U.S. GAS INDUSTRY GETTING “FRACKED”

Fracturing, or “fracking,” rocks deep in the Earth to release and harvest natural gas has made the U.S. an energy exporter, kept fuel prices low by pushing out more supply than there is demand, while hitting the domestic coal industry hard.
But the fracked wells’ renowned bounteous productivity has left many gas producers facing bankruptcy.
Fracked wells are expensive to drill and complete but the cost has been justified by the enormous amounts of gas the wells produce.
That has flooded U.S. gas markets, keeping prices low.
Now low gas prices have combined with a slowing economy and tight credit market just as producers of fracked gas face a collective $86 billion in loans coming due now through 2024.
Because drilling for oil and gas is a risky venture, 60 percent of that debt is ranked as “speculative grade” – closer to junk bonds than to blue-chip stocks – “implying a higher degree of default risk,” according to a 19 February statement by Moody’s ratings service.
In 2022, the speculative-grade debt coming due will peak, outnumbering safer loans by about two to one.
Low oil and gas prices, the global economic slowdown, and a cautious credit market will make it hard for producers to raise capital to drill new wells and maintain cash flow.
TRENDPOST: The number of oil drilling rigs at work in the U.S. has risen for the third straight week. With increasing supply and lower demand, natural gas futures prices are down some 30 percent in the past year. Considering that some 50 percent of U.S. households use the fuel as their primary heating source, the savings on energy may flow into retail, restaurants, and hospitality sectors … or paying of debt.