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Comment by hajile | Hacker News Reader

Increasing prices for an item increases supply. Increases in technology can also increase supply while decreasing prices.

Oil sands were long considered unusable, but when oil prices got high enough, it was profitable to start mining them turning Venezuela into an oil rich country. Once they started working, they found more efficient ways to extract the oil, so they could complete up to a point as prices stabilized and later dropped.

We see the same thing with fracking. As oil prices increase, it becomes profitable. As they get better at it, the minimum profitable price decreases.

Today, subsidized or not, you'll see fracking continue as it's much more efficient than it once was.

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Oil prices are likely to decrease in the next 30 years (this according to the oil industry's own estimates). The capital requirements for fracking are unlikely to change much (since this isn't software). Pushing water through hard rock is expensive and technology isn't magic. They haven't gotten much better at it for the decades they've been doing it. Most of the output from a fracking site is extracted the first year, and then you have to find another site and setup again--this is expensive. The perceived success of fracking is due to private equity being able to fund a non-profitable business and then selling their share of the non-profitable business on the public markets that eat the losses. This trick hasn't been working lately, so unless the price of oil dramatically increases, the fracking industry is going to have a difficult future.

Sorry, but this is delusional. Almost everything in this statement is wrong.

The only thing that might be right (price fortune telling) isn't the problem you think it is.

Oil prices have decreased over the last 30+ years, with steady increases in overall production until covid.

I'm paying the same numerical dollar amount for gas that I did 20 years ago, for a product that's only increased in quality and regulatory costs (ethanol, refining requirements, safe production costs, etc).

Fracking technology improving is exactly why it exists and has until recently, boomed.

Wells drilled with 1950s technology (which was still the same basic drill, inject, penetrate & pressure as today) are all of a sudden profitable again, because you can re-fracture, and squeeze more from extant wells.

That's improved technology, efficiency, and economics.

>Pushing water through hard rock is expensive and technology isn't magic

Not magic, chemistry. Thats why they let the chemical reactions create pressure. The pumping is to get the figurative vinegar and baking soda down the hole to start the the science fair volcano.

As to markets, if anything public markets are irrationally dumping profitable oil and infrastructure due to somewhat successful intimidation tactics by the environmental movement.

For instance, Shell is selling or shutting down almost all of its smaller US refineries because they're not "green ready." They're giving away profits on a political calculation, not a financial/economical one.

I like the part where the fossil fuel industry gets bullied around by the uber powerful environmental groups.

Its funny because besides being the scapegoat for every failure of the fossil fuel/nuke industry, these environmental groups seem to lose every other battle they care about.

I don't mean it as scapegoat- I mean it's more effective than people realize, and at a large financial cost to public companies.

These groups have been calling for putting principles over profits for years.

When they finally start doing it, it's not fair to also point to lower profits as a reason the industry might be in decline, when it's at least partially result of voluntary behavior done for appeasement.

But fracking isn't a long term investment activity. If it's actively being done, it's because it's profitable, short term and real time.

The profits just get shifted elsewhere and to other companies.

Fracking profitability is going down because they aren't able to operate at as high of a capacity factor, because their operational costs aren't as low as renewables.

These "delusional" assessments are based on the analysis of financial firms. They make a more convincing argument than "things are good because technology". The financials are pretty clear. The public markets are less effected by the will of random interest groups as they are by poor returns. If a company spends more than it makes, it's a poor investment.

I think we're possibly looking at the same analysis with different takeaways.

A) Yes, some big companies (oil and finance) see some oil as risky and potentially a losing investment for them long term. (I disagree, but wrt the industry, not specific listed companies.)

Yes, they're taking a loss (at least on paper) for some of these investments. But I'm saying it's largely by choice, both by voluntary "offset" investments, and operational decisions. That's the (financially) delusional part.

As I said, we're seeing the bigger companies sell off infrastructure it can't market as being green. [1] Here's Shell's refinery sell-off, and attempt to rebrand the remaining refineries as "low-carbon chemical parks."

As travel picks up again, someone is going to pick these smaller refineries up for cheap. At least a couple of them specialize in jet fuel, which, post-covid, will be in sufficient demand for the foreseeable future. The buyers will make money. Shell and Shell's investors will show it as a loss.

Same goes for fracking. If Shell (or whoever) is, for example, voluntarily buying carbon offsets or similar for fracked wells, they may show it as a losing investment. The buyer might pick it up, drop the voluntary offset purchases, and make it financially viable.

B) Another thing done is shifting costs:

A company buys (mandatory) wetland property for mitigation credits for a pipeline project, that's deemed profitable, as-is. They also have a fracking well that's profitable. The division that owns the well will then buy carbon-offset credits from the division that bought the wetlands. Where you once had two profitable projects, you now have one profitable project, one project that shows a loss, and a chunk of revenue written off for capital expenditure, another chunk written off for buying green offset credits, and a huge net savings overall due to carbon credit deductions and reducing taxable revenue on paper.

Now the company might internally think those optional credits are a required cost of doing business, for branding and politics. But that doesn't mean the fracking itself isn't profitable.

Or that a different company wouldn't show it on paper as such.

This is the type of stuff that gets confusing when you start looking at the financial analysis stuff that you refer to.

[1]https://www.icis.com/explore/resources/news/2020/10/29/10569...

In 2000, gas was around a dollar per gallon in most of the US. It is currently around 3-4 per now. Also, to me, it appears to be the same product.

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