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How Fracking is Saving the Economy

Oil and Gas Economy

Written by Jon Carter
Posted September 5, 2013 at 2:28PM

Whenever you hear President Obama giving speeches on energy issues, you’ll notice that he is curiously silent – or all too hesitant – to discuss the shale oil and gas boom. The boom itself conflicts with Obama’s green agenda, but he and the EPA have been hush-hush on the issue because the government is aware of the vast benefits the drilling practice has brought to the economy.

super frackWhen it comes to fracking, we often hear of the negative aspects, such as damage to the environment, contamination of private wells, and placing too much stress on water supplies. While those are legitimate concerns, what is not as often discussed are the widespread contributions fracking has made to local, state, and federal governments in the form of revenue – not to mention the addition of 2.1 million jobs around the country.

States like North Dakota have been able to come away virtually unscathed from the recession as a result of oil and gas drilling.

Fracking has been able to lift household income by $1,200. In addition, the boom added $75 billion to state and federal revenues and an additional $283 billion to the gross domestic product.

Lower prices for fuel sources like natural gas have empowered America’s manufacturing base – allowing employers to hire more workers while saving costs in fueling factories. Lower fuel prices also mean more disposable income for consumers who have been able to save money through heating bills and electricity.

Oil imports fell 19 percent in the first half of 2013, which lowered the country’s trade deficit by $31.6 billion, USA Today reports.

And since refiners have options in refusing to order expensive imports from Saudi Arabia, more are taking in light crude from places like the Bakken as a cost-saving method.

Now don’t get me wrong; the economy still stinks. Many people out there are hard-pressed to find work. But this is a very encouraging sign, indicating the widespread economic benefits that would occur if more states joined the likes of North Dakota and Texas in the fracking frenzy.

Take, for instance, California – a state that is sitting on a treasure trove of oil and gas through such plays as the Monterey shale. California currently wastes money by importing oil from other areas like the Bakken and Saudi Arabia.

I get that California’s progressive leanings have thus far prevented the country from engaging in oil and gas production, but since California still heavily relies on fossil fuels, why not take advantage of a native resource?

The state is making progress, recently denying a ban on fracking. Companies exploring the Monterey shale could be set up for some impressive gains.

And California does not have to sacrifice its progressive heritage by drilling for oil and gas. Norway is one of the most liberal and progressive states in Europe, but it still relies on an oil economy that has enriched the entire nation.

Let’s also point to New York’s ban on fracking – which has remained in place even though the state is sitting on the largest natural gas reserve in the country, the Marcellus Shale.

No matter where you go, shale drilling has proven it can add value to local and state economies.

Texas Oil Boom

North Dakota is one state that is vastly benefiting from the shale boom, but I often point to Texas as a model for the country when it comes to economic prosperity. Fracking has benefited nearly all corners of the state.

In previous articles, I wrote about the Eagle Ford of South Texas and the Permian Basin of West Texas – shale landscapes that have not only enhanced local communities through oil jobs and revenue, but have uplifted these communities as a whole by raising wages for workers in restaurants and hotels.

In South Texas, a dish washer could get a job for $15 an hour. A high school graduate could drive an oil truck for 75K a year. This is astounding for South Texas – an area once known for poverty and few job opportunities.

On a business level, natural gas prices in Texas are some of the lowest in the country and around the world, causing investment to flock to the Lone Star State. Foreign steel companies are pouring $3.3 billion into the state in the form of new plants.

All seems well with Texas, but there are problems to contend with.

Fracking Setbacks

One thing that could set back drilling operations is the water shortage that has been known to plague South Texas and other parts of the country. Fracking requires millions of gallons of water, causing an enormous strain on water supplies, which could lead to a possible slowdown of operations in the future.

And there are also housing shortages.

This problem has been a burden to energy towns in states like Texas, North Dakota, Pennsylvania, Ohio, and New Mexico, which are dealing with limited housing options and skyrocketing rents as a result of high housing demand.

To say the least, this does not make life pleasant if you live in these areas. It hurts the energy industry over time, since more workers are unable to find housing, and it is a problem for energy employers, who have a hard time finding qualified workers.

Critics point out that oil and gas economies often place too much stress on local communities. Many senior citizens and the economically vulnerable that live in energy towns are finding themselves relying on government assistance to stay in their homes.

But a major setback for the fracking industry would be tight regulations. We will not have to worry about state-level regulations in southern and western states, but it has been an issue in the northeast. And there is also the federal level.

Even though I said the federal government will not interfere too much in fracking operations, there could be tighter measures in the future that could cause setbacks.

For example, the EPA’s requirement of E10 and eventually E15 ethanol content in gasoline has caused a short spike in gas prices as refiners are forced to purchase higher priced ethanol credits. Ethanol is not high in demand, forcing refiners to make extra credit purchases to get around the requirement, which in turn forces refiners to pass on higher costs to consumers.

This is just one example of how federal regulations are interfering in the energy market, inadvertently raising prices for everyone. This is something to watch out for if you plan to make further investments in the domestic shale arena.

Fracking Investing

I’m incredibly hopeful for the shale drilling boom, and I believe other states like Colorado and New Mexico will become major players as more plays are discovered and tapped.

Halliburton (NYSE: HAL) is most associated with fracking and drilling services. The service giant is coming out with new fracking techniques and extraction methods that could catch waves in the future.

If natural gas is your thing, Exxon Mobil (NYSE: XOM) has continued to invest in the Eagle Ford, the Marcellus, and the Bakken. Chevron (NYSE: CVX) has also been active in Texas and Pennsylvania plays.

And consider this: unconventional production will amount to $346 billion in investments from 2012 to 2025. In the manufacturing sector, investments will total $31 billion by 2016 as a result of lower natural gas prices.

If you’re worried about long-term growth, consider that over 3.3 million jobs are expected to be added by 2020 relating to oil and gas, and income is expected to rise by $2700 by 2020 and $3500 by 2025.

There will be obstacles in the form of protests from local residents, green activists, and possible state/government restrictions. But rest easy, investors. The fracking frenzy will continue to have staying power.

 

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