Bail out people, not polluters.
For 15 years, fracking inflated a shale oil and gas bubble that is now about to burst. The oil and gas industry promoted itself as a hero bringing jobs and prosperity to regular Americans. But what communities saw instead was unregulated land and water pollution and a massive spike in one of the worst culprits of climate change, methane emissions. Now, with Covid-19 destroying demand for oil while frackers continue to pump oil production into a massive oversupply, the consequences for the future of the US oil and gas industry is going to be staggering. Oil and gas prices are already at rock bottom, wells are being shut down, and with likelihood of more and more bankruptcies looming, the industry CEOs have headed to Washington DC looking for government bailouts.
Big Oil’s fabled past is over. In the US, over 200 oil and gas companies have gone under since 2014 and the sector’s stock market performance is the worst of all among Standard & Poor’s sectors. For years, the only way companies could generate cash was by fracking more wells, generating more debt, requiring more wells, and so on.
Even before Covid-19 hit, this industry was teetering on the edge of failure: the Wall Street Journal reported in December 2019 that banks were questioning the industry’s future. At last year’s price of less than $50 per barrel, many companies couldn’t pay their bills. Now at less than $20 per barrel, their demise is all but guaranteed. It is about time we let this industry lie in its bed and move on to a fossil fuel free future.
We shouldn’t respond to the coronavirus crisis by subsidizing an industry that has played a major role in the ongoing public health crisis, as well as the climate crisis.
Also, let us not forget that when fracking was booming the then-CEO of Chesapeake Energy —- the largest fracking company in the nation at the time — claimed on 60 Minutes that fracking chemicals were no more toxic than household cleaners, even as his industry fought tooth and nail to keep those chemicals, which almost killed people, secret. Or when Range Resources’ press representative crowed at an industry conference that they use ex-military psy-ops experts to divide communities opposed to their operations. Or when Continental Resources’ CEO bullied the state of Oklahoma because the state seismologist was investigating oil and gas waste disposal’s connection to damaging earthquakes that made the Oklahoma the nation’s most seismically active, ahead of California (And yes, oil and gas extraction had indeed caused the quakes).
But now that the industry is imploding, the villain wants the sympathy of the victim. After months of oil and gas price declines catalyzed by the Covid-19 crisis, the oil futures prices briefly dropped below zero on April 20. That’s right, two weeks ago it was possible to be paid to take oil. Consequently, many in the industry want bygones to be bygones, and would like the government to bail them out.
President Trump, unsurprisingly, has tweeted his support for bailing out the oil and gas industry. Now Congress is expected to make that happen using the current pandemic as an excuse, and the Federal Reserve, is considering buying up oil and gas debt, much of which predates the Covid-19 crisis by at least six years.
The industry’s dirty not-quite-secret is that shale plays — where extraction is possible only through fracking — don’t actually make money. Even when prices were higher, fracking-enabled companies could not and cannot cover all their costs by selling the oil and gas they extract. Instead, until the bubble burst, companies relied on capital investment from Wall Street. They could attract that investment because investors were confident even though a company didn’t actually generate enough revenue from sales to cover costs, the next investors would buoy stock prices because “everyone needs oil”.
There’s a term for a system where later investors pay the earlier investors, but the enterprise itself doesn’t actually generate income: a ponzi scheme. And experts have suspected fracking is a ponzi scheme for more than a decade. A functioning market economy doesn’t reward failure and fraud with bailouts.
Even when industry is hoping to appear the victim, it can’t help but be the villain. When the Covid-19 crisis hit, the oil and gas industry’s trade association, the American Petroleum Institute (API), sent a letter to the Trump administration asking for relief from environmental oversight. Although disappointing, this was no surprise: the industry’s solution to every “problem” is less public oversight. Are times good? Don’t regulate or you’ll stifle innovation! Are times bad? Don’t regulate because the added costs trying to meet those regulations will drive us out of business! And all the while, fund climate denial to undermine efforts to limit carbon pollution.
This is especially bad news because hundreds of field inspections by Earthworks in the Texas/New Mexico Permian shale play (until the lockdown in early March) suggested that declining prices are associated with increased air pollution due to unlit flares.
Flares, permitted by regulators to burn off “waste” gas at oil extraction operations, are bad enough for their carbon dioxide and particulate pollution. But unlit flares are worse because they release enormous amounts of methane, a greenhouse gas which is 86 times worse for climate than the carbon dioxide that lit flares are intended to release. Protecting public health and the environment should be part of oil and gas operations — if you can’t do the former, the latter shouldn’t be allowed.
That said, economic relief may well be necessary as companies lay off thousands of workers with more expected. But we should be helping people not the polluters. The companies now laying off workers spent tens of billions of dollars over the past few years on stock buybacks — paying investors with revenues that could have paid workers higher wages, or could have been saved to cover the inevitable bust in an infamously boom-bust industry. Giving money to companies would essentially pay investors (and CEOs) twice. Meanwhile, workers would be guaranteed little if anything.
Fortunately, there is a realistic win-win-win-win solution. Earmark federal funds to states to clean up and plug abandoned and orphaned wells. It’s a win for workers because it puts them to work. It’s a win for budget-strapped oil and gas producing states. It’s a win for climate and health, according to abandoned/orphaned well studies published in the Proceedings of National Academy of Sciences, other peer-reviewed publications, and the American Geosciences Institute. It’s a win for the future because — unlike subsidizing failed oil and gas companies — it doesn’t lock us into more fossil fuel demand as clean renewables outcompete oil and gas on price. And it’s realistic because it’s “shovel ready” — many states already have abandoned well plugging programs. Canada is already doing this as part of its COVID-19 economic stimulus.
Every crisis is an opportunity. Let’s make sure we use this crisis not to fuel existing climate and health crises, but to build a better future.