Unprofitable Oil Fields Are Hiding Nearly a Trillion Dollars in Investment

In some places, gas has plunged to nearly $2 a gallon. Which is fucking nuts.

If that's not bewildering enough, consider one enormous albeit somewhat more hidden aspect of said plunge: zombies. These are the undead oil investments.

Fracking didn't magically appear as some marvelous newfound technology. It's been around for some 70 years. The costs associated with this particular form of oil extraction had, until just a few years ago, been prohibitive enough to keep it on the energy sidelines. As the price of oil rose, however, suddenly it made a lot of sense.

And here we are, in the midst of an oil boom, however ugly and ill-advised. As with most other booms, the fracking rush involves/involved a whole lot of nearsightedness. That is, if new-school oil exploration/extraction is only worth the investment if oil prices are above x, flooding the market with new oil might soon enough bring the price of oil back below that threshold x, leaving shale gas once again an unprofitable venture.

The investments leftover from the boom, from when money was pouring into the new-oil bonanza unfettered, are zombies. ​According to an analysis released last week by Goldman-Sachs of 400 of the world's largest new oil and gas fields (not including American shale-gas), there are about $930 billion in investments that will likely go unused as the again-cheap oil market clings to its cheapest extraction methods.

With crude oil below $70 a barrel, the projects at the receiving end of all of that money are no longer profitable. That's the basic idea. As such, the projects are artificially animated corpses, the denizens of ghost oil and gas fields.

As Bloomberg notes, this is hardly the end of it. What plummeting prices don't correct, climate-minded energy policies and increasing efficiencies are ​next in line.

It's a cycle, however. As shale-gas producers cut back (and/or OPEC decides to cut production), prices again rise and once again investors go completely nearsighted, animating zombie oil projects across the globe. This roller coaster is hardly new.