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Investment in all phases of the fossil energy industry has swooned sharply in recent years, owing to both government regulatory and tax subsidy interventions and also due to the takeover of the Wall Street energy narrative by the ESG (environmental, social and governance) nonsense.
Thus, as one astute analyst summarized,
The oil and gas industry, from extraction to transportation to refining, is no longer the profitable and financially stable enterprise it long was. Over the past decade, the industry’s profits have sagged, revenues and cash flows have withered, bankruptcies have abounded, stock prices have fallen, massive capital investments have been written off as worthless and fossil fuel investors have lost hundreds of billions of dollars.
Needless to say, this lagging investment trend began long before the COVID-19 pandemic crippled the global economy. Thus, over the last decade:
- The stock market value of the four largest oil and gas majors plummeted by more than half;
- In five of the past seven years the oil and gas industry ranked last among all sectors of the S&P 500, falling to less than 3% of the total market cap of the index compared to 16% a decade ago and 30%a few decades earlier.
- Since 2015, industry analysts Hayes and Boone listed nearly 800 exploration and production companies, oilfield services, and midstream oil and gas companies that have filed for bankruptcy, with a debt load of more than $300 billion.
- 2020 saw $145 billion of write-down of oil reserves and related assets, reflecting the diminishing value of the oil and gas sector.
The companies at the center of the US fracking boom have fared worse, consistently spending far more on drilling and production than they generated by selling oil and gas. According to The Wall Street Journal, large publicly traded oil and gas producers spent $1.18 trillion on drilling and pumping oil over the past decade, largely on fracking, while bringing in only $819 billion in operating cash flow, and this yawning gap was covered with rising debt and asset sales.
Overall, the picture could not be more obvious. Energy prices are going to continue rising because the fossil investment/supply development process has been short-circuited.
For instance, capital expenditure (CapEx) among the five largest oil and gas companies has nearly halved since 2013.
Specifically, ExxonMobil, Chevron, Total, Shell and BP spent $88.7 billion in 2019 to fund capital projects, down 47% from $165.9 billion in 2013. As a result, CapEx among these energy giants is at levels not seen since 2007.
Here is the cash price of WTI (West Texas Intermediate) oil since March 31 when Biden announced his plan to release 1 million barrels per day from the nation’s strategic petroleum reserve (SPR).
Spot Market Price of WTI Since March 31
Of course, the SPR release was merely a political sop.
What the Biden apparatchiks are really aiming to do is use $120 oil prices as an excuse to accelerate their promotion (at taxpayer expense) of high-cost green energy. As Biden recently put it:
Congress could help right away by passing clean energy tax credits and investments that I have proposed. A dozen CEOs of America’s largest utility companies told me earlier this year that my plan would reduce the average family’s annual utility bills by $500 and accelerate our transition from energy produced by autocrats.
What utter clap-trap. Autocrats? Like those in the Persian Gulf where Joe is heading on bended knee?
The fact is the global oil industry is a wonder of free markets, the OPEC cartel notwithstanding. Supply and demand rule — even if on the margin the big Persian Gulf producers have some discretion over the rate at which they draw down their underground hydrocarbon reserves.
So “autocrats” have nothing to do with it. Not Putin or any of the others.
What’s really in play here is the all-out commitment of the Biden Administration to destroy the fossil fuel industry in the name of preventing a climate catastrophe that is pure fiction.