What Would Happen If 'Fracking' for Oil and Natural Gas Was Banned?
All of the presumptive Democrat Presidential candidates and the two remaining – Joseph Biden and Bernie Sanders -- would essentially ban fracking in the U.S., as would many other politicians and activists. However, fracking is the major reason the U.S. is the world’s leading natural gas and oil producer, and over 90% of U.S. natural gas and oil wells are currently developed via fracking. So, what would a ban mean for U.S. energy markets, the economy, and consumers? Three recent studies indicate the implications of such a ban: Reports from the White House Council of Economic Advisors (CEA), the U.S. Chamber of Commerce (CoC), and the American Petroleum Institute (API). All three reports indicate that a fracking ban would be disastrous.
CEA notes that over the past decade, increased shale production brought an 8X increase in natural gas extraction productivity and a 19X increase for oil. These gains have reduced costs and increased production to record-breaking levels: The U.S. has become the world’s largest producer of both commodities, surpassing Russia in 2011 (for natural gas) and Saudi Arabia and Russia in 2018 (for oil). CEA estimates that shale production has reduced the domestic price of natural gas by 63%, led to a 45% decrease in the price of electricity, and reduced the global price of oil by 10%.
CEA estimates that by reducing energy prices the shale revolution saves U.S. consumers $203 billion annually -- $2,500 for a family of four. Because low-income households spend a larger share of their income on energy, lower energy prices disproportionately benefit them: Shale-driven savings represent 6.8% of income for the poorest fifth of households compared to 1.3% for the wealthiest fifth. These savings are in addition to economic benefits linked to greater employment in the O&G sector.
CoC warns that a U.S. fracking ban would devastate the economy. If a ban were imposed in 2021, by 2025 it would eliminate 19 million jobs and reduce U.S. GDP by $7 trillion. Job losses in major energy producing states would be immediate and severe; in Texas alone, more than three million jobs would be lost. Tax revenues at the local, state, and federal levels would decline by nearly $1.9 trillion, and the ban would eliminate a critical source of funding for schools, first responders – of special note in light of the current COVID-19 crisis, infrastructure, and other critical public services.
Energy prices would increase dramatically and the price for natural gas – currently the largest source of U.S. power generation – would increase by 324%, reaching $12.30/MMBtu in 2025. This would increase costs for American families, businesses, and utilities and cause household energy bills to more than quadruple. Consumers would pay 37% more for petroleum products such as gasoline and diesel in 2021, with prices continuing to rise through 2025, and motorists would pay twice as much for gasoline as oil prices increase to over $130 per barrel in 2025.
CoC warns that a fracking ban would be a geopolitical setback for the U.S., which would return to relying on international suppliers of O&G, including Russia and OPEC, increasing these countries’ influence in international energy markets. Higher global prices because of reduced U.S. production would benefit U.S. economic and geopolitical competitors and cede valuable market share to countries like Venezuela, at a time when global demand for O&G is forecast to increase significantly.
API estimates that a fracking ban would result in a cumulative GDP loss in excess of $7 trillion by 2030. In 2022, GDP would be reduced by $1.2 trillion triggering a recession, and 7.5 million jobs would be lost (4.8% of total jobs). Annual job losses average 3.8 million through 2030.
API found that the ban would decrease annual U.S. household income on average, $5,040 (4.3%). Household energy costs would increase on average $618 annually – including higher costs for gasoline, natural gas, electricity, and heating oil. Annual farm income losses would total more than $25 billion, and total cumulative loss could exceed $275 billion -- a reduction of 43%. Costs to farmers would increase dramatically: Cost of wheat farming increases 64%, cost of corn farming increases 54% and cost of soybean farming increases 48%.
API determined that a number of states would be disproportionately harmed, including Colorado, Kansas, Louisiana, New Mexico, Ohio, Oklahoma, Pennsylvania, Texas, West Virginia, and Wyoming. For these states the implications are ominous. They would be thrown into severe recessions and their unemployment rates would increase markedly: Some of these would suffer unemployment rates of 15% - 20% compared to current unemployment rates of 3% - 4%. These unemployment rates would exceed any experienced over the past half century.
API found that the U.S. would change from growing energy self-sufficiency, characterized by declining imports, to increasing reliance on foreign suppliers for 21% of its energy needs by 2030. Having just achieved status of net exporter of oil and petroleum products, the U.S. would reverse course and return to heavy dependence on imported oil, importing more than 40% of its supplies by 2030. The U.S. would also shift from a net natural gas exporter to importing nearly 30% of its natural gas by 2030. Natural gas and oil imports would increase the trade deficit by a cumulative $3.1 trillion through 2030.
Further, increased natural gas prices would undermine the progress the U.S. has made in reducing CO2 emissions. Since 2005, increased use of natural gas has helped reduce U.S. CO2 emissions by more than 2.8 billion tons -- roughly the equivalent of annual emissions from Australia, Brazil, Canada, France, Germany, and the UK combined.
In sum, the U.S. shale revolution has been game-changing for the U.S. economy and energy security and has had enormous economic, energy, environmental, and security benefits. Banning fracking would be a mindless, disastrous policy and must be avoided.
Dr. Roger Bezdek is an internationally recognized energy analyst and president of MISI, in Washington, D.C. He has over 30 years’ experience in the energy, utility, environmental, and regulatory areas, serving in private industry, academia, and government. He has served as senior adviser in the U.S. Treasury Department, U.S. energy delegate to the EU and NATO, and as a consultant to the White House, the UN, government agencies, and numerous corporations and organizations.