“financial innovations” and the infrastructural boom-then-glut-scape

In After the Boom in Natural Gas Clifford Krauss and Eric Lipton explore how a natural gas glut and the ensuing price plunge have hurt gas exploration companies — and their investors.

What is noteworthy is the link between financial innovation and pressures which are linked to the boom in drilling and production. We read “Like the recent credit bubble, the boom and bust in gas were driven in large part by tens of billions of dollars in creative financing engineered by investment banks like Goldman Sachs, Barclays and Jefferies & Company. Now the gas companies are committed to spending far more to produce gas than they can earn selling it. Their stock prices and debt ratings have been hammered“.

It is this over-production that has driven the price of natural gas to near-record lows yet in many cases “‘At least half and probably two-thirds or three-quarters of our gas drilling is what I would call involuntary’ Mr. McClendon acknowledged at one point” where the companies are loosing money but must pump or loose their drilling leases…

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