US renewables, shale - other victims of slumping oil
“In America most of the green energy, whether you talk about solar or wind, the technologies aren’t cost efficient yet without government subsidies,” said Katusa, adding that a lot of the money now comes into the sector and rapidly goes away because of the high risks the market carries.
Since 2008 the US domestic shale sector has increased its corporate debt by $150 billion. Katusa believes cheap money is the cause of most of the troubles.
“The big effective QE was coming into the shale sector because people were chasing yield, so a lot of this cheap money came in, the technology, the exploration came in, and so the question is how this debt can be rolled over,” he said, adding that it would be hard for oil companies to settle the issue in case oil prices plunge lower.
The price of Brent crude has fallen to $57.47 in Tuesday trading at 14:30 PM MSK while the price of WTI was $53.29.
“At $45 you cannot finance that debt. There’d be a lot of defaults that would trigger derivative effects. This spillover can be a domino, this is very bad news, it’s like the black swan that nobody’s talking about in the US shale sector of the economy,” he said.
Thousands of workers have been made redundant in the US since crude oil lost 50 percent of its value during 2014. At least four American oil producing states are facing budget problems as their revenues have decreased dramatically. Alaska, Louisiana, Oklahoma and Texas are reportedly suffering the most.
In Alaska, around 90 percent of its budget comes from oil revenues. The state government is considering a 50 percent capital spending cut in infrastructure due to the oil price drop.
The State of Louisiana’s 2015-16 budget is going to fall short by $1.4 billion. Texas is also counting millions in losses as WTI (West Texas Intermediate) crude oil has fallen to $54.73 a barrel this week, from more than $100 six months ago.
North Dakota, Oklahoma and Wyoming, where the number of drilling rigs is decreasing, are seeing large job cuts caused by a sharp decline in oil prices.
Some countries, though, believe the US is playing its oil card against other exporters such as Russia, Venezuela and Iran. Venezuelan President Nicholas Maduro said lowering oil prices is a deliberate action.
"There is a planned war to destroy Russia… but neither Russia nor Venezuela will allow twisting their arms," he said Monday in a televised address.
He agreed with Bolivian President Evo Morales who said the fall in oil prices is caused by the direct economic aggression of the US towards Russia and Venezuela.