Analysts say that while bigger fracking companies might be able to sustain losses in the short term, the outlook appears bleak for the thousands of smaller, less well-financed companies who rushed into the industry, tempted by big returns.
The fracking industry’s troubles have been added to by the actions of the Organisation of Petroleum Exporting Countries (OPEC), which, despite the oversupply on the world market, has refused to lower production.
The theory is that OPEC, led by powerful oil producers such as Saudi Arabia, is playing the long game – seeking to drive the fracking industry from boom to bust, stabilize prices well above their present level, and regain its place as the world’s preeminent source of oil.
There are now fears that many fracking operations may default on an estimated $200 billion of borrowings, raised mainly through bonds issued on Wall Street and in the City of London.
In turn, this could lead to a collapse in global financial markets similar to the 2008 crash.
Existing reserves
There are also questions about just how big existing shale oil and gas reserves are, and how long they will last. A recent report by the Post Carbon Institute, a not-for-profit thinktank based in the US, says reserves are likely to peak and fall off rapidly, far sooner than the industry’s backers predict.
The cost of drilling is also going up as deposits become more inaccessible.
Besides ongoing questions about the impact of fracking on the environment − in terms of carbon emissions and pollution of water sources − another challenge facing the industry is the growth and rapidly falling costs of renewable energy.
Fracking operations could also be curtailed by more stringent regulations designed to counter fossil fuel emissions and combat climate change.
Read more at Fracking’s Future Is in Doubt as Oil Price Plummets
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