost prices, but Russia refused. Because of the coronavirus and Russia's refusal, oil prices have dropped as much as 30 percent in the last week, The Associated Press reports.

"Now the fracking industry, which President Donald Trump sought to expand with hard-line support for increased fossil fuel production, faces potential ruin," Alexander Kaufman reports for HuffPost. "Fracking, a ballyhooed but financially fragile sector, struggled to stay afloat with crude selling at $50 per barrel. If prices stay around $30, or even fall as low as $20, U.S. frackers simply might be unable to keep up."

"The energy meltdown threatens to cause a repeat of the 2014-16 oil crash that bankrupted dozens of American oil and gas companies and caused hundreds of thousands of layoffs. Although the industry survived, the experience proved to be very painful," Matt Egan reports for CNN Business.

Fracking makes up 63% of U.S. oil production, according to estimates from the Energy Information Administration. Oil and gas drilling is growing faster in the U.S. than in any other country, and fracking accounts for 90% of that growth, Kaufman reports.

The fracking boom made the U.S. the world's largest oil producer and turned a decades-long petroleum deficit into a surplus last September, Jed Graham reports for Investor's Business Daily. But frackers have had to borrow heavily to drive that expansion, and they're not seeing the hoped-for profits. Meanwhile, productivity of wells has peaked, and prime drilling areas may be exhausted within the next five years.

Dozens of U.S. oil companies were already in financial trouble before the oil war, "but unlike the 2014 price plunge, Wall Street—down on the industry due to poor returns—isn’t primed to offer a helping hand," Collin Eaton and Rebecca Elliott report for The Wall Street Journal.

Pioneer Natural Resources Co. Chief Executive Scott Sheffield said that probably half of the nation's public oil exploration and production companies will go bankrupt over the next two years, Eaton and Elliott report. Pioneer is one of the leading producers in the Permian Basin.

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