US Energy Crisis

Gerry Brady March 7, 2019 8 No Comments

It is now fashionable to call America the new energy “powerhouse”. The fracking companies in the USA have certainly been producing more oil and gas over the last 10 years with their new technologies to extract energy from “tight” places. They have done this by pumping huge amounts of oil, sand and chemicals below ground. But their companies have had to raise enormous amounts of debt and equity capital to fund that expansion. Now there is a problem and it is old one in business — insufficient profit (or lack of profit altogether).

The price of West Texas Oil was US$ 105 per barrel 5 years ago. In 2016, it fell to just US$ 30 and it is now $ 55. These are the harsh realities of the energy world. During that 5 year timeframe, the Natural Gas prices have halved.

West Texas Light Crude Oil price over 5 years

West Texas Light Crude Oil price over a longer time frame of 12 years

And here is the Nymex Natural Gas price over the last 12 years

The price charts tell the story.

The amounts of capital raised last year by the US fracking companies was just $ 22 Billion — about half of what they raised in 2016. Investors have become more wary and are looking for returns. The problem is that unfortunately it appears that shale drilling is actually unprofitable for many companies. The energy comes out of the ground but the money pumped in to do so simply overwhelms it. In other words, costs overwhelm the potential for profit. This is a perfect illustration of the concept called EROEI — Energy Returned on Energy Invested but in a financial sense.

Cheap finance (low interest rates) which has been the norm since 2008 sounds good but only if it is combined with high oil and gas prices to produce the miracle of high energy profits. With global economic growth slowing especially in Europe, the prospects for higher energy prices in the near future look grim.


Make your own conclusions, do your own research. Avestix does not offer investment advice.

Disclaimer: All content is presented for educational and/or entertainment purposes only. Under no circumstances should it be mistaken for professional investment advice, nor is it at all intended to be taken as such. The commentary and other contents simply reflect the opinion of the authors alone on the current and future status of the markets and various economies. It is subject to error and change without notice. The presence of a link to a website does not indicate approval or endorsement of that web site or any services, products, or opinions that may be offered by them.

Neither the information nor any opinion expressed constitutes a solicitation to buy or sell any securities nor investments. Do NOT ever purchase any security or investment without doing your own and sufficient research. Neither Avestix nor any of its principals or contributors are under any obligation to update or keep current the information contained herein. The principals and related parties may at times have positions in the securities or investments referred to and may make purchases or sales of these securities and investments while this site is live. The analysis contained is based on both technical and fundamental research.

Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.

Disclosure: We accept no advertising or compensation, and have no material connection to any products, brands, topics or companies mentioned anywhere on the site.

Fair Use Notice: This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of issues of economic and social significance. We believe this constitutes a ‘fair use’ of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit. If you wish to use copyrighted material from this site for purposes of your own that go beyond ‘fair use’, you must obtain permission from the copyright owner.

Charts: Charts from The red arrows are drawn by Avestix and indicate price pulse directional dominance. Arrows indicate PAST price action (not future). No predictions are implied from past action.

Leave a Reply

Your email address will not be published. Required fields are marked *