Presidio Graduate School’s Macroeconomics course for Spring 2012, is authoring a series of articles. The articles on this “micro-blog” reflect reactions and thoughts on news items, economic theory, and other issues as they pertain to the concept of sustainability. Follow along here.
By Cristina Soeiro
Moral hazard or modern miracle? Natural gas prices have fallen due to increased supply driven by hydraulic well fracturing (“fracking”). The U.S. stands to capitalize significantly from the sale of fracturing additives and predictive geo-mechanical modeling systems. Recent projections estimate U.S. hydraulic fracturing technology and ripple sales could add 1% per year to U.S. growth.
Natural gas is now competing with coal, which has implications for U.S. economic growth and foreign direct investment in the U.S. If hydraulic fracturing were eliminated from the U.S. economy, by 2014 the U.S. could see real GDP decrease by $374 billion and employment decrease by 2.9 million. This year, BHP Billiton invested $5 billion in Arkansas and Shell signed China’s first shale gas production with US technology.
Increased supply comes from unconventional sources where gas and oil stocks are held captive in deep impermeable formations such as shale. Well fracturing increases productivity from those formerly uneconomic stocks. Per fracture, apressurized mix of sand, 4.5 million gallons of freshwater and over 10,000 gallons of 500+ chemical additives are explosively injected into impermeable rock formations 5,000 to 20,000 feet deep. Fractures are created, held open by sands, and wastewater flows back up mixed with gas/oil.
Fracturing was first commercialized in the US in 1949, with an exclusive exploration license issued to Halliburton. In the early 1990s the Department of Energy subsidized the first US horizontal drilling, making shale gas profitable. The result was increased gas supply in the US, from 162 trillion cubic feet in 1994 to 245 trillion cubic feet in 2009. In 2005 the US Energy Policy Act exempted the extractive industry from regulation under the Safe Drinking Water Act.
The Marcellus shale exploration is a current example impacting West Virginia, Pennsylvania, Ohio and New York. There are an estimated 84 trillion cubic feet of gas to extract and 800 wells have been drilled since 2005. Exploration is expected to generate 300,000 new jobs, $6 billion in tax revenue and $25 billion in added value to the US economy by 2020. Norway’s Statoil is heavily invested in the Marcellus shale gas extraction.
Hydraulic well fracturing has high eco-social costs that are increasingly publicized:
Current shale gas exploration from fracturing wells echoes economic bubbles going back to the 17th century. What makes it unique is a move towards greater transparency on how natural resource limits and lack of substitutes play a key role in U.S. economic growth and energy policy. This month the EPA stated that it will delay requiring green technology for completion of hydraulic fractured natural gas wells until 2015 - stay tuned.
Image credit: Forbes