Fracking and Self-Sufficiency in Gas and Oil-Becker

More or less every American president starting with Dwight Eisenhower, and prioritized by Richard Nixon, called for American self-sufficiency in energy sources. In fact, America is now about self-sufficient in natural gas, and America’s oil imports have declined as a fraction of its total oil consumption from a peak of 60% in 2005 to about 50% in 2011. Part of the decline is due to the Great Recession’s effects on US output and automobile use. Another part is due to rising prices of oil that reduced oil imports, but increased spending on these imports. A third and growing part is due to increased domestic production of oil and especially gas that is likely to continue to grow rapidly during the next decade. The main reason for the expansion in domestic gas and oil production is a technique called “hydraulic fracking”. Texas wildcatter George Mitchell was the most important person responsible for the development of the fracking method to extract gas from shale formations in the 1980s. This method uses large quantities of water under high pressure with added chemicals to crack open rocks and extract the gas, and sometimes oil, hidden in these rocks. The cost of using fracking for natural gas extraction has become so competitive that most US natural gas production comes from fracking. As a result, the price of natural gas has fallen from a peak of about $10.80 per million BTUs to $2.20 currently. Instead of building terminals that could import liquefied natural gas, energy companies are now trying to export more natural gas. US natural gas inventories are so bloated there is a possibility that the price temporarily could be forced down toward $0, or even to a negative level. Traditionally, a barrel of oil has sold for about 11 times the price of a million BTUs of natural gas. During the past few years, rising prices of oil and declining natural gas prices have raised that ratio to almost 50.No wonder there has been a rush to substitute gas for oil in electric power generation and in other activities. Environmentalists have criticized the use of fracking techniques, and have pushed for bans or serious restrictions on their use. These critics claim that the techniques use too much water that could be used for other purposes, that it contaminates drinking water in areas surrounding fracking activities, and that it pollutes the air in surrounding neighborhoods. I am not in a position to authoritatively evaluate these environmental claims. However, the chairman of Chesapeake Energy, a major fracking company, recently argued in a Wall Street Journal interview that fracking does not use so much water, and that in any case the company in most of its operations now recycles 90% to 100% of the water it does use. Furthermore, the EPA just dropped its claim that a different energy company contaminated drinking water in Texas. This is the third time in recent months that the EPA backtracked on claims that link fracking to pollution of surrounding water supplies. The size of the effects of fracking on air pollution is still an open question as the debate continues over this and other environmental effects of fracking. Some political leaders have proposed a very bad idea:to restrict American output of oil and gas to use by American industry and consumers. If such laws were enacted and yet the US continued to import oil from abroad-which will be the case for the foreseeable future- restricting US production of oil to American use would have no effect on the domestic price of oil. The reason is that the global oil price would then determine domestic prices since no one would buy domestic oil if it were more expensive than imported oil, and no one would use imported oil if it carried a higher price than domestically produced oil. On the other hand, suppose domestic production was so large that oil imports were unnecessary and exports of oil were prevented. Then domestic oil (along with natural gas) would sell below the world prices for these fuels. This would be bad for the domestic oil and gas industry because it would be forfeiting profits from selling some of its production abroad. Moreover, the relatively low domestic prices of these fuels would encourage greater domestic use that would lead to more pollution, although cleaner gas or oil would be substituted for dirtier coal in the production of electric power and in other uses. Fracking has made the US self-sufficient in gas, and it is leading to reduced imports of oil. If this progress continues, before too long US consumption of oil as well as natural gas would not be drastically affected even by an entire breakdown of imports from the Middle East. The early progress in fracking techniques was very much aided by federal support and the work of engineers in the Energy Department. However, fracking was made into a profitable technique mainly through the ingenuity of people like George Mitchell in search of financial gains from finding ways to expand domestic production of gas and oil.

Comments

[environmental articles]

I agree, however people do not follow the laws and this is why we have the problem we have. I know for a fact that in Baltimore Maryland, factories release chemicals out into the air when it gets dark so they don't get caught. It's hard to fight pollution when there are so many people breaking the laws. Thank you.

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Gary…excellent paragraph, it contained every thing needed with out the fluff.
The key issue here is new uses for natural gas that create jobs that will create more jobs in America rather than export gas, and this demand will increase the price. One aspect of domestic natural gas is the distribution system. It is deteriorating and could create a million new high paying jobs that would create another 5 million jobs to support those and all needing more gas. Once these lines are at capacity for existing use then create a new electrical energy industry that is distributive rather than centralized. We have to talk on this one but what if every household and every business in America made oxygenated Syn-Gasoline or Butanol as they converted Carbon Dioxide and natural gas by generating their electrical needs on- site. Then a whole new industry would emerge with competition to place detectors on all the highways to asses and charge mileage to each vehicle rather than fuel taxes as now. The Government would become a GSE rather than a big brother. This however is just the tip of the iceberg… and speaking of “ice “, how many ice men ( house to house delivery service jobs) lost their jobs because of Frigidaire? Well we need to create an industry that puts all the ice men (house to house delivery jobs) back to work in the natural gas industry; this is just one of thousands of real possibilities for participatory economics or as I call it…the new Nano- economy .
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