Get on board shale revolution

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Article Highlights

  • The appeal of fracking is that it can provide access to vast gas deposits in shale formations a mile underground that until recently were inaccessible.

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  • The new abundance of gas from shale and the resulting huge drop in prices has also helped to rejuvenate US manufacturing.

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  • Will environmentalists and their supporters in Washington and some states continue to oppose shale-gas production?

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As an economist, the transparent political melodrama over the production of shale gas concerns me. Energy companies are unable to drill for natural gas on government land and in some states like California and New York, because of unreasonable restrictions on the advanced drilling technology known as hydraulic fracturing, or “fracking.”

The appeal of fracking, if used in tandem with horizontal drilling, is that it can provide access to vast gas deposits in shale formations a mile underground that until recently were completely inaccessible. Energy resources long considered impossible to develop are now being tapped or eventually will be though fracking, in which a combination of water, sand and chemicals is pumped underground at high pressure to break through the shale rock.

These revolutionary drilling technologies have spurred a significant boost to the US economy, provided new tax revenues, created thousands of new millionaires from oil and gas royalties, and generated hundreds of thousands of well-paying jobs. U.S. consumers are among the beneficiaries of the shale gas revolution, thanks to lower costs for natural gas and electricity from gas-fired power plants. As a direct result of fracking, the price of U.S.-produced natural gas is now about one-third of the price in Europe and one-fifth of the price in Asia.

The new abundance of gas from shale and the resulting huge drop in prices has also helped to rejuvenate U.S. manufacturing, especially the petrochemical and steel industries. To give an example of what this has meant, consider ExxonMobil Chemical Company’s permit application to expand chemical production along the Gulf Coast. Plans for the multi-billion-dollar project include constructing a new ethane cracker – a project designed to capitalize on abundant supplies of natural gas. The project has the potential to create 10,000 construction jobs in Baytown, Texas. As the project proceeds, its effects will ripple throughout the region, with the expectation that it will increase economic activity by $870 million annually, generating more than $90 million per year in additional tax revenue.

What’s more, the benefits of shale production are being felt even in those states without any oil or gas drilling. According to a study by the energy consulting group IHS Global Insight, there are 32 states without unconventional energy production, yet a significant portion of the energy-related economic activity is located in those non-producing states. Why? Because companies in those states often provide goods and services that are vital to the oil and gas drilling industry, which has a long and extensive supply chain that ripples its economic benefits through every state in the U.S.

Despite the significant economic benefits from the development of domestic energy resources, U.S. oil and gas companies are up against political challenges from the Obama administration and environmental groups that are slowing the pace of natural gas production and the export of some of the gas in the form of liquefied natural gas. Environmentalists claim – wrongly – that fracking pollutes underground water resources. Numerous studies have determined that it’s being done safely and that impenetrable rock separates fracking from underground aquifers.

Interestingly, shale-gas production has been a major factor in the reduction of carbon dioxide emissions in the United States, which hit an 18-year low last year for total emissions, and fell to almost a 50-year low on a per-capita basis. With electric utilities replacing more and more coal plants with units that burn natural gas, fracking could provide even greater reductions in carbon emissions benefits in the future.

Will environmentalists and their supporters in Washington and some states continue to oppose shale-gas production? Probably. But in the national discussion on fracking, we can’t ignore the significant economic and environmental benefits that the shale revolution is providing, and will continue to provide to the U.S. economy.

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About the Author

 

Mark J.
Perry
  • Mark J. Perry is concurrently a scholar at AEI and a professor of economics and finance at the University of Michigan's Flint campus. He is best known as the creator and editor of the popular economics blog Carpe Diem. At AEI, Perry writes about economic and financial issues for American.com and the AEIdeas blog.

    Follow Mark Perry on Twitter.


  • Phone: 202.419.5207
    Email: mark.perry@aei.org

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