Fracking, whether one is against it or not, has the power to transform a nation’s economy through bolstering its standing in the oil industry.
Currently, the process is readily used in the US and has led to an energy revolution and the rise of the country to the zenith of the energy sector. In what may turn out to be a critical year for the oil and gas industry, analysts must carefully consider if the environmental implications of fracking in Europe are worth the economic benefits that may, or may not, ensue.
Hydraulic fracturing, commonly known as fracking, is a process whereby highly pressurised liquid is used to fracture rocks deep beneath the surface of the ground in order to extract and store valuable oils and gases. One of the key products of the procedure is shale gas, a form of natural gas found in shale rocks that can be used to supply energy.
The economic benefits of fracking are what makes the process so attractive. Simply put, increased domestic energy productions results in larger supplies and therefore lower prices. This would be mean less reliance on foreign countries for imported energy and also enhanced energy security. If fracking is not pursued in the UK, it is estimated that some 70% of its gas would have to be imported.
However, if just 10% of the British Geological Survey’s estimate is extracted, Britain could be self-sufficient for up to 50 years. Having a larger domestic supply of oil also has the potential to tame the market price volatility of oil.
Moreover, the creation of fracking sites will directly create jobs; a recent report by the Institute of Directors suggests that for the first 100 sites in Britain, 74,000 jobs could be created.
Following The US’s Lead
The US has made great strides in the fracking market and as a result, according to the International Energy Agency, briefly became the biggest oil producer globally in 2015 before Saudia Arabi and Russia regained their positions as the top two producers in 2016.
Further projections from the Energy Information Administration (EIA) have estimated that total US gas production from 2012 to 2040 will increase 56% and that the shale gas share of total US production will increase from 40% in 2012 to 53% in 2040.
Shale gas is required to deliver 35% of the energy and feedstocks needed by US industry, and the fracking industry is responsible for employing over 2 million Americans who earn a cumulated over $175bn.
Additionally, the industry contributes significantly towards US governmental revenue, with $250bn being generated via a series of taxes. Evidently, the fracking industry has become a monumental facet of the oil market and has transformed the US’s position in the energy sector.
Although the recurring argument against fracking is its damage to the environment, the US has actually lowered CO2 emissions as coal-based power generation is being displaced in favour of natural gas.
What Is Europe Waiting For?
With so many glaring advantages of fracking and real evidence of success, why has Europe not already gone ahead with the process? Despite the US benefitting greatly, there is great speculation surrounding the ability of Europe to replicate the successes.
This is largely due to the fact that the scale and commercial viability of fracking in Europe are yet to be determined. Only once one knows how much shale gas is available can one infer how positive the economic impact will be.
Given the magnitude of the operation and the high prices that companies will incur, fracking only becomes economically viable if large volumes of shale gas can be collected.
In the UK in particular, fracking has been delayed due to shale rocks being located beneath densely populated residential areas. A key difference between the UK and the US is that in the UK, oil and gas rights belong to the crown, making it difficult to reward irritated landowners.
Another drawback for the UK is that frackers would have to go through 17 separate pieces of EU legislation, making the process long and arduous. The UK’s exit from the EU may provide the gateway to simpler legislation that fracking companies are yearning for.
Remembering The Environment
It is important that in the midst of analysing the economic outcomes of fracking, one does not lose sight of the negative environmental impacts it may have.
Apart from the obvious destruction of greenfield land, the toxic water used to fracture rocks may cause the death of wildlife. Methane gas, a greenhouse gas, is also released into the atmosphere which may contribute to global warming.
Governments have recently ratified the Paris Climate Agreement, and it will be almost impossible to accommodate fracking while meeting the goals set by the agreement. Donald Trump has already announced his future disregard for the commitment, and many analysts have suggested that the agreement is useless unless all digging for fossil fuels is terminated, something which cannot happen.
Access to more oil, for any country, is a hugely profitable asset. The positive economic consequences that derive from fracking can potentially transform a country’s global economic position and thus the procedure should be considered carefully.
Despite the myriad of factors in play, Europe is still too slow to act. That is not to say fracking should start immediately, but research into discovering the potential quantities of recoverable shale gas should be well under way. Without this vital information, economic analysis of the benefits of fracking is extremely limited.
With the Paris Climate Agreement is a seemingly futile attempt to appease environmentalists, alternate methods will be required to ensure fracking will not cause the environmental damage that many fear. Despite the US’s successes, it is not as simple as replicating the process in Europe and seeing the same results.
Moving forward, with the UK set to leave the EU, it remains to be seen how fracking is utilised by the country and the rest of Europe and the wider implications of this on the oil and gas market.