Carlyle Compares AI Race to Shale Boom: Aaarrgghhh!

World Oil reported:

The eye-popping amounts Big Tech is shelling out on artificial intelligence resembles shale’s golden age of spending before a price crash wiped out $2.6 trillion in equity, Carlyle Group Inc.’s Jeff Currie says.

Energy and technology are two of the most important pillars of the economy, leaving other key sectors including finance and health care “useless” without the other two, the veteran commodity market forecaster wrote in a research note Tuesday. 

“The shale boom was arguably the most notorious ‘growth at all costs’ capex cycle in the modern era, where energy industry-wide capex reached 110-120% of cash flow at its peak,” Currie said. “So for technology spending to reach energy industry levels should raise a lot of questions.” 

Much of the investment from tech companies is going toward chips and data centers to build up computing resources to support AI development. AI compute can be measured in dollars per hour, much like oil is traded in dollars per barrel, Currie wrote. 

Confidence in future AI computing prices stabilizing around the $1- to $2-per-hour range “echoes the same confidence that the US shale producers had in $100/bbl oil that drove their spending far above cash flow,” he wrote.

U.S. oil producers were able to only keep drilling debt on their balance sheets during the early days of the shale boom, while entering into long-term contracts with special-purpose vehicles that would take on the burden for additional capex to build pipelines. That finance structure is reminiscent of the AI boom today, he said.

“Big Tech AI appears to be using the exact same playbook that the energy industry used as these arrangements clearly rhyme with today’s AI datacenter SPV arrangements,” Currie said. “We cannot forget about the land grab, or the ‘race for positioning’ as the oil patch called it, which mirrors the AI ‘land rush.’”

Our part of West Texas lived through the shale boom and subsequent bust.  Current drilling is more reminiscent of the bust phase despite Trump II's call for "drill baby drill."  Lots of oilfield equipment sits parked and "man camps" are one third full.

We are in the AI subsidy phase as local governments plan to provide cheap electricity and water to already provided inexpensive land outside San Angelo city limits.  

City government and the Chamber of Commerce are facilitating "data center site development tied to renewable energy access."

Our Interim Economic Development Executive Director is also an Assistant City Manager and plans to retire soon.  It's not clear his future plans but Michael Dane is in a key position to monetize his public service experience in the private sector should he keep "facilitating."  

City Manger Daniel Valenzuela also plans to retire in October 2026.  That would mean the top two people who negotiated any AI data center deal will not be around to see how it worked out.  

We lived through the Shale Boom when local hotel rooms went for NYC rates, restaurants and roads were packed and driving in the direction of the oil field was a life threatening experience (as big truck drivers texted amid road work).  

Skybox Data Centers needs access to lots of water and electricity and so far the city has been mum on any economic development proposals, although they are surely underway.  The City sold Skybox the land which sits outside city limits.  There has been no talk of annexation to date.  

Citizens have funded water infrastructure via high water bills and special capital charges.  It would be tragic for Skybox or its future tenant/renter/user to pay only marginal water costs, even worse if heavily discounted.  

The Hickory Aquifer Project has the ability to pump 10.8 MGD to San Angelo and has the equipment in place to treat a total of 8 MGD.

Ricky Perry's Fermi Amarillo AI project, known as Project Matador, plans to use 2.5 million gallons a day but will expand to 10 MGD.  

Should Skybox's project have a similar arc, their data center would occupy nearly 100% of the Hickory Water production.  What percent of the costs, operating, capital and infrastructure, might they actually pay?  

The Carlyle Group kicked off PEUReport in 2007 with their ability to sell 50 airport operations to Dubai Aerospace just months after the Dubai Ports World uproar.  The politically connected private equity underwriter (PEU) located in Washington, D.C. to tap government wallets and directly influence laws and regulations.  Their founders became "policy making billionaires."

Texas Governor Rick Perry gave Carlyle $35 million to add 3,000 jobs at Vought Aircraft Industries in Dallas.  By the end of the incentive period Vought had cut 35, that's $1 million per job lost.  

Politicians Red & Blue love PEU and their new TechGod/CryptoBro brethren.  Increasingly, more are one.  

Note:  I have been amazed by the intersection of my three blogs, PEUReport - harms done by private equity, StateoftheDivision -local San Angelo issues and ArisFreedomSwitch - politics in general.  I could cross post most pieces on a daily basis.  That's how intertwined things have become.