Expert's take: Fracking

Hydraulic fracturing (fracking) has taken the U.S. by storm, and as is the case with most industries that boost the economy, the federal government is seeking to crack down on the industry and regulate it out of existence. Nicolas Loris, senior policy analyst at the Heritage Foundation’s Roe Institute for Economic Policy Studies, weighs in on how fracking is faring across the country, and how the government is influencing the energy industry:

What is the status of hydraulic fracturing across the country? I know that it’s a very controversial issue in many states, and that Texas recently issued a municipal fracking ban. Can you give us a basic picture of what the nation looks like concerning fracking? 

Hydraulic fracturing is controversial in some parts of the country, but it shouldn???t be. Smart drilling technologies have been a huge contributor to the American economy — increasing energy supplies, lowering prices and creating jobs all over the country. According to the Energy Information Administration (EIA), six shale deposits located on private and state lands have accounted for 90 percent of the U.S. growth in oil production and nearly all of the natural gas production growth. As a result, the United States is now the world???s largest producer of both oil and natural gas.

Although there has been much concern over fracking contaminating drinking water through gas migration and through the use of chemical additives, the process has proven to be safe, and has been successfully regulated at the state level for decades. States are the primarily regulator of fracking, and those state regulators have maintained an incredibly strong environmental record while promoting economic growth. As recognized by the Environmental Protection Agency and other federal agencies, there has not been a single instance of water contamination as a result of fracking in the more than 1 million fracked wells in the United States for more than six decades. Many states also passed public disclosure laws for the use of chemicals.

What has Congress proposed doing about fracking, if anything? Has the president addressed the issue? 

The administration has been keen on passing new environmental regulations for fracking on federal lands through the Department of Interior???s Bureau of Land Management. The problem is they???re having trouble finding a good reason to do so because of the effective state regulatory regime.

State regulators and private land owners have local and specialized knowledge, as well as proper incentives to promote economic growth while protecting their environment. They have the most to gain by properly managing natural resources and economic activity and the most to lose from mismanagement.

Each state that allows fracturing has a comprehensive regulation to help ensure that oil and gas companies operate safely and in an environmentally sensible manner. They administer fines and impose other penalties to correct any wrongdoing.

Even those in the administration have acknowledged so. Secretary of Interior Sally Jewel said, ???I know there are those who say fracking is dangerous and should be curtailed, full stop. That ignores the reality that it has been done safely for decades and has the potential for developing significant domestic resources and strengthening our economy and will be done for decades to come.??? Former Secretary of Interior Ken Salazar and former Environmental Protection Agency Secretary Lisa Jackson have echoed Jewel???s sentiments.

What is at stake here, as far as jobs, energy and revenue go? What is being risked by imposing more regulations or by not regulating the process? 

The micro and macroeconomic benefits from the American energy boom are eye-popping. Households save money through lower energy bills and cheaper goods when businesses compete and pass cost savings along to consumers. Yale economists calculated that the consumer surplus — the savings gained from the reduction in the price of natural gas — exceeds $100 billion after accounting for residential, industrial, commercial and utility use. In effect, the shale gas boom is putting more money back in families??? wallets. The economic consulting firm IHS estimates that the average household saved $1,200 in 2012 through lower energy costs and increased income, and those savings will nearly triple over the next decade. Lower natural gas prices are also encouraging more business investment and attracting businesses to locate in the U.S.

The economic benefits from the shale oil and gas boom go far beyond household savings. Directional drilling and hydraulic fracturing (fracking) supported more than 2.1 million jobs in 2012. The oil and gas boom has also created work for geologists, engineers, rig workers, truck drivers and pipe welders. That has increased demand for restaurants, repair shops, hardware stores, hotels, box stores and laundromats in those areas. In Williston, N.D., home to one of the country???s most productive shale resource deposits, McDonald???s is offering signing bonuses and Wal-Mart is hiring cashiers for $17.40 an hour, almost 2.5 times the minimum wage.

With abundant shale oil and gas deposits across the country, IHS projects that the U.S. energy sector will grow stronger and that energy-related employment will increase to 3.9 million jobs by 2025, with more than 550,000 in the manufacturing sector. Smart drilling technologies and the resulting energy production generated $284 billion in gross domestic product (GDP) in 2012, and IHS estimates that will jump to $533 billion by 2025.

In other words, this is no blip in the radar. Americans should welcome the astonishing benefits the oil and gas boom will bring for years to come and the states have successfully regulated the process for decades. If it ain???t broke, don???t fix it.