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IEEFA letter: Argentina would be wise not to replicate the broken U.S. shale industry model

August 08, 2019
Kathy Hipple

Letter to the Editor (Financial Times):

Your article on Argentina and shale gas (Argentina seeks to replicate success of US shale boom, August 7) rests on a faulty premise. The shale revolution is not a boom, but a big bust of epic proportions.

There is no denying that there has been a production boom in both fracked oil and fracked natural gas in the U.S. But it has been a financial disaster for producers and investors. Cash flows from fracking-focused oil and gas companies across the country have been negative for decades — even when oil and gas prices were higher than they are now.

Frackers, in fact, have spilled billions of dollars in red ink. A recent analysis of 29 fracking-focused companies produced by the Sightline Institute and the Institute for Energy Economics and Financial Analysis showed aggregate negative cash flows of $184bn between 2010 and early 2019.

This red ink has spilled from companies fracking for natural gas in Appalachia, and for oil in the Permian Basin. Bankruptcies have mounted. Since 2015, 174 North American oil and gas producers have filed for bankruptcy protection, according to law firm Haynes & Boone, restructuring nearly $100bn in debt largely through write-offs.

Bankruptcies will continue as oil and gas borrowers must repay or refinance several hundred billion dollars of debt over the next six months. Meanwhile, natural gas production has boomed, creating a glut, and deepening the financial distress for oil and gas producers around the world.

There is also a glut in natural gas produced in the Permian fields that frackers either burn off (flaring) or pay to have transported. Gas producers throughout the world are desperately seeking to export their product overseas, primarily to Asia. Part of the glut has been blamed on infrastructure issues in the Permian Basin. But, as the article notes, Argentina’s infrastructure problems are far greater.

Given the failure of frackers to create a viable business model, Argentina should not seek to replicate the shale boom. It should instead look towards innovative new models of sustainable energy and economic growth such as those being pursued in neighbouring Chile and Uruguay.

Kathy Hipple Professor, Bard MBA in Sustainability; Financial Analyst, IEEFA.org; Partner, Noosphere Marketing, New York, NY, US

Original letter: Stranded shale assets send a warning to Argentina and others

Kathy Hipple ([email protected]) is an IEEFA financial analyst.

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Kathy Hipple

Former IEEFA Financial Analyst Kathy Hipple is a founding partner of Noosphere Marketing and the finance professor at Bard’s MBA for Sustainability. She worked for 10 years with international institutional clients at Merrill Lynch and then served as CEO of Ambassador Media.

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