Is America Too Good At Fracking?

(Reuters/Jim Urquhart)

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Andrew Follett Energy and Science Reporter

The U.S. is producing natural gas so efficiently it’s almost counterproductive to the industry.

Investors are worried what the future holds for the natural gas market. Contracts for natural gas futures are down 25 percent in the last 10 weeks after rising 60 percent last year largely on worries production is outpacing demand.

New natural gas power plants and liquid natural gas (LNG) export terminals would reduce the gas glut, but hydraulic fracturing is increasing production faster than demand.

“Investors right now across the board just hate natural gas,” Pearce Hammond, an analyst at the financial firm Simmons & Co. International, told The Wall Street Journal.

The only LNG export facility in the U.S. is selling record amounts of natural gas to Mexico and the Middle East, but new facilities under construction don’t have the capacity to ease overproduction. Companies have plans to build two dozen new LNG export terminals in the coming years, five of which are expected to come online soon.

For the first time in 60 years, the U.S. is expected to be a net exporter of natural gas by 2018, according to the federal Energy Information Administration (EIA).

Exporting natural gas is likely to be a growth industry, as global demand for natural gas is expected to be 50 percent higher by 2035 than it is now, according to the International Energy Agency.

If environmentalists were able to successfully ban fracking, 3.9 million jobs would evaporate in 2017, rising to 14.8 million jobs lost by 2022, according to a report by the U.S. Chamber of Commerce. Gasoline prices would almost double as would electricity prices. U.S. household incomes would fall by $873 billion.

From 2012 to 2014, fracking generated 4.6 million new jobs due to an energy boom and the resulting low gasoline prices, according to a study published by the National Bureau of Economic Research (NBER). Ironically, more expensive natural gas could be a huge net positive for the U.S. fracking economy because rising prices would mean more drilling.

Cheap oil and natural gas provided by fracking lowers the annual cost of living for the average American by almost $750, according to the EIA. Fracking-produced cheap natural gas caused energy prices to drop by 41 percent over the course of 2015, according another EIA report published in January.

These kinds of cost savings are great for the economy. When the price of energy decreases, the cost of goods and services produced using that energy declines as well. Cheap oil and natural gas means that any product transported to market and every service produced with electricity gets cheaper. Thus, low energy prices effectively reduce the price of almost everything.

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