Hydroponic Fracking | Course Paper

Running head: HYDRAULIC FRACKING 1

Hydraulic Fracking

Billy Ramsey

Northampton Community College

ECON251G-WA

Professor Britt

25 April 2017

HYDRAULIC FRACKING 2

Hydraulic Fracking

Abstract

This paper will cover many aspects of hydraulic fracking including five economic

implications that this industry has on the country and untimely the world. The first implication

that will be cover is hydraulic fracking and unemployment. This section will indicate how

important this industry really is for the people of the United States and how many jobs it creates.

The second section will go over the impact hydraulic fracking has on GDP growth which will

discuss the numbers associated with it. The next section will be how hydraulic fracking impacts

consumption rates due to the fact this process can cause gas prices to be lowered. The next

implication will be how this practice can affect gross private domestic investment which means

the amount of money invested in this industry will be discussed. Implications of hydraulic

fracking on inflation rates will also be discussed and how these high inflation rates are the cause

of lower gas prices. The final and the most important implication is the environmental impact

that this practice causes, this startling section will discuss the once natural disaster being cause

by human beings due to fracking.

Introduction

Hydraulic Fracking is rapidly its gaining popularity as a means for extracting oil and

natural gas from underground deposits and wells. The popularity of the method oil drilling can

be noted in the recent shale boom that has been significantly linked to the dropping in global oil

prices. As of January 2016, the price per barrel of the crude oil is reported to have dropped to

less than $30 from $100 in July 2014 (Kilian, 2016). During the same period, the production of

oil through hydraulic fracturing was also noted to have increased significantly. The fact that the

world economy is largely based on oil dynamics can be disputed since oil is one of the main

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sources of energy for powering industries and businesses (Baumeister & Peersman, 2013). As a

method of oil and natural gas production, hydraulic fracking has direct implications on the

economy of US and the world economic dynamics.

The economics of shale gas development are largely dependent on the application of

fracking as a drilling technique that can be seen to have contributed immensely to energy boost

in the recent past. The transformation of the oil and gas industry by fracking can be noted to have

come at a time when conventional drilling methods were largely unprofitable due to the

problems associated with the geological formations in which there are oil and gas reserves. The

resulting boom can thus be noted to have a direct impact on the markets as well as other

externalities such as the implications on the environment. The present paper describes

implications of the fracking process on Gross Domestic Product (GDP), consumption rates, gross

private domestic investment, net exports, unemployment, inflation rates and environmental

impact.

History of Hydraulic Fracking

Morton (2013) reports that even though fracking has just come into limelight the

technique has been in use for over 150 years of oil and gas history. Fracking that entails forcing

water and sand under high pressure into cracks fracture subterranean rocks and therefore allow

extraction of oil and gases is also known as ‘fracking’ or ‘fracing’. The fracturing of rocks

enables access and extraction of oil and gas deposits that would have otherwise proven difficult

or costly (Baumeister & Peersman, 2013). The process borrows from a mid-nineteenth century

procedure known as shooting well in which underground explosives were used to loosen rock

debris and so to release the oil. It is, however, be noted that the initial shooting wells were never

industrially reliable and hence the need to modernize the operations. The advent of modern

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fracking began in 1940 when Floyd Farris of Stanolind Oil postulated that fracturing the rock

formation could lead to increased well productivity (Morton, 2013).

The first fracking process was seen in 1947 when one thousand gallons of napalm and

naphthenic acid was applied to stimulate natural gas flow from a limestone formation in Hugoton

Field, Kansas. The year 1949 saw Halliburton Oil Well Cementing Company obtaining an

exclusive license for the hydraulic fracturing process. The first year of operations saw the

treatment of 332 wells with crude oil or in combination with gasoline and sand. In 1953 water in

combination with other additives was first used. The fracking process was initially limited by

difficult geological formation; however, the production by fracturing received a boost with the

application of modern technologies such as 3D seismic imaging.

Implications of Hydraulic Fracking

The recovery of shale oil can be noted to have attributed significantly to the growth in the

US oil production. Fracking can be seen to have contributed to the unlocking of the shale

formation Bakken in North Dakota and Montana. The US is, therefore, positioning itself to turn

from the largest global importer of oil to a net exporter. The country is further expected to be

energy self-reliant by the year 2035 according to the estimates by the International Energy

Agency (IEA). The current shale gas levels, for instance, have been reported to have the capacity

to supply the country at the current consumption rates for up to 175 years. Such production

levels are likely to have significant effects on the economy (Baumeister & Peersman, 2013).

More jobs are created because of increased production and since many people have a salaried

income it is observed that consumption patterns also change. The drop-in oil prices are another

example of an impact caused by shale oil recovery through fracking. The cost of doing business

in sectors such as transport and manufacturing sectors that rely directly on oil can also be seen to

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be significantly lowered. Apart from economic implications, it can also be noted that fracking

has also led to various environmental concerns like a large amount of water used in the fracking

process as well as associating of the technology with earthquakes. Such implications contribute

largely to on GDP, consumption rates, gross private domestic investment, net exports,

unemployment, and inflation rates. The mentioned dynamics are therefore the basis of discussion

of this essay.

Fracking is known to lead to increased production of natural gas that is a critical element

in the US energy portfolio. Natural gas provides about 25% of the energy for electricity

generation while being observed as a key feedstock for manufacturing of fertilizers, chemicals

and in pharmaceuticals. The abundance of shale gas that can be obtained through a fracking can

is seen to stabilize the prices of natural gas that are usually volatile in global markets. Apart from

the economic and market implications, it can be observed that there is host of other positive

externalities associated with fracking. Mason, Muehlenbachs & Olmstead (2015) assert that

shale gas is cleaner to burn and as such produces lower emission of carbon dioxide and other

pollutant gases. At the same time, it can be noted that natural gas can form a viable and

environmentally friendly substitute to coal thus lowering emissions and consequent

environmental problems such as global warming.

Hydraulic Fracturing and Unemployment

The energy production sector has always remained one of the key job centers in America

and around the world. Due to the fracking boost of oil production, the energy and oil sector has

remained one of the brightest spots in a country that has been faced with high rates of

unemployment and dismal job reports. The energy boom can be seen to have created thousands

of jobs for the Americans (Baumeister & Peersman, 2013). The low prices of natural gas and oil

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can be observed to influence job creations as chemical industries regard the US as their prime

destination for setting up their factories due to the increased availability and affordability of the

raw materials. As the foreign companies set their production facilities they create jobs that are

made available to the US citizens and hence reducing the unemployment rates significantly.

Energy-intensive industries are coming to America due to the abundance of natural gas

that enables cuts in production costs. Royal Dutch Shell is an example of such foreign and

energy-intensive that has in the recent past launched plans to set production facilities in America.

Further economic analyses have indicated that with low-cost and abundant raw materials, the US

market is one of the most advantageous locations for chemical industries. The company is seen

to have announced plans to build a petrochemical plant (ethane cracker) in Pennsylvania citing

proximity to feedstock as one of the main drivers. The plant is expected to create massive jobs

for the locals ranging from construction to factory personnel with the completion of the plant.

Fracking process can be further noted to have directly led to increasing in job creations.

Shale oil recovery and development entails employment of personnel such as engineers as well

as jobs in surveying and construction. The ripple effect in job creation can be further felt in fields

such as hospitality, environmental permitting and equipment manufacturing. Oil and gas industry

is critical to employment rates in the US with the sector estimated to be supporting over 9.8

million jobs in the country according to American Petroleum Institute (API). The increase in oil

and gas production and eventual energy boom due to fracking is, therefore, likely to reduce

significantly the levels of unemployment rates.

Impact of Hydraulic Fracturing on GDP Growth

GDP growth is another economic aspect that has been impacted by the fracking process.

Hausman & Kellogg (2015) estimates a change of up to 1/3 or 1% or $150 in the GDP due to the

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fracking process. As of 2015, $300 billion were estimated to have been contributed to the GDP

as a result of fracking. Over 400, 000 are also reported at the same period. The increase in jobs

causes economic growth and GDP as the country has more people earning. The economic growth

is especially noted in the sense that the local and statewide economies. Oil and gas sector is

reported to be making up to 8% of the US GDP and since the sector makes such a substantial

portion of the GDP economic implications must, therefore, be observed regarding the effects of

fracking. The savings that are associated with the lower gas prices increase the amount of

disposable income per household in the country. A report by API for instance indicates that

through the use of unconventional energy development households will add over $2,700 to

disposable income in 2020 and more than $3,500 by 2025 284 billion increase in U.S. GDP was