Hydraulic Fracturing:


Environmental Costs and Economic Benefits

On our journey toward increased reliance on renewable energy, the United States has taken an unlikely detour back to traditional oil and natural gas production. The reason is that recent advances in hydraulic fracturing—commonly called “fracking”—have allowed energy companies to access some of the world’s largest oil and natural gas reserves right here in the United States, most of which were previously inaccessible. However, this process has become one of the most hotly-debated environmental and economic topics in modern energy production.

Fracking uses subterranean explosives to create fractures in rock formations. A mixture of water and chemicals is then pumped into the fractures, expanding the cracks and releasing oil and natural gas. Some U.S. shale oil formations produce over a million barrels of oil every day and could maintain this rate for many years to come.

Fracking has facilitated rapid growth in the U.S. energy industry in the past few years. According to research by the Manhattan Institute, oil and natural gas production in the United States has risen 60 percent since the recent recession, contributing over $300 billion to GDP annually. Domestic oil and gas industry jobs have grown by 40 percent; of that growth, over 400,000 jobs have come directly from fracking. In the most exhaustive study to date, IHS Global Insight estimates that by end of 2015 the shale production industry will support 870,000 jobs in the United States. Furthermore, for every job directly added to the oil and gas industry, IHS also predicts that three additional jobs will be created in supporting industries.

North Dakota’s Bakken shale formation demonstrates the economic impact of fracking. Until about 2006, the state had below-average GDP and high unemployment. With the development of fracking technology and the discovery of the Bakken shale formation, North Dakota is now second only to Texas in U.S. oil and gas production. And with the lowest unemployment rate in the country at 2.8%, North Dakota has nearly doubled its GDP in the last 10 years.

However, fracking carries environmental costs. Each fracking well requires up to four million gallons of water and various chemicals to be pumped into rock formations to release trapped reserves. The extracted water is contaminated and must be disposed into deep underground wells. Although fracking requires significantly less water per unit than it takes to produce electricity from coal, disposed wastewater can pollute underground aquifers in the area.

Another environmental issue associated with fracking is the emission of greenhouse gasses. While natural gas produces only half the carbon emissions that coal-powered electricity produces, the primary component of natural gas is methane—a potent greenhouse gas in its natural form. In the past several years, improperly-fitted or broken casings in 1–2 percent of natural gas wells have leaked methane gas into the atmosphere, essentially negating the benefits of reduced carbon emissions from natural gas production.  Scientists are also studying the relationship between fracking disposal wells and nearby minor earthquakes. Raising specific questions about the tectonic impact of disposal wells, these studies have captured the attention of regulators and concerned citizens alike.

But investing in innovative solutions and thoughtful oversight could potentially mitigate the environmental costs of fracking and maximize economic growth. For example, drilling companies in Pennsylvania have resolved water contamination issues by designing new equipment to clean and recycle the contaminated wastewater. Similar solutions could ensure water purity at other fracking sites and potentially reduce the threat of man-made earthquakes due to disposal in underground wells. Stricter regulations for well casings could also prevent leakage of methane gas into the atmosphere.

Recently, Utah Governor Gary Herbert affirmed that fracking has been taking place in Utah for over fifty years without incident thanks to vigilant efforts to ensure environmental safety.  With innovation and constant focus on environmental safety in the fracking process, we can help balance environmental costs with economic benefits—propelling the United States toward energy independence and cleaner air. By providing access to fossil fuels that are cleaner than coal, fracking can stimulate continued economic growth for the entire country.

This post is part of an ongoing series of data-driven commentary on current events. It was originally published in the Zion’s Bank Economic Outlook Newsletter and the Deseret News.

Randy Shumway

Founder and Chairman

Randy Shumway founded Cicero Group (www.cicerogroup.com) in 2001. It began humbly, with four people working out of Randy’s house. At the beginning of 2017, when Randy stepped down as CEO, Cicero had grown to a highly-respected, global management consulting firm.

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