The Practice of Fracking and Its Relation to Oil Prices

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A practice called fracking has been in the news over the past couple years, being both hailed as a new source of energy for the United States and attacked as a cause of environmental catastrophes. The purpose of the present sample essay provided by Ultius is to discuss the practice of fracking in greater detail, especially as this practice is related to oil prices.

Fracking and oil prices

The essay will have four parts.

1. The first part will provide a general overview of the practice itself.
   
   
2. The second part will consider the environmental implications of the practice.
   
   
3. The third part will analyze the relationship between fracking on the one hand and oil prices on the other.
   
   
4. The fourth part will critically reflect on the potential future of fracking in the energy mix of the United States over the coming times. 

Overview of fracking

To start with, David Shukman has defined fracking in the following way:

"Fracking is the process of drilling down into the earth before a high-pressure water mixture is directed at the rock to release the gas inside. Water, sand, and chemicals are injected into the rock at high pressure which allows gas to flow out to the head of the well" (paragraph 2).

Essentially, fracking is a technological practice whose purpose is to enable the extraction of natural gas from deep within the earth. In fact, fracking itself is something of a slang abbreviation for the technical term for this practice, which is actually hydraulic fracturing. This is an accurate description of what actually happens during the process of fracking: water is used in order to fracture rocks and release the natural gas hidden within those rocks.

The idea is that the natural gas can then be collected from the wells and channeled to meet the energy needs of the people of the United States. 

One of the main consequences of the expansion of the practice of fracking has been a dramatic increase in the role played by natural gas in the energy mix of the United States. As ProCon.org has indicated:

"The resulting boom is transforming America's energy landscape. As recently as 2000, shale gas was 1% of America's gas supplies; today it is 25%. Prior to the shale breakthrough [fracking], U.S. natural gas reserves were in decline . . . and investors were building ports to import liquid natural gas" ("Pro" column, paragraph 2).

Now, though, the United States has developed a stable domestic source of natural gas—a source, which is hoped by at least some stakeholders—which will help promote the energy independence of the United States and offset the negative consequences that can be expected to follow for the decline in global oil reserves over the course of the next several decades. 

The practice of fracking, however, has been far from greeted with universal warmth or approval by the general public. In particular, there are two main kinds of discussion and controversy that the practice of fracking has tended to cause. The first has to do with the environmental implication of the practice: the idea here is that whatever the benefits of fracking may or may not be, the practice harms the environment in a way that offsets and counterbalances any benefits that could be derived from it. The second has to do with the relation between fracking and oil prices.

This deals with both the extent to which fracking is a sustainable business that can withstand the fluctuations in oil prices, and the extent to which fracking is an adequate response to offset the negative effects of those fluctuations. The present essay will now address each of these discussions in turn, beginning with environmental implications and then moving on to fracking and oil prices. 

Environmental implications of fracking

In general, there is little doubt regarding the basic proposition that fracking has negative environmental implications. As Brantley and Meyendorff have written in a relatively well-balanced article on this subject:

"There is no doubt that natural gas extraction does sometimes have negative consequences for the local environment in which it takes place, as does all fossil fuel extraction. And because fracking allows us to put a previously inaccessible reservoir of carbon from beneath our feet into the atmosphere, it also contributes to global climate change" (paragraph 3).

In other words, unless one were to seriously affirm that digging into the earth is good for the environment or that global warming does not exist, it would be impossible to dispute the fact that fracking does in fact harm the natural world. The only real question is whether the harm caused to the natural world by fracking is outweighed by the holistic benefits produced by the practice.  

Another specific environmental point raised by at least some stakeholders is that fracking may actually be responsible for causing earthquakes within the United States. Galchen, for example, has written the following in an article published in the New Yorker, the state of Oklahoma has been experiencing an unprecedented number of earthquakes over the course of the past several years; and

"many of the larger earthquakes are caused by disposal wells, where the billions of barrels of brackish water brought up by drilling for oil and gas are pumped back into the ground" (paragraph 7).

These wells are often constructed for pragmatic reasons by the drilling companies themselves, and without adequate regard for whether the wells are being dug in geological sensitive areas (i.e. near fault lines). In any event, there would seem to be a clear correlation, verging on demonstrable causality, between the practice of fracking on the one hand, and the proliferation of earthquakes on the other. Such a relation is clearly congruent with common sense as well, given what the practice of fracking actually entails. 

In this context, it would seem to be a misnomer to really refer to natural gas as a form of clean energy. Rather, it is just as controversial, and harmful to the environment in its own way, as oil is. Therefore, when people speak of the benefits versus the drawbacks of the practice of fracking, they must primarily be referring not to environmental benefits (of which there are none: it would be best, from this angle, to just leave the natural gas in the ground) but rather to holistic benefits for the people of the United States, including financial and pragmatic benefits. In order to understand this matter more clearly, it will be appropriate now to turn attention to the relation between fracking and oil prices. 

How fracking influences oil prices

As most people know, oil prices have been fluctuating rather dramatically over the course of the past few years, partly due to natural fluctuations in supply and demand and partly due to manipulations of the prices by the primarily Middle Eastern organization known as OPEC. This is closely related to fracking as it is a relatively new industry whose emergence is closely related to the spike in oil prices that recently happened.

In addition to producing natural gas, the practice of fracking can also be used to produce oil from a kind of rock known as shale; and oil was becoming so expensive that stakeholders within the United States sought to develop an alternative means of producing energy domestically. In fact, the high price of oil was so significant to this development that Tully has even gone so far as to suggest that recent declines in oil prices pose a significant threat to the entire shale oil industry.

This is because without the competitive advantage in the area of price, the practice of fracking for oil may essentially get run out of business by traditional producers of oil, most of whom operate outside of the United States. 

From the perspective of the environment, it would perhaps be a good thing if shale oil producers (who use the practice of fracking) were run out of business, as fracking causes harm to the environment. From an economic or political perspective, though, such a development would put the United States at a significant disadvantage relative to other oil producers, especially in the Middle East.

This is because if domestic oil producers went out of business, then there would be nothing stopping OPEC from using its quasi-monopoly status to continue manipulating the price of oil, since there would be no meaningful competition in the industry. As far as American energy independence is understood as a priority, the end of fracking would be a very bad thing. 

In this context, it is perhaps fortunate that producers of shale oil "have gotten more efficient in designing and operating their fracking wells," which essentially means that the producers will be able to remain competitive even in the event that oil prices do in fact significantly decline (Dumaine, paragraph 6). However, within the context of a capitalist economic system, this can clearly only be true up to a point.

Major traditional producers of oil could potentially drop oil prices so low, at least for the short term, that it could become financially unfeasible for domestic shale oil producers to continue with operations (Krauss). This could be offset by some kind of system of tariffs within the United States, or additional economic protection for domestic oil producers; but then, this would be quite antithetical both to the ethos of globalization in general and international trade agreements in particular.

The future of shale oil produced through fracking is thus at least somewhat dependent on the price of oil—not because it affects the price of oil per se, but rather because low prices of oil may render fracking for oil unsustainable at the purely economic level.  

Critical reflection and conclusion

On the basis of the above discussion, a key conclusion that can be reached is that although fracking is clearly bad for the environment, the practice is likely here to stay at least for the time being, as many stakeholders within he United States perceive economic advantages in the practice. In particular, it is especially worth noting that even if shale oil production goes into decline, fracking is still a valuable practice for the production of natural gas.

Therefore, at least to some extent, the practice of fracking is unconnected with the price of oil; rather, it is connected to the desire to move away from oil altogether—albeit, in this case, merely to another fossil fuel, and not to a truly green source of energy. 

Moreover, as fracking is connected to the production of oil, it can be suggested that the price of oil is actually the independent variable relative to fracking: that is, it is not so much that fracking that affects oil prices, as much as it is the price of oil that affects the prospects for fracking.

This is because at the present time, the shale oil industry within the United States is still somewhat underdeveloped, whereas the traditional producers of oil, organized under OPEC, are powerful enough to engage in quasi-monopolistic tactics such as price manipulation.

A key conclusion that can be reached here, is that shale oil production for the time being will be seen as most lucrative during periods when the general price of oil is abnormally high. Again, though, one way or the other, the practice of fracking itself is becoming increasingly essential for supporting the broader energy mix of the United States.

This is despite the fact that significant environmental concerns surround the practice. From this angle, it can only be hoped that natural gas, along with oil, will soon be superseded by green energy.

Interested in pricing in the oil industry? Check out this economics essay on Turkmenistan.

Works Cited

Brantley, Susan L.,  and Anna Meyendorff. "The Facts of Fracking." New York Times. 13 Mar. 2013. Web. 7 Oct. 2015. <http://www.nytimes.com/2013/03/14/opinion/global/the-facts- on-fracking.html?_r=0.

Dumaine, Brian. "Why America's Fracking Revolution Won't Be Hurt (Much) by Low Oil Prices." Fortune. 2 Dec. 2014. Web. 7 Oct. 2015. <http://fortune.com/2014/12/02/why- americas-fracking-revolution-wont-be-hurt-much-by-low-oil-prices/>. 

Galchen, Rivka. "Weather Underground: The Arrival of Man-Made Earthquakes." New Yorker. 13 Apr. 2015. Web. 7 Oct. 2015. <http://www.newyorker.com/magazine/2015/04/13/weather-underground>. 

Krauss, Clifford. "Low Oil Prices Pose Threat to Texas Fracking Bonanza." New York Times. 14 Aug. 2015. Web. Oct. 7 2015. <http://www.nytimes.com/2015/08/15/business/energy- environment/low-oil-prices-pose-threat-to-texas-fracking-bonanza.html>. 

ProCon.org. "Should the US Use Hydraulic Fracturing (Fracking) to Extract Natural Gas?" Author, 22 Jun. 2015. Web. 7 Oct. 2015. 

<http://alternativeenergy.procon.org/view.answers.php?questionID=001732

Shukman, David. "What Is Fracking and Why Is It Controversial?" BBC. 27 Jun. 2013. Web. 7 Oct. 2015. <http://www.bbc.com/news/uk-14432401>.

Tully, Shawn. "The Shale Oil Revolution Is in Danger." Fortune. 9 Jan. 2015. Web. 24 Jan. 2015. <http://fortune.com/2015/01/09/oil-prices-shale-fracking/>.