America’s shale is changing the dynamics of world energy. The reemergence of the United States as a global energy superpower is addressing many of the major problems in the United States and is having profound strategic and geo-political effects throughout the world. In November 2012, the U.S. replaced Saudi Arabia as the world’s largest producer of crude oil. The U.S. had already overtaken Russia as the leading producer of natural gas, and the International Energy Agency predicts that the U.S. could become the world’s largest natural gas producer by 2017.
In his 2012 State of the Union address, President Obama claimed credit for presiding over the largest reduction in oil imports in modern history and for achieving the lowest level of dependence on oil imports in years. He attributed that remarkable performance partly to increased oil production from tight sands in the Dakotas, but primarily to the massive increase in gas production that has resulted from fracking.
The Energy Information Administration (“EIA”) predicts that the U.S. will have enough gas to satisfy domestic demand for a century and that the U.S. will soon have a surplus sufficient to begin exporting gas to Asia. As a result of fracking, natural gas costs less than one-third of the energy-equivalent price of oil in the U.S. The developing use of natural gas in fleet passenger automobiles and in medium to heavy long-haul trucks has the potential to reduce gasoline sales, fuel costs and prices of manufactured goods delivered to stores.
Natural gas currently generates 30% percent of the electricity in the U.S. (coal 37%, nuclear 19%, all others 14%). Low relative prices of source fuels in the U.S. are improving U.S. economic conditions and are increasing manufacturing activity by significantly reducing the cost of energy.
The fortuitous increase of U.S. oil and natural gas production is resulting from the synergistic application of two petroleum technologies, one old and one new. Hydraulic fracturing, developed in the 1940s, has been safely employed in more than a million U.S. wells. More recently, the industry has commercialized the ability to drill wells horizontally. Such wells are drilled vertically to a depth of one to two miles then turned to drill horizontally within the oil or natural gas bearing strata. Steel pipe is cemented through the entire length of the wellbore and holes are opened in the pipe. Hydraulic fracturing of the rocks in the horizontal portion of the well releases the oil and natural gas and allows them to be recovered at the surface. Without the combined use of both technologies, little of the new oil or gas production in the U.S. would be possible.
Since 2004, various senior federal regulatory officials from both the Bush and Obama administrations (including the EPA and Department of Energy), state regulatory agencies, and university researchers have repeatedly noted the lack of evidence connecting groundwater contamination with hydraulic fracturing. Peer reviewed research studies in 2012 and 2013 found groundwater contamination from vertical migration of fracturing fluids “not physically plausible” and “unsupported by any empirical data.” In August of 2013, newly appointed US Secretary of Energy, Ernest Moniz, said “To my knowledge, I still have not seen any evidence of fracking per se contaminating groundwater” (emphasis added).
Fracking is improving the U.S. environment by replacing some coal with natural gas. Even though the economy has expanded by more than half, U.S. greenhouse gas emissions are lower today than they were 20 years ago. This is because of the greater use of natural gas for power generation and industrial boilers. Although the U.S. was not a signer of the Kyoto Protocol, the U.S. emissions are already below the limits that would have been imposed by the protocol as a result of the switch to natural gas released by fracking. The U.S. is the only industrialized country in the world to meet this level of Kyoto Protocol compliance.
Fracking will improve the global economy. Natural gas is far more expensive in Europe and Asia than it is in North America. Fracking in other countries has great potential to reduce the price of gas in those areas. The EIA has identified 48 shale gas formations in 32 countries that have the potential to yield new gas supplies comparable to those that have nearly doubled U.S. gas reserves in the last decade. Horizontal drilling and hydraulic fracturing in basins outside the U.S. can, at minimum, triple global gas supplies.
Fracking will improve the global environment. As fracking increases the global supply of natural gas and reduces the price of natural gas in Europe and Asia, the same kinds of dramatic beneficial effects on the global environment will occur that are already beginning to impact the U.S. environment. The International Energy Agency (“IEA”) predicts that by 2030 gas will displace coal as the dominant source of energy in the world. China is poised to become a particularly large beneficiary of the gas boom. IEA has identified several promising basins in China. IEA also predicts that by 2030 China will consume more gas than the entire E.U. Since China is the world’s largest source of greenhouse gas emissions and by far the largest source of emission increases, any replacement of coal with inexpensive natural gas has the potential to greatly reduce China’s problems with air quality.
Fracking should also improve geopolitical conditions. The process is reducing–and may ultimately eliminate–U.S. dependence on oil and gas from insecure foreign sources such as the Middle East. Fracking can reduce Russia’s leverage over Europe via new gas supplies, Iran’s leverage over India via India’s reliance on energy supplies from Iran, and the risk that Russian President Vladimir Putin will be successful in his efforts to create a natural gas version of the OPEC cartel.
In the U.S., continued development of our vast natural oil and gas resources will be accomplished only if regulators and producers are able to work together to satisfy citizens and regulatory agencies that horizontal drilling and hydraulic fracturing of shale formations can be accomplished with tolerably low environmental costs. As active participants in the oil and natural gas industry, we see this as a tremendous opportunity to create jobs, wealth and energy security for our country. Continued development will reverse the decline in U.S. industrial competitiveness, the standard of living and the undesirable geopolitical position that reliance on imported energy is creating for us.