You can make an argument that the Federal Reserve is entirely responsible for
the fracking boom,” one private-equity titan told me. That view is echoed by Amir Azar, a fellow at Columbia University’s Center on Global Energy Policy. “The real catalyst of the shale revolution was the 2008 financial crisis and the era of unprecedentedly low interest rates it ushered in,” he wrote in a recent report. Another investor put it this way: “If companies were forced to live within the cash flow they produce, US oil would not be a factor in the rest of the world, and would have grown at a quarter to half the rate that it has.”
Worries about the financial fragility of the fracking revolution have simmered for some time. John Hempton, who runs the Australia-based hedge fund Bronte Capital, recalls having debates with his partner as the boom was just getting going. “The oil and gas are real,” his partner would say. “Yes,” Hempton would respond, “but the economics don’t work.”
Oh, what could possibly go wrong here?