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newsletter noted that, after early May filings for creditor

protection by Midstates Petroleum and Ultra Petroleum, 59

American oil and gas companies are now bankrupt. Input from

Reuters, the law firm Haynes & Boone, and the credit industry


indicates that the number of

US energy bankruptcies is closing in on the staggering 68

filings seen during the depths of the telecom bust of 2002

and 2003. And Charles Gibbs, a restructuring partner at the

international law firm Akin Gump in Texas, told


that the

domestic oil industry is not even halfway through its wave of


“I think we’ll see more filings in the second quarter than in the

first quarter,” Mr Gibbs said. Fifteen oil and gas companies

filed for bankruptcy in the first quarter. (“US Oil and Gas

Bankruptcies at Historic Levels,” 4 May)

Perceiving “notable parallels” between the telecom and

energy boom-and-bust cycles,


noted that pioneering

technology brought an influx of investment to each industry. A

plethora of new, small companies issued high levels of debt,

and a supply glut sapped pricing just as demand fell sharply.

For the energy sector, the consequences are already being

felt, and


sees no early reversal of fortune. Among its


Until recently, banks were willing to offer leeway to

borrowers in the shale sector, but lately some lenders

have tightened the purse strings.

A widely predicted wave of mergers in the shale space is

yet to materialise as oil price volatility makes valuations

difficult and buyers baulk at taking on debt loads until target

companies exit bankruptcy.

Losses for energy investors in the stock and bond markets

over the last two years are significant. It remains unclear

how long it will take to get through the worst of the declines,

and who will be left standing when it is over.

The use of fracking in older but not quite

played-out fields is seen as dealing the

knockout punch to high prices

The Price of Oil

, published by Cambridge University Press

late last year, was written by Marian Radetzki, a professor

of economics at Luleå University of Technology, Sweden;

and Roberto F Aguilera, an adjunct research fellow at Curtin

University, Australia. Guest-blogging this spring on



, the co-authors expanded on the main proposition

of their book: that the period of high oil prices has come to

an end. (“The Age of Cheap Oil and Natural Gas Is Just

Beginning,” 3 May)

Noting that, in constant money, the price of oil rose by almost

900 per cent between 1970 and 2013, Messrs Radetzki and

Aguilera compared this “truly spectacular” increase with the

68 per cent price rise over the same period for metals and

minerals, a commodity group that, like oil, is exhaustible. They

hold that political rather than economic forces have shaped

the inadequate growth of upstream oil production capacity, in

their view the dominant factor behind the sustained upward

price push in the sector.

The Price of Oil

asserts that the international spread of two

revolutions will assure much ampler oil supplies, delivering

prices far below the highs that prevailed between the end of

2010 and mid-2014. Here, abridged and lightly edited, is the

authors’ analysis of these twin developments:

The shale revolution – a result of technological

breakthroughs in horizontal drilling and hydraulic

fracturing, or fracking – has in less than a decade turned

long-run declining oil production trends in the US into a rise

of 88 per cent from 2008 to 2015. Despite current low prices

and the damage done to profits, an exceedingly high rate

of productivity improvements in this relatively new industry

promises to boost shale output still further.

The US does not stand out in terms of shale resources. Even

an incomplete global mapping suggests a US shale oil share

of no more than 17 per cent of a huge, widespread geological

wealth. Given mainly non-proprietary shale technology and

the many advantages to be expected by producing nations, it

is inevitable that this revolution will spread beyond the United


The world beyond the US will exploit its shale resources as

successfully as the US has done in the past ten years. This

would yield rest-of-world output of 20 million barrels per

day in 2035, roughly comparable to the global rise of all oil

production in the preceding 20 years – a stunning increase

with far-reaching implications.

The second, related, revolution grows out of a dawning

realisation that advancements in horizontal drilling and

fracking – technologies associated with shale – can also be

exploited for fuller extraction from conventional, but old and

tired, oilfields. If the rest of the world applies these techniques

more broadly, as the US has done in recent years, this would

yield a further 20 million barrels per day of oil by 2035.

The increases in oil output would be bound to put downward

pressure on prices, either by preventing rises from recent

levels, averaging some $53 per barrel in 2015; or by pushing

prices back to these levels if an early upward reaction takes

place. The authors of

The Price of Oil

foresee a price of

$40 by 2035 – well below the levels posited in “authoritative

forecasts” by public bodies and leading oil corporations.

Of related interest . . .

The US Energy Information Administration (EIA)

estimates that natural gas production from hydraulically

fractured wells now makes up about two-thirds of total US

marketed gas production. This is greater than the share of

crude oil produced by fracking, which accounts for about half

of current US crude oil production.

Well completion and production data supplied to the EIA

by IHS Global Insight and DrillingInfo Inc demonstrate the

dramatic increase in US natural gas production associated

with fracking. In 2000, approximately 26,000 hydraulically