…Winners and Losers If Fracking is Stopped…
Generally speaking, Saudi Arabia and Russia are winners, while Americans are losers.
Let’s examine the specifics.
A fracked well’s production declines rapidly. By the end of two years, the well is only producing at around 20% of what it produced originally. However, it continues to produce at around 10% of its initial rate for many years.
If fracking is stopped, the amount of oil produced by the United States will decline by over 5 mb/d at the end of two years, i.e. , (7 mb/d x 0.8).
At the same time, if the US economy declines from pre-Covid GDP levels, as the result of the same policies that caused fracking to be stopped, the demand for oil will also decline somewhat, so it may only be necessary for the US to import 4 mb/d, slightly less than the decline in oil production.
Internationally, BP, Shell and Total, the other large oil companies, are moving away from oil which could also result in lower output. Simultaneously, EU global warming policies may result in less demand for oil over the next few years. Additionally, the remaining world economy may be slow to recover from the Covid disaster, which could also result in only a modest increase in demand.
It’s fair to conclude that, outside of the United States, demand for oil will only increase slightly, perhaps by 1 mb/d.
With the US importing 4 mb/d, demand for oil from outside North America will increase modestly to 5 mb/d over the next two to three years.
Increase in this demand will likely result in higher prices for oil.
Exxon, Russia and Saudi Arabia will benefit from any increase in the price for oil. BP, Shell and Total will also benefit, but to a lesser extent as they move Beyond Oil; as BP has said.
Higher oil prices usually result in higher gasoline prices for Americans.
Stopping fracking will have similar results, i.e., an 80% decline in output, for natural gas production in the United States.
The US will not be able to export natural gas to Asia or to Europe. This helps Russia as they continue to become Europe’s largest supplier of natural gas. It also helps Australia and the UAE, as they are the largest suppliers of LNG to Asia.
The US will have to begin importing natural gas after about two years.
The price of natural gas at the Henry Hub is currently under $2 per Million Btu, while the price for imported LNG will be at least $6 per Million Btu.
In addition, there will be a need to convert LNG export terminals to import terminals, and also build controversial new import terminals or the price of natural gas will go beyond $6 per Million BTU.
This means Americans will be paying much more to heat their homes, and also for electricity.
Exxon has been roundly criticized for its strategy.
While the above analysis is not assured, it could be part of EXXON’s strategic thinking. EXXON could benefit from both the stopping of fracking and from a continuation of fracking.
China will be a beneficiary of America’s economic decline as it pays little real attention to climate change.
Here are two quotes from The Economist Magazine on China:
“What China lacks in oil and gas supplies it makes up for with industrial policy, which it has long been using to support domestic coal production and nuclear power as well as what is now by far the world’s largest renewables sector.”
“This is not in itself anything like a triumph for climate action. China has more than 1,000 gigawatts (gw) of coal-fired generating capacity. This installed base, with which it generates 49% of the world’s coal-fired electricity, makes it the world’s biggest carbon-dioxide emitter. And its coal use is set to expand in the years to come.”
Americans are the biggest losers if fracking is stopped.
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