Fracking’s future is in doubt as oil price plummets, bonds crash

There’s no doubt that US-based fracking – the process through which oil and gas deposits are blasted from shale deposits deep underground – has caused a revolution in worldwide energy supplies.

Yet now the alarm bells are ringing about the financial health of the fracking industry, with talk of a mighty monetary bubble bursting – leading to turmoil on the international markets similar to that in 2008. In many ways, it’s a straightforward case of supply and demand. Due to the US fracking boom, world oil supply has increased.

But with global economic growth now slowing – the drop in growth in China is particularly significant – there’s a lack of demand and a glut in supplies, leading to a fall in price of nearly 50% over the last six months.

Fracking has become a victim of its own success. The industry in the US has grown very fast. In 2008, US oil production was running at five million barrels a day. Thanks to fracking, that figure has nearly doubled, with talk of US energy self-sufficiency and the country becoming the world’s biggest oil producer – ‘the new Saudi Arabia’ – in the near future.

But, fracking is an expensive business. Depending on site structure, companies need prices of between $60 and $100 per barrel of oil to break even. As prices drop to around $50 per barrel, investments in the sector look ever more vulnerable.

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