US is enjoying a cheap and safe energy boom

COMMENTARY Environment

US is enjoying a cheap and safe energy boom

Jan 28, 2014 3 min read
Nicolas Loris

Former Deputy Director, Thomas A. Roe Institute

Nick is an economist who focused on energy, environmental, and regulatory issues as the Herbert and Joyce Morgan fellow.

America is enjoying a huge energy boom. Advancements in drilling and extraction technologies have the USA on track to be world’s top oil producer as soon as 2015. In addition to creating hundreds of thousands of well-paying jobs, the shale oil and gas revolution has been a tax bonanza for state governments and the Obama administration. Yet the boom and its benefits have occurred in spite of the President’s policies, not because of them.

In just the last two years, hydraulic fracturing – more commonly known as fracking – and horizontal drilling have increased US energy production by an additional two million barrels of oil per day and the country is swimming in natural gas. This has directly lowered energy prices and indirectly produced significant cost savings by lowering manufacturing, transportation and other expenses. Economic opportunity created by the fracking revolution does not stop in oil and gas industries, but ripples throughout the US economy.

The abundance of cheap, fracked natural gas has fuelled employment growth in the manufacturing sector by making US companies more competitive. IHS Global Insight, an economic consulting firm, reported in 2012 that unconventional shale oil and gas supports more than 1.7 million US jobs. It predicted that number would rise to three million by 2020.

Due to shale gas production, the US is now in a position to become an exporter of liquefied natural gas (LNG).

Given the disparity in prices between the US market and markets in Europe, Asia and Latin America, exports would be quite profitable to producers (and a boon for foreign consumers) even with the costs of transport tankers and liquefaction plants. Providing other countries with cheaper energy would both promote economic development in those nations and lower the prices of products imported back to the US.

While the US Department of Energy dithers over whether or not to approve LNG terminals, other countries are acting more nimbly, pressing ahead to expand their LNG exporting capacity.

The massive energy boom may be new, but the fracking process itself is not. American operators have been fracking for more than six decades. The recent boom has sparked some concern that fracking might contaminate drinking water, either through gas migration or through the chemical additives used in the injection process.

Yet these fears have proved groundless. Companies have now fracked over one million wells in this country. Studies by the Environmental Protection Agency, the Groundwater Protection Council and several independent agencies have found no evidence of groundwater contamination. It’s a remarkable safety record and a shining example of the efficacy of state-level regulation.

Small wonder that federal attempts to further regulate fracking have been rejected.

How is this track record possible? For starters, the risk of contamination isn’t as great as one might think. Groundwater aquifers sit thousands of feet above the level at which fracking takes place, and companies construct wells with steel-surface casings and cement barriers to prevent gas migration. Where unwanted environmental outcomes – such as gas migration – have occurred, the problem has been identified as poor well construction or faults in the concrete and steel casings around the well bore. Those instances have been rare, and not a result of the fracking process itself.

The fluid used in hydraulic fracturing is 99.5 per cent water and sand. The 0.5 per cent of additives (typically between three and 12 different chemicals) depends on the composition of the shale formation, which varies by region and by well.

All chemicals used in the fracking process have common applications from swimming-pool cleaners and laundry detergents to cosmetics, and even ice cream. None is hidden from the public, and federal law stipulates that a company must provide detailed chemical information sheets to local emergency personnel in case of an accident.

While energy production is booming in many areas of the United States, the rate of production has slowed or even decreased in others. The divergent trends primarily boil down to one word: ownership. Production is growing on private and state-owned lands, while the oil and gas output of land owned by the federal government has been in decline.

President Barack Obama consistently touts the fact that US oil and gas production is the highest it has been in years, and while this is true and a positive development for America, it is a phenomenon for which the federal government can claim no credit.

The shale oil and shale gas revolution in the United States has created tremendous opportunities, generated a vast amount of new jobs and wealth and is affecting international markets for the better. The federal government needs to stay out of the way and devolve more decisions to the states of America.

 - Nicolas Loris is The Heritage Foundation’s Herbert and Joyce Morgan Fellow specialising in energy and environmental issues.

Originally appeared in the Yorkshire Post