The emergence of hydraulic fracturing to recover oil and natural gas generally is seen as an economic success story. It has vaulted the United States into the ranks of the worlds top oil and gas producers and led to a manufacturing renaissance whose effects few could have foreseen at the start of the 1990s.
A dozen years ago, shale gas amounted to only 2 percent of total domestic gas production. Today, it is 40 percent and rising. Natural gas is in such ample supply that its price is one-third to one-half less here than what it fetches in Europe or Asia.U.S. consumers especially have benefitted from shale production, saving the average household $1,200 a year on its energy bills. And it has created tens of thousands of well-paying jobs and generated $74 billion in government revenues.
Another major benefit of the shale boom has been a major reduction in oil and gas imports, which has helped to lower the U.S. trade deficit. The question going forward is not how much oil and gas the United States will have to import but rather how much it may be able to export.
Still, domestic fracking for oil and gas faces some major obstacles. Companies need approval from state regulators if they want to drill or dispose of wastewater, a process that can be contentious and lengthy. They usually must divulge the types of chemicals used in fracking, even if disclosure helps competitors.
And stagnant or falling oil and gas prices can make fracking unprofitable for even the largest companies. It remains to be seen whether the latest gushers of oil from the Gulf of Mexico will have that effect.
Washington nevertheless is preparing to regulate fracking on federal and Indian lands, even though 98 percent of todays fracking operations are on public lands in Utah and other western states where rules for shale oil and gas production already are in place. The Bureau of Land Management (BLM) has proposed a fracking rule focused on well casing and cementing, chemical disclosure, and water management practices, all of which currently are regulated in the U.S. west.
Since only a small percentage of fracking occurs on federal land in states not regulating that method of oil and gas recovery, complying with the proposed BLM rule might not seem too difficult or costly. But once the camels nose is under the tent, the new regulations could become the basis for federal regulation of fracking on private land as well.
What passes nowadays for sound environmental policy often is ineffective or produces unintended consequences, such as landowners willful destruction of natural habitats for endangered species or shoot, shovel and shut up before regulators can limit private property rights.
Prevailing state action makes federal fracking rules unnecessary and redundant. The BLMs proposal creates a one-size-fits-all federal regulatory regime that ignores the geological and hydrological differences between states. Whats right for, say, Colorado, isnt necessarily right for Texas and North Dakota.
Given that fracking has an excellent safety recordin fact, there hasnt been a single case of groundwater pollution from frackingits time to reconsider a government policy that places the states at odds with Washington.
In short, abundant domestic oil and gas production on federal and Indian land can be a huge source of growth for the economy. But to get there, we will need a clear strategy of allowing states to continue to regulate fracking without interference from federal agencies.
Duplicative federal regulations will raise compliance costs, which means oil and gas projects being abandoned, thousands of jobs lost, less government revenue, more public debt, less money available for building roads, ports and schools, higher oil and natural gas prices, and heavier dependence on the Middle East.
|William F. Shughart II is a Research Director and Senior Fellow at The Independent Institute, J. Fish Smith Professor in Public Choice in the Jon M. Huntsman School of Business at Utah State University, and editor of the Independent Institute book, Taxing Choice: The Predatory Politics of Fiscal Discrimination.|