OPINION: Will Policies and Falling Prices Derail Fracking?

Two recent events have cast some doubt about the seemingly bright future of fracking in various parts of the country. The first has to do with a few voter-driven efforts to eliminate fracking. The second is related to the recent plunge in energy prices.

While voters and many municipal governments have decided to restrict fracking, few have banned it altogether. That is why shockwaves resonated through those involved in the fracking process when 59 percent of voters in Denton, Texas — in a state that owes much of its economic success to petroleum — voted to ban hydraulic fracturing.

During the campaign to ban fracking, claims about the potential for groundwater contamination were taken more seriously because, unlike in northeastern Pennsylvania, there are many gas wells right within Denton’s relatively small city limits — in fact, there are 270 of them.

Should people be living among gas wells?

Many say yes. Property owners in Denton, those with even relatively small plots of land on top of the rich Barnett Shale, are hardly taking the ban lightly. For many, it was a major, if not sole, source of income. These property owners are not the only ones upset by the ban. Acting on what she perceives to be statewide sentiment, Texas Railroad Commission Chairwoman Christi Craddick told the Dallas Morning News that she would continue to issue permits in Denton. The commission, which regulates drilling in Texas, is also seeking an injunction against the ban.

The discussions about bans on fracking continue in Denton and elsewhere as energy prices have dropped by more than 30 percent since summer. These price declines make it far less desirable for producers to undertake relatively expensive horizontal drilling and fracking procedures.

Falling prices are being driven by recent increases in oil and gas supplies. Throughout the latter part of the 20th century, the 12-member Organization of Petroleum Exporting Countries controlled oil and gas output, and, therefore, controlled prices. Americans found themselves at the mercy of the cartel. Today, the combination of gas and oil discoveries in the United States and Canada, coupled with weak economic growth in many corners of the world, has driven prices down substantially.

Of course, there are winners and losers in this price decline. Chief among the winners are American consumers, who now have more to spend on other goods and services. This, in turn, stimulates consumer spending and has helped our nation’s recovery from the Great Recession.

And, yes, the oil companies and exploration firms are the losers, as many had based their investment decisions on higher gas and oil prices and will now cut back on exploration and employees.

There are other losers, as well. Some of the biggest are Russia, Iran and even ISIS, which have financed much of their expansionist actions with oil sales and taxes. Americans do not want to be beholden to these countries and rogue states. When polled, our fellow countrymen and women seem to understand the importance of a plentiful energy supply.

There are many examples of Americans’ desire to have adequate supplies of petroleum. The most recent is exhibited in a USA Today poll that shows 60 percent of Americans favor construction of the Keystone XL pipeline, compared with 25 percent against it.

Vagaries in the marketplace are inevitable. Today, we enjoy relatively cheap energy because of North America’s new and robust ability to produce gas and oil. As a result, we have seen positive results in job growth. In the longer run, oil and gas supplies will remain a scarce commodity. In a volatile world, our energy-supply picture can change almost overnight and impact our country’s economic picture dramatically. Those who seek to ban or restrict fracking are hard-pressed to come up with technically and economically realistic alternatives that meet our energy needs.

The key to a stable energy picture is not to limit supply by placing artificial constraints on production, like the fracking ban in Denton and those being debated in New York State. Rather, communities and states should focus on policies that assure that horizontal drilling and fracking are undertaken by reputable firms with adequate oversight by well-balanced regulatory authorities.

If local ordinances to ban fracking are adopted widely, they could permanently interrupt the positive energy picture we currently enjoy — and once again make us beholden to countries and rogue movements that would do us harm.

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Michael A. MacDowell is a president emeritus of Misericordia University in Dallas, Pennsylvania, and the managing director of the Calvin K. Kazanjian Economics Foundation.

This article appeared in print in the December 19th, 2014 edition of Hamodia.