Hardly Anyone Talks About How Fracking Was an Extraordinary Boondoggle
Update: This newsletter has been updated to reflect news developments.

In the energy scramble provoked by Russia’s invasion of Ukraine, American liquid natural gas has so far played the role of Europe’s white knight. If Europe manages to keep its lights on, homes heated and factories running this winter, when energy demand is highest, it will be in large part thanks to shipments of American gas, which have more than doubled since the war began. Today, two-thirds of American oil and even more of its gas come from hydraulic fracturing, better known as fracking, which has played this heroic-seeming role before, in the country’s long effort post-9/11 to get out from the grip of Middle Eastern producers and secure what is often described as “energy independence.” (Donald Trump preferred the term “energy dominance.”) It hasn’t proved quite as useful as you might think: Because energy prices are set on global markets, domestic production doesn’t mean Americans pay less at the pump. But thanks in large part to fracking, the United States has become the world’s largest producer of both oil and gas.

Perhaps the most striking fact about the American hydraulic-fracturing boom, though, is unknown to all but the most discriminating consumers of energy news: Fracking has been, for nearly all of its history, a money-losing boondoggle, profitable only recently, after being propped up by so much investment from Wall Street and private equity that it resembled less an efficient-markets no-brainer and more a speculative empire of bubbles like Uber and WeWork. The American shale revolution did bring the country “energy independence,” whatever that has been worth, and more abundant oil and gas. It has indeed reshaped the entire geopolitical landscape for fuel, though not enough to strip leverage from Vladimir Putin. But the revolution wasn’t primarily a result of some market-busting breakthrough or an engineering innovation that allowed the industry to print cash. From the start, the cash moved in the other direction; the revolution happened only because enormous sums of money were poured into the project of making it happen.

Today, with profits aided by the energy price spikes of the last year, the fracking industry is finally, at least for the time being, profitable. But from 2010 to 2020, U.S. shale lost $300 billion. Previously, from 2002 to 2012, Chesapeake, the industry leader, didn’t report positive cash flow once, ending that period with total losses of some $30 billion, as Bethany McLean documents in her 2018 book, “Saudi America,” the single best and most thorough account of the fracking boom up to that point. Between mid-2012 and mid-2017, the 60 biggest fracking companies were losing an average of $9 billion each quarter. From 2006 to 2014, fracking companies lost $80 billion; in 2014, with oil at $100 a barrel, a level that seemed to promise a great cash-out, they lost $20 billion. These losses were mammoth and consistent, adding up to a total that “dwarfs anything in tech/V.C. in that time frame,” as the Bloomberg writer Joe Weisenthal pointed out recently. “There were all these stories written about how V.C.s were subsidizing millennial lifestyles,” he noted on Twitter. “The real story to be written is about the massive subsidy to consumers from everyone who financed Chesapeake and all the companies that lost money fracking last decade.”