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Nice NYT overview of the natural gas boom and bust [ClearOnMoney]
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Nice NYT overview of the natural gas boom and bust

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Commentary

Nice NYT overview of the natural gas boom and bust

22 Oct 2012 by Jim Fickett

From a lengthy article that tells the overall story pretty well:

Although the bankers made a lot of money from the deal making and a handful of energy companies made fortunes by exiting at the market’s peak, most of the industry has been bloodied — forced to sell assets, take huge write-offs and shift as many drill rigs as possible from gas exploration to oil, whose price has held up much better.

Rex W. Tillerson, the chief executive of Exxon Mobil, which spent $41 billion to buy XTO Energy, a giant natural gas company, in 2010, when gas prices were almost double what they are today, minced no words about the industry’s plight during an appearance in New York this summer.

“We are all losing our shirts today,” Mr. Tillerson said. “We’re making no money. It’s all in the red.”

Like the recent credit bubble, the boom and bust in gas were driven in large part by tens of billions of dollars in creative financing engineered by investment banks like Goldman Sachs, Barclays and Jefferies & Company. …

In hindsight, it should have been clear to everyone that a bust was likely to occur, with so many new wells being drilled and so much money financing them.

But everyone was too busy working out new deals to pay much heed.

Despite the fact that the bust is pretty clear now, most industrial consumers and energy investors still assume superabundant gas and superlow prices are a permanent fixture of the landscape. But the bubble is popped now, and normalization of the market is underway.