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The Shale Boom is Big and Good (Bad) for the Economy

The views expressed are those of the author and are not necessarily those of Scientific American.


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Hydraulic fracturing (“fracking”) has flipped the global energy discussion on its head. Over the past five years, the world has watched the U.S. shift its focus from fears of peak oil and its level of oil imports to a new reality where domestic oil and gas production are up and imports are down. And, while global greenhouse gas emissions have continued to increase, U.S. emissions have now decreased down to 1994 levels.

As shown in the graphic below from International Energy Agency’s Unconventional Gas Production Forum, shale gas production has dramatically increased in the United States over the past decade – in particular since 2009.

Note: bcm = billion cubic meters

Many countries are looking at how they can capitalize on the U.S. shale gas boom – with options ranging from importing American gas to developing their own domestic resources. The IEA data visualization tool shows how countires including Argentina, Canada, China and Poland have already begun to develop their shale gas resources.

A primary motivation behind this focus on shale gas development is undoubtedly its potential economic impact. In an article in this month’s Alcade, Dr. Michael E. Webber describes the impact of fracking in the U.S. and abroad. In terms of economic health, Webber states that:

“Fracking provides a much-needed boost to the economy [in the United States]… We are pulling more resources out of the ground and selling them for a tidy profit. Energy companies are busy drilling more than 100 new wells every day, reporting higher profits, hiring more people, and enriching landowners who hold mineral rights… That economic benefit ripples through the economy to busy restaurants, higher wages, and lower unemployment.

It is also helping to keep [U.S.] energy prices at a reasonable level. The flood of domestic oil and gas production combined with bottlenecks – both real and political – inhibit the movement of energy out to global markets and as a result, domestic prices are lower than international prices…The abundance of natural gas and scarcity of export terminals means [that the U.S. has] a domestic glut that pushed prices below $4 per thousand cubic feet of gas. Europe pays $12, and in Japan, gas is about $14…”

This drop in prices can be clearly seen in graphics released by the U.S. Department of Energy’s Energy Information Administration (EIA). One such graphic shows the average energy prices for manufacturers from 1998-2010, with an overall decrease in energy prices (and a dramatic drop in natural gas prices):

But, as Webber points in his article, fracking is not universally positive for the economy. With the fracking boom came higher competition for labor and capital, which has had an indirect negative impact on other U.S. export industries that require highly-skilled technical workers. In shale boomtowns, rapid local price inflation (i.e. higher prices for rent and food) can be difficult for locals who are not employed in the oil and gas fields. Webber adds that fracking has also made things tougher for coal, nuclear, and renewables. And, the overall balance between cost and benefits of shale gas development on the environment is still unclear.

Photo Credit: Graphic of unconventional gas production in the United States from the International Energy Agency (IEA) web tool, which builds on the work of the IEA’s Unconventional Gas Forum. Graphic of average energy prices for U.S. manufacturers is from U.S. Energy Information Administration, Manufacturing Energy Consumption Survey (MECS) 1998-2010, as released on September 6, 2013.

Melissa C. Lott About the Author: An engineer and researcher who works at the intersection of energy, environment, technology, and policy. Follow on Twitter @mclott.

The views expressed are those of the author and are not necessarily those of Scientific American.





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