Can Fracking Save the U.S. Economy?
<span style="font-style: italic">By Diana Furchtgott-Roth | MarketWatch – Fri, Oct 4, 2013 6:15 AM EDT</span>
America’s government may be closed, but its energy sector is open for business. We are overtaking Russia as the world’s largest oil and gas producer.
Other countries with large reserves of natural resources have governments that are functional, yet their institutions and technology limit their production. Russia’s Kremlin is open, Saudi Arabia’s King Abdullah reigns supreme, and Chinese president Hu Jintao has his country firmly under control.
But America is producing more oil because private sector brains trump government bureaucracy — and much of America’s oil is on private lands.
Despite delays over permits, the oil and gas industry has been able to outperform its foreign counterparts.
The new oil and gas are being produced through a technique known as hydraulic fracturing, where water and chemicals are injected at high pressure into shale rock. Usually, this method is combined with horizontal drilling, in which the drill turns off the vertical to extend horizontally through the rock formation, allowing more of it to be tapped. Today, many states are bustling with this “unconventional drilling.”
That American oil and gas production are booming is no thanks to Uncle Sam.
Oil and gas production on U.S. federal lands declined during fiscal year 2012, the latest year available, according to the U.S. Energy Information Administration. Only 17.1 quadrillion British thermal units were produced in 2012, down 4% from 2011, and the lowest level in 10 years.
In fiscal year 2012, 4.3 trillion cubic feet of natural gas came from federal lands, almost a third less than in 2008, according to the EIA.
According to data collected by the Institute for Energy Research, federal drilling permits have become more difficult to acquire. Between fiscal years 2006 to 2008 and 2009 to 2011, the number of permits approved fell from 20,479 to 12,821. Moreover, between 2005 and 2011, the time it took to acquire such a permit rose from 154 days to 307 days.
To get a better idea of how the federal government is slowing down the process, an August study by the U.S. Government Accountability Office found that applications to the Bureau of Land Management for drilling permits declined by 50% between 2007 and 2012. Plus, the Bureau said in an internal memorandum that it has not been able to process applications within a month, as is required to do by law.
Fortunately, state governments are faster. It takes 10 days in North Dakota to acquire a permit to drill on state lands and 14 in Ohio. The shale boom is happening on private lands at the same time as production is declining on federal properties.
In North Dakota, where production is thriving in the Bakken region, only one well has been drilled on federal property. The reason that North Dakota can produce so much oil and gas is that the shale formations are on private property, so permitting is far simpler.
Lynn Helms, Director of North Dakota’s Department of Mineral Resources, predicted on September 26th that the State’s daily oil production would double by 2017 — to 1.6 million barrels. North Dakota produces 874,460 barrels of oil and over 800 million cubic feet of natural gas daily.
Per capita real GDP grew by 11% in North Dakota between 2011 and 2012, the highest in the nation. The state’s unemployment rate is now 3%, the lowest in the nation.
At Eagle Ford, in Texas, oil production is forecast to reach 1 million barrels a day in 2014, peaking at 1.8 million barrels a day in 2022. No need for government help in Eagle Ford.
Texas is also home to the Permian basin, another private sector triumph, which is producing 1.4 million barrels a day, and is forecast to reach 2 million barrels a day in five years.
Pennsylvania, home to the Marcellus Shale, has allowed companies to extract its natural gas. Pennsylvania counties with hydrofractured gas wells have performed better in terms of income growth and employment than those which have no wells. The more wells a county contains, the better it performed. My study is available here.
Between 2007 and 2011, per capita income rose by 19% in Pennsylvania counties with more than 200 wells, by 14% in counties with between 20 and 200 wells, and by 12% in counties with fewer than 20 wells. In counties without any hydrofracking wells, income went up only by 8%. It is important to note, too, that counties with the lowest per-capita incomes experienced the most rapid growth.
Cheap energy is attracting more manufacturing back to America. Shell is considering building a multibillion dollar petrochemical plant in Pennsylvania.
Since 2009, the German chemical company BASF has invested more than $5.7 billion into North America, including a formic acid plant under construction in Louisiana. BASF officials say that energy prices in America are lower than in Europe, where fracking is discouraged.
Other European countries planning to invest in America due to low energy prices include Austrian steelmaker Voestalpine (an iron-ore processing plant in Texas), South Africa-bases Sasol (a natural gas to diesel conversion plant in Louisiana) and France’s Vallourec (steel production in Ohio).
Foreigners are no doubt laughing at America’s dysfunctional government. But our private energy sector is unparalleled, and is the key to future economic growth.
Diana Furchtgott-Roth, former chief economist of the U.S. Department of Labor, directs Economics21 at the Manhattan Institute.
Your never to old to learn something stupid