Opinion: Banning fracking would disrupt global economy
Democratic Presidential candidates Kamala Harris, Elizabeth Warren and Bernie Sanders have all declared that if elected they would institute a ban on fracking. This remarkably effective method of extracting fossil fuels which, combined with horizontal drilling, opened up shale deposits as a huge energy resource, which led to the United States becoming the world’s largest producer of oil and natural gas.
The economic and environmental benefits from fracking are substantial. Recall that in 2003, Time Magazine claimed that the U.S. was running out of domestically-produced natural gas and oil. Within five years, oil prices rose to almost $150 per barrel. But the price dropped dramatically after fracking came along.
Today, fracking accounts for more than half of U.S. crude oil production, and prices are less than $60 per barrel, compared to 2006, when its use supplied provided only 6% of the crude oil. This reduction in the price of oil has resulted in lower costs of production across many industries and substantial savings for consumers.
The same is also true of natural gas. Fracking now accounts for about 70% of the natural gas produced in the U.S., whereas in 2006 it provided 37%. This has resulted in natural gas prices falling from the $6 to $13 per million BTU range to the current $2.25 to $3 range. The decline in price has resulted in natural gas plants replacing coal-fired power plants, with a resulting decline in carbon dioxide emissions.
The U.S. Energy Information Administration (EIA) recently reported that energy-related carbon dioxide emissions in the U.S. fell nearly 1%, or 47 million metric tons, in 2017, while GDP increased 2.3%. U.S. energy-related emissions in 2017 were 14% lower than in 2005 and that the US had the largest reduction from the prior year than any other nation.
A ban on fracking would undo these positive economic and environmental developments. Banning fracking would not reduce the demand for oil and energy, but it would affect prices. EIA expects global consumption of petroleum and other liquid fuels to grow from 99.98 million barrels per day in 2018 to more than 102 million barrels in 2020. As China’s economy expands and with Africa among the world’s fastest growing continents, we are likely to see a continued increase in the demand for U.S. oil and gas.
At the same time, EIA reports that hydraulically fractured horizontal wells have accounted for most of all new wells drilled and completed since late 2014. Meeting current demand without fracking would not be possible, much less satisfy increased demand.
Obviously, banning fracking would create an enormous disruption in the world’s energy markets. The disruption would in turn have a substantial negative effect on the economy. The U.S. Chamber of Commerce has estimated that a ban on fracking would cost more than 14 million jobs, about double the number of jobs lost in the Great Recession. It estimated that gasoline prices would double and natural gas prices would rise to more than $12 per million BTU, back to where they were prior to the development of fractured horizontal wells.
The Chamber of Commerce estimates that the rise in natural gas prices would result in a doubling of energy prices and a yearly $4,000 rise in the cost of living. Moreover, consumers would suffer in less obvious ways. Since food and medicine production rely on oil and natural gas for components and refrigeration, the cost of both would rise substantially under a fracking ban.
There are certainly costs to hydraulic fracking as there are with any form of energy production. It is possible that if mismanaged the fluids involved could be released through spills or leaks.
As with any uncertainty, one must consider the expected cost — the probability of an event happening multiplied by its cost. For example, if there were a 1% chance of a million-dollar accident, the expected cost of the accident would be $10,000. There is some expected cost of spills or earthquakes from fracking, but the cost is very low compared with the cost of banning a technology that has given the US energy independence, reduced carbon dioxide emissions and increased economic output and job creation.
Gary Wolfram is the William Simon Professor of Economics at Hillsdale College.