Fracklog is a new term in the energy market that describes the amount of energy being stored in drilled but untapped wells. Instead of pumping out oil or natural gas at current prices, some energy producers are drilling wells but not pumping the energy. They are waiting for higher prices and possibly hedging forward prices, which are in contango.
I think this strategy is very interesting and highlights another innovation in today’s energy markets. Many commentators attribute the current increase in North American energy to technological factors. There’s more oil and natural gas being extracted today because producers have developed more effective ways of finding and getting it out of the ground. But financial innovation has also played a part. Low interest rates make it cheaper for producers to raise capital and undertake new projects. Financial engineering has also played a role as energy companies are more financially sophisticated today than in the past. Energy companies better understand how financial factors impact their operations, and they are increasingly using more sophisticated strategies to mitigate risk and maximize returns. Fracklog is an example of this.
