Jeremy Grantham is not a believer in the shale fracking boom.
Back in November, we highlighted Grantham’s full quarterly letter to GMO clients, in which he said, among other things, that the US shale boom had been “a very large red herring.”
So while some say the fracking boom has helped keep oil prices low and aided the US on its path to energy independence, Grantham thinks it might have set us on a path to nowhere.
“Its development has been remarkable,”
Grantham writes.
“It will surely be seen in the future as a real testimonial to the sheer energy of American engineering at its best, employing rapid trials and errors — with all of the risk-taking that approach involves — that the rest of the world finds so hard to emulate. Similarly, it will always stand out as remarkable proof that, so late in the realization of the risks of climate change and environmental damage, the US could expressly deregulate such a rapidly growing and potentially dangerous activity.”
The overall thrust of Grantham’s letter is that the world will soon be devoid of the resources it is going to need to sustain our current economic model, which over the past 150 or so years has been predicated on cheap energy, namely oil.
A concern Grantham has with fracking is that the boom hasn’t been accompanied by any real concern as to the environmental damage it may be inflicting. But Grantham is also hugely skeptical on the potency of the shale boom because it doesn’t address the problem of our need for cheap oil.
Grantham writes:
Fracking “has not prevented the underlying costs of traditional oil from continuing to rise rapidly or the cash flow available to oil-producing countries like Saudi Arabia, Iran, and especially Venezuela from getting squeezed from both ends (rising costs and falling prices).”
And as we saw last week, OPEC announced that it would not impose production cuts despite the sharp decline in oil prices seen over the past few months, and it seems unlikely that Grantham would be surprised by this.
Because if your national economy is chiefly predicated on exporting oil, you have made your bed and therefore must lie in it as oil prices drop.
Read more: Business Insider