Analysis of the Economic, Environmental and Political Effects of Fracking
Zach Cohen
Introduction
Fracking, or hydraulic fracturing, is the process of extracting natural gas from
shale rock. Fracking allows the world to retain natural gas from depths that were
deemed unreachable by conventional technology. Recent advancements in Fracking
technology have propelled America to the forefront of natural gas extraction. By this
method, the shale rock is punctured with a high pressure fluid, causing it to rupture
and allow the movement of petroleum and brine. After the fluid fractures the rock, the
pressure is removed as well, and small pieces of aluminum oxide (hydraulic fluid)
hold the fractures open. The shale rock, permeable to all natural gases, then is
available for extraction. Fracking has endless possibilities, Chief executive officer of
Chesapeake Energy Corporation Aubrey McClendon said, “Natural gas is the one fuel
that we have that's affordable, it's scaleable, it can replace coal over time, it can
replace imported oil, can create American jobs”.1
It is clear that Fracking is a ground breaking technology. However, Fracking is
a rather controversial topic, as economists and environmentalists debate whether the
economic gains outweigh the detrimental effect it has on the environment. Fracking
enables America to be the third largest producer of petroleum and brine in the world
since it tripled domestic gas production over the last ten years, thereby, allowing the
US to be less oil dependent on other countries. On the other hand, Fracking is
1
Jennifer Dauble, “CNBC Transcript: CNBC’S Jim Cramer speaks with Aubrey McClendon ,
Chesapeake Energy CEO, tonight on “Mad Money W/Jim Cramer”, CNBC, June 28, 2011
1
destructive to the environment since it releases carcinogens and toxic chemicals and
pollutes the drinking water in proximity to the plant.
History
Injecting fluid to stimulate shale rock has existed since the 1860s. In 1930,
there were initial attempts to inject non explosive fluid into the shale rock which
allowed natural gas to leak out. Approximately twenty years later, the first hydraulic
fracturing of wells was introduced by Stanolind Oil. However, after two years,
Halliburton Company became the first company to fracture at an industrial level. It
was not until 1974 that the government started to regulate the pollution level of
drinking water. Congress stated that fracking does not contaminate water and does not
negatively affect the environment. In 2000, present day fracking technology was
introduced and put into effect in Texas. Five years later the fracking boom started
after the Environmental Protection Agency ruled that it is not allowed under their
power to investigate a natural gas company. However, in 2010, the government broke
their laissez-faire policy with oil extraction, and is currently investigating the impact
of hydraulic fracturing on the environment.
Economic Advantages
The Fracking technology is responsible for the increase in oil and gas
production. In 2011, the US produced 8,500,983 million cubic feet of natural gas
from shale gas wells, a value of about $36 billion, due to shale gas alone.2 America is
now the world’s largest producer of natural gas. As a result, imported gases compose
2
Kevin A. Hassett, Aparna Mathur, “Benefits of hydraulic fracking”, Oxford Energy Forum,
April 4, 2013, https://www.aei.org/publication/benefits-of-hydraulic-fracking/
2
merely eight percent of total natural gas consumption in the United States. Since
America does not rely on imported gas, the United States has balanced it trade as the
US' domestic supply has grown to meet its demand. Business magnate T. Boone
Pickens simply stated, “Natural gas is the best transportation fuel. It's better than
gasoline or diesel. It's cleaner, it's cheaper, and it's domestic. Natural gas is 97%
domestic fuel.”3
Hydraulic fracturing has also created thousands of new jobs across the
country. In total, hydraulic fracturing directly and indirectly has been responsible for
employing over 850,000 employees. In 2020, it is projected that smart drilling4 will
employee 1.5 million employees. These onsite jobs on average pay more than twenty
nine dollars per hour. This average rate exceeds the national rate5 by sixteen percent.
Additionally, hydraulic fracturing enables the American public to access energy at a
much lower cost. Thus, Fracking has a very positive effect on the American
economy. However, some environmentalists think that this will lead to the abuse
of energy and other detrimental effects.
Environmental Damages
Hydraulic Fracking negatively affects the environment in many different
ways. Fracking contaminates the drinking water in the proximity of the Fracking
plant. Fracking also pollutes the air with methane, exposes people to toxic chemicals
and has an impact on the climate. Fracking increases the risk of babies born with low
3
T. Boone Pickens, geologist, “Transcript of Interview with T.Boone Pickens”, PBS, March
12, 2008, http://www.pbs.org/wgbh/pages/frontline/heat/interviews/pickens.html
4
Fracking, or Hydraulic Fracturing
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$24.57
3
birth weight by more than half, numbers comparable to the Chernobyl disasters.
Fracking produces an extreme amount of waste that taints the area in which it is
disposed. Fracking is also an extremely dangerous job, as there are over 50 onsite
deaths per year. Fracking employees are vulnerable to many diseases due to the
chemicals used. Dr. Kenneth Rosenman stated, “Air sampling results show that the
majority of silica levels at hydraulic fracturing sites were above the Occupational
Safety and Health Administration allowable standard and 84% were above
Occupational Safety and Health Administration’s new proposed standard. These
exposure levels put workers, particularly sand mover operators and T-belt operators
who had the highest levels, at risk of silicosis and the other silica-related conditions.”6
Countries7 all over the world have banned this extraction practice, and even certain
districts8 within the US have banned Fracking.
After the process of fracking is finalized, liquids that were injected into the
ground “flow back” to the surface. This wastewater, called “flowback,” can contain
poisonous substances that can rise up to the surface and infect nearby wildlife and
civilization. These toxins, include, arsenic, barium, lead, mercury, and radioactive
elements like radium.9
6
“Hydraulic Fracturing and the Risk of Silicosis” Rosenman, Kenneth D. Clinical Pulmonary
Medicine, July 2014, Vol. 21, Issue 4. doi:10.1097/CPM.0000000000000046. - See more at:
http://journalistsresource.org/studies/environment/energy/fracking-shale-gas-health-effectsresearch-roundup#sthash.9JGmqpTT.dpuf
7
France, Bulgaria, Romania, Germany
8
San Benito County, California & Denton,Texas & Canandalgu, New York
9
See T. Hayes, Gas Technology Institute, Sampling and Analysis of Water Streams
Associated with the Development of Marcellus Shale Gas: Final Report, 36 tbl.9 (Dec. 31
2009); E.l. rowan et al., Radium Content of Oil- and Gas-Field Produced Waters in the
Northern Appalachian Basin (USA): Summary and Discussion of Data, u.s. Geological
survey scientific Investigations report 2011-5135, 11 fig.6 (2011).
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Social + Environmental + Political Benefits
Despite such risks, if Fracking is executed properly, it can be argued to benefit
the environment. Fracking can emit less carbon emissions than regular gas drilling.
This is reinforced by Exxon Mobile CEO, Rex W. Tilerson: “Natural gas obviously
brings with it a number of quality-of-life environmental benefits because it is a
relatively clean-burning fuel. It has a CO2 footprint, but it has no particulates. It has
none of the other emissions elements that are of concern to public health that other
forms of power-generation fuels have: coal, fuel oil, others.”10 Fracking on a national
scale has increased our national safety. Since the United States has become less oil
dependent, it is no longer forced to have a friendly relationship with corrupt countries.
Many fracking experts predict that America will be energy self-sufficient by 2030.
Political Debate
Fracking also has had a great impact on politics and has become a common
topic in political discussions. A majority of politicians find it difficult to oppose
Fracking because of its clear positive effect on the economy. Even in the most
environmentally aware states, politicians find it hard to pass a moratorium on
fracking. However, fracking still remains an unsettled issue in many states in
America.
10
Rex W. Tillerson, Chairman and CEO, Exxon Mobil Corporation, “The New North
American Energy Paradigm: Reshaping the Future”, interview by Alan S. Murray, Deputy
Managing Editor and Executive Editor, Online, Wall Street Journal, June 27, 2012,
http://www.cfr.org/north-america/new-north-american-energy-paradigm-reshapingfuture/p28630
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Utilitarian Plans
Many Americans think that taking a utilitarian approach to fracking is the best
solution to this ongoing debate. While Utilitarianism attempts to maximize the good
of an action for the most number of people, Fracking can still impinge on the rights of
a minority stakeholder or an individual. The debate can be better understood by
considering two extreme plans of implementation of Fracking.
The first plan is to allow the Fracking industry to frack anywhere they desire
without government regulations or oversight. Based on the honor code, the fracking
company would take as many measures as possible to reduce water contamination,
and other negative effects of fracking. By trusting the fracking companies, a great
deal of money will be saved. The companies will not have to pay for water monitoring
systems and other systems designed to protect the environment will not have to be
used. This would greatly decrease energy and gas prices, setting the prices at an alltime low. This would also allow us to be the largest gas producer in the world by
2019. This plan can increase fracking jobs and lower energy costs, which would
benefit the American public. However, Fracking would lead to enormous spikes in
pollution, would damage nearby bodies of water and contaminate aquifers
and decrease the property value of homes nearby the plant. This utilitarian approach
would consider the economic gains to benefit the majority, and the environmental
losses only impinge on a small minority.
The other plan would have full state government intervention and regulation
of fracking. Such regulations would make Fracking so expensive to perform that
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it will no longer be a cost effective extraction process and Fracking will gradually
come to a halt. The state government will limit the number of fracking sites per state
and each fracking company will have to pay a 5% royalty to the United States
Environmental Protection Agency. If carcinogens or other toxic chemicals are given
off and pollute the air or water, the fracking plant will immediately be forced to close
down and will need to reimburse all damages it causes. This plan will lead to great
inflation in prices of energy and gas and will limit the US' oil exportation,
forcing America to be almost as oil dependent on other countries as they once were
before hydraulic fracturing. However, this plan will reduce all environmental harms
caused by fracking. Water contamination and toxins in the air will be eliminated due
to regulated fracking within the respective state.
Combination Plan
Both of these plans are too radical and will never be executed by the
government. A possible combination of these two extremes, can be formulated which
would be mutually beneficial to both sides of the debate. As politician Bill Richardson
stated, “Fracking is doable if there's full disclosure of all chemicals used. Secondly,
science dictates the policy rather than politics. Third, there's collaboration between
environmental groups and the natural gas industry”.11 This plan would allow fracking
but would limit the amount of fracking sites in a given state. The number of fracking
11
Bill Richardson, Former US Energy Secretary, “It’s a fracker-jack idea: ex-energy big”,
New York Post, interviewed by Carl Campanile, August 23, 2012,
http://nypost.com/2012/08/23/its-a-fracker-jack-idea-ex-energy-big/
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zones allowed will be based on population and amount of shale rock available. For
every 75,000 people in the state one fracking plant will be allowed. However, if there
is an abundance of shale rock in a particular area, the fracking company will be
permitted to propose a safe extraction process in that area. If their proposal is
accepted, then regulating rules will be suspended. The proposal, however, can be
rejected if the government thinks that it will hurt the people more than it will help
them. There is also an incentive system built into this plan. If the fracking companies
are able to prove that they have caused no environmental damage at all in a span of a
year then the population to fracking plant ratio will decrease by 2,000 people per year.
This program will force the companies to be extra cautious with their excretion of
waste and other negative effects of the process that can hurt the environment.
Geopolitics of Fracking
Not only can Fracking benefit America by reducing its reliance on other
countries, it can also enhance the United States economy by exporting excess supply
to other countries. Since the fracking boom, 1970’s production has been tripled, and
in 2030 the production will triple 2010 production (9 million barrels per day). For the
last forty years the United States has put a ban on oil and natural gas exportation. The
Organization of the Petroleum Exporting Countries (OPEC) is a permanent,
intergovernmental organization, created at the Baghdad Conference on September 10–
14, 1960, by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela.12 OPEC's objective is to
12
The five founding members were later joined by nine other Members: Qatar (1961);
Indonesia (1962) – suspended its membership from January 2009; Libya (1962);
United Arab Emirates (1967); Algeria (1969); Nigeria (1971); Ecuador (1973) –
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coordinate and unify petroleum policies among Member Countries, in order to secure
fair and stable prices for petroleum producers; an efficient, economic and regular
supply of petroleum to consuming nations, and a fair return on capital to those
investing in the industry.13 The United States restricted oil exportation in the 1970’s
in response to the OPEC cartel cutting production, which drove up fuel costs for all
Americans. If the United States would lift the ban there would be numerous
geopolitical changes, in addition to positive economic outcomes, such as boosting
domestic oil production and cutting gasoline prices. The shale boom has given
America a luxury of having an excess supply of oil. The US producers of oil would
be able to sell crude oil at a higher cost into the global market than in the domestic
market.14 Additionally, if the ban is lifted it will affect international politics. If the
United States were able to sell crude oil to Europe for a projected $9.64/m British
Thermal Units, it would give Europe access to cheap gas, and Europe would no longer
be dependent on Russia for oil.15 If Europe is no longer dependent on Russia, then
Europe can be more forceful in the argument over who should rule over Ukraine, and
Putin will have less power over Eastern Europe. The revoking of the ban will also
affect Venezuela, as its economy is extremely reliant on their oil revenue. Since
Europe and other countries are dependent on Venezuela for oil, Venezuela is able to
suspended its membership from December 1992-October 2007; Angola (2007) and
Gabon (1975–1994).
13
“Brief History”, OPEC, http://www.opec.org/opec_web/en/about_us/24.htm
14
Many companies, such as Cheniere Energy, has invested billions of dollars in
preparation to export natural gas. The Cheniere Energy has dedicated a project called
the Sabine Pass project, which sets up a liquefaction terminal and will begin chilling
the gas so it is able to be transported to Europe and Asia.
15
Over thirty percent of Europe’s gas is from Russian oil providers
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charge over one hundred dollars per barrel. If the United States would be able to
supply Venezuela’s consumers with oil, they would receive a 43% price decrease with
a barrel costing around $58.16 If the price per barrel even dropped by five dollars, it
would result in approximately $35,000,000 of lost profit. If Venezuelan crude oil is no
longer dominant, the US’ exportation can lead to a mutiny of Maduro’s government.
Effects of Lifting the Ban on OPEC
As of 2015, crude oil prices have hit an all-time low: $48 per barrel. Estimates
show that there is too much oil in the United Sates and domestic demand will fall in
2016, leaving a surplus of oil with no purpose. Meanwhile, OPEC is consistently
producing oil on a grand scale, and is willing to lose a lot of money because they are
hopeful that plummeting prices will make United States fracking an unprofitable
venture. OPEC wants to remain dominant in the oil industry and keep United States as
a consumer, oil dependent country. However, the United States has a strong
countermove: lifting the forty year ban on gas exports. The only reason why the
United States is even able to do this is because of fracking. Fracking has allowed for
9.08 million barrels of oil per day within America. This number places the United
States as the largest producer of liquefied natural gas. In an effort to regain control,
OPEC reduced oil prices. This would negatively affect America because fracking is
very expensive, and if the fracking companies are not earning enough return on their
money, fracking will no longer be cost effective. This plan already has succeeded and
16
Girish Gupta, “Could Low Oil Prices End Venezuela’s Revolution?”, The New Yorker,
November 3, 2014, http://www.newyorker.com/business/currency/will-low-oil-prices-endvenezuelas-revolution
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led to some cutbacks in major oil companies.17 However, in the Bakken formation in
North Dakota, American companies are able to be profitable from barrels costing as
little as $42, but most companies cannot survive with barrels under $60. OPEC is also
negatively impacted from the deflation of oil prices. Venezuela and Nigeria need at
least $120 to be profitable, while Iran needs around $136 per barrel.18 The real debate
is who can survive these extreme cutbacks, OPEC or the United States’ natural gas
industry. If the United States decides not to lift the ban, then it is clear OPEC will
remain profitable and continue to monopolize the market. However, if the ban is lifted
then America is able to export, which would ensure profits for companies selling
barrels even as low as $38, and by 2030 can control the oil market.
Conclusion
Fracking has already made a great impact on the United States. It has
contributed tremendously to the US economy and will continue to as Fracking
technology develops. With regards to politics, Fracking will allow the United States to
increase its foreign power and reduce OPEC’s influence in the western countries.
Furthermore, as Fracking methods progress, the negative effects that they have on the
environment will decrease. Thus, Fracking's benefits outweigh its detriments and,
though a current controversial issue, Fracking should be legal because of all of the
potential gains for America.
17
ConocoPhillips recently announced plans to slash investment spending by 20 percent next
year. Halliburton, the world’s second-largest oil-field services company, just announced
layoffs.
18
Chris Faulkner, "OPINION: Lifting the U.S. Ban on Oil Exports Would Send OPEC a
Message”, Hamodia, Friday, December 19, 2014, http://hamodia.com/2014/12/19/opinionlifting-us-ban-oil-exports-send-opec-message/
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