The Bursting of the Oil and Gas Fracking Bubble

Jun 1, 2020

Hundreds of independent corporate groups that produce oil and gas through fracking are expected to go bankrupt over the next year.

This is not simply because of the recent collapse in the energy market due to the COVID-19 pandemic. Many of these companies had already been losing money for a long time. What kept them going, despite heavy losses, was an endless supply of cheap capital supplied by Wall Street.

Big financial companies created hundreds of billions of dollars in debt for these energy companies, thereby enriching oil company executives, not to speak of Wall Street financial companies.

These companies had “sub-primed” the production of American energy. The booming economies from North Dakota to West Texas and New Mexico from greatly increased oil and gas production thanks to fracking was created out of a great big financial bubble.

Over the years, as it became increasingly clear that it was only a matter of time before this bubble would burst, many sources of funding for this industry began to pull back. But the fracking companies stayed in business and even continued to expand because one big source of funding didn’t dry up: pension fund money.

With employers in both the public and private sectors all over the world cutting back on how much they fund workers’ retirement pensions, all pension funds worldwide have been desperate for higher rates of return in order to shore up their promises to retirees. So, they have increasingly resorted to hiring the same financial sharks and snakes, who created the oil and gas fracking bubble, to manage the workers’ money. The pension funds pay these financial “managers” a lot of money—a two percent annual fee—on all the funds under their management, no matter whether they make money or not.

With COVID-19, the money spigot to finance fracking companies has been turned off, and the entire industry bubble is bursting.

Nobody knows how much pension fund money has been sunk into this bursting bubble, money that has been drawn from the U.S. and all over the world.

But what is clear is that now that this bubble is bursting, millions of workers in the oil and gas industries are losing their jobs. Towns that boomed because of the increased oil and gas production are now turning into ghost towns. And pension funds are about to take a big hit, further endangering workers’ retirement pensions.

As for the fracking company executives and Wall Street financiers who have made a fortune—they won’t be the ones who have to pick up the pieces.