The United States debt-based fracking boom has been compared to the mortgage backed securities crisis before 2008, and if it does go bust it will be taxpayers who bear the brunt. Through government lobbying and the support of the financial sector, the industry is presenting itself as the next big thing for the UK economy when in reality its growth is based on systemic financial risk.
While the environmental reasons for opposing fracking have been at the forefront of campaigning against it, the economic benefits feted by the industry and its allies have not been adequately debunked. The most common pro-fracking arguments are “we need to keep the lights on”, or “it’s good for the economy, it will create more jobs”. But fact fracking will not fulfil these promises. The top oil and gas companies in the US shale boom have lost tens of billions of dollars over the past decade. Unlike conventional drilling, a shale gas well’s production rate falls by about 70% after its first year, so companies have to constantly keep drilling wells just to stay operative. The industry is drilling at a higher cost than it can charge for its shale gas and oil.
Many fracking firms have simply rolled over their debt with the help of investment banks like Goldman Sachs who finance them despite production being unprofitable. As early as 2011 the New York Times exposed emails where experts were already saying that the Shale Gas industry is a Ponzi scheme, meaning companies continuously rely on new investors to keep afloat, despite not being profitable. Wall Street has managed to flog off assets of unprofitable fracking companies to investors such as pension funds, who know little of the risks in shale production. Clearly there are systemic economic risks underlying the boom in the fracking industry. So why is the government trying to bring an unpopular, environmentally destructive and financially risky industry to the UK? The answer lies among a murky mixture of lobbying, conflict of interests and media hype, which has left ordinary people without a voice.
Jim Ratcliffe, the billionaire boss of petrochemical fracking company INEOS, secretly lobbied George Osborne when he was Chancellor of the Exchequer to convince him to back fracking. Ratcliffe also recommended a string of legislation to hinder unions’ ability to strike, and to cut workers pensions. While Amber Rudd was energy secretary, her advisor took cash payments from a company, which seeks to profit from Fracking. George Osborne provided the biggest tax breaks in the world to the fracking industry while David Cameron’s head strategist was representing fracking companies with subsidiaries in the UK. The All Party Parliamentary Group (APPG) on unconventional oil and gas is also almost entirely funded by companies with interests in fracking. Many of the key environmental protections and directives which campaigners have relied on to stop fracking in the UK are also at risk of being discarded of once the UK leaves the EU, and INEOS has already been lobbying government to exempt the chemicals sector from green taxes after Brexit.
Fracking investments in the UK represent an increasingly financialised and unsustainable accumulation model dependent on continuous capital flows. A significant amount of misinformation and hype was necessary to make sure investors and the media jumped on the fracking bandwagon, but cracks are already starting to show in the industry’s own arguments. While it was originally claimed that over 4000 wells would be drilled in the UK by 2035, a secret unreleased government report from 2016 said that the number would only be 155 by 2025, meaning the number of jobs to be created were purposefully exaggerated to fuel the fracking “hype” in the UK.
David Cameron’s claims that fracking would cut energy bills were dismissed as “baseless economics” by world-renowned economist Lord Stern, and even the former chairman of leading fracking firm Cuadrilla, Lord Browne, said that UK shale gas would not have a material impact on gas prices. Third Energy, the company that wants to frack in North Yorkshire, recently showed losses of £3.8m and debts of over £50m. The fact that British fracking firms are struggling to secure funding from banks, and that energy secretary Greg Clark is now withholding consent for Third Energy to frack on the grounds that their finances are not up to scratch says it all – fracking is not just environmentally but also financially unsustainable.
Shale gas companies have abandoned their fracking plans in Poland, Denmark and Romania after disappointing returns, low yields and popular resistance. Fracking has been halted or banned from Scotland to France and Germany. England is one of the few places left where fracking companies are still trying to get a hold in Europe, but already this year seven of eight applications to carry out exploratory drilling have been rejected by local councils.
Fracking in the UK would mean putting the climate and local communities at risk in order for a minority to profit from financial speculation at the expense of social investments and renewable energy. Therefore moving to a greener economy is not just environmentally more sustainable but also socially, as opposing fossil fuels is intrinsically an issue about power relations and demanding a more just economic system which serves people and the planet.
Feminist futures: Red Pepper’s feminist special issue: ● Our bodies, our choice ● Is the future xenofeminist? ● Women and the new unions ● Feminists on the anti-fascist frontline ● Plus: Left politics and the generational divide ● Decolonising museums ● Book reviews ● and much more
And you choose how much to pay for your subscription...
To tackle climate change, we must target the international inequalities at the root of the crisis. By Asad Rehman
Drax power station is the largest power station and largest single emitter of carbon dioxide. By Frances Howe
Governments could do well to learn from school students, writes 17-year-old Climate Striker Cate Davies
Luke Murphy reports on the new initiative to tackle inner-city pollution
Tackling environmental collapse is a matter of class, racial and gender justice, writes Jori Hamilton
It's not just a policy programme, it could be an overall shift in the political and economic ideas that dominate society. By Laurie Laybourn-Langton