A recent article in
The Wall Street Journal entitled "America Needs the Shale Revolution" gave me some needed good news. So much negative information has been out there regarding our future energy situation, with claims that we are running out of everything and must depend on costly new green energy. Well, that's not true. The U.S. is on the verge of an industrial renaissance if—and here's the catch with the Obama administration in place—policy makers don't foul it up by restricting the ability of drillers to use the technology that's making a renaissance possible: hydraulic fracturing.
There is already a shale drilling boom now underway in Texas, Louisiana, Pennsylvania, Oklahoma and other states. It is creating jobs right now (unlike the pie-in-the-sky green energy plans), slashing natural-gas prices, and spurring billions of dollars of investment in new production capacity for critical commodities like steel and petrochemicals. And again, unlike green energy claims that never seem to materialize, it's actually accomplishing more energy independence by spurring a huge increase in domestic oil production, which has been falling steadily since the 1970s.
Of course, the greens who believe in their vision of a future America powered by wind (mostly their hot air), aren't going along with this process. Despite the myriad benefits of the low-cost hydrocarbons that are now being produced thanks to hydraulic fracturing, many on the left are hyping the possible dangers of the process, which uses high-pressure pumps to force water, sand and chemicals into shale formations. Doing so fractures the formation and allows the extraction of natural gas or petroleum.
I'm sure many people assume this is a new, risky, untried process since they haven't heard about it before. But that's not the case. Hydraulic fracturing is not a new technology. In fact, it has been used more than one million times in the U.S. over the past 60 years, according to the
Journal.
Still, environmental activists are hoping to ban the process or have it regulated by the Environmental Protection Agency (EPA). Opponents claim the process can harm groundwater. But the
Journal points out that drinking-water aquifers are separated by as much as two miles of impermeable rock from the shales that are being targeted by the fracturing process.
Despite the opposition, some of America's biggest industrial companies are enthusiastic about the merits of natural gas. For example, the CEO of U.S. Steel, told the
Journal writer in an interview that the shale revolution is "the first bit of good news in U.S. manufacturing in two decades." Another CEO said that "we could change the entire manufacturing base in the U.S. if we just embrace what's happening in natural gas." That's quite a declaration, one that we should take seriously.
How does this process, which produces natural gas or petroleum, help change our "entire manufacturing base"? Here's one example from the
Journal. In March, Nucor, America's biggest steel producer, broke ground on a new $750 million direct-reduced-iron (DRI) plant in Louisiana. The plant's key commodity is low-cost natural gas, which will be superheated and then mixed with iron ore pellets and scrap in a furnace. The DRI process allows companies to produce about the same amount of steel with about a quarter of the capital they'd need to build a conventional integrated steel plant. And they can produce that steel with lower carbon-dioxide emissions because they are replacing metallurgical coal with methane. Nucor may ultimately invest $3 billion in Louisiana on plants that could create as many as 1,000 permanent, high-paying jobs. Meanwhile, U.S. Steel may soon build a DRI plant of its own. Sounds good to me.
Here's another example of this process helping our economy. Thanks to hydraulic fracturing, U.S. drillers are producing lots of ethane and propane, which are key feedstocks for the petrochemical sector. Last October, Chevron Phillips Chemical Company announced plans to build a new plant in Baytown, Texas that will provide components for the production of polyethylene, a plastic resin used to make milk jugs and beverage containers. A few months later, the company said it was examining the feasibility of building a major petrochemical plant on the Gulf Coast.
How about other examples? In April, Dow Chemical announced plant expansions at several facilities in Louisiana and Texas, including construction of a new ethylene plant on the Gulf Coast that will begin operating in 2017 and a new propylene production facility that will begin operating by 2015. Dow's reason for the expansions: "competitively priced ethane and propane feedstocks." And last week Shell announced that it is developing plans to build a large ethylene plant in the Appalachian region. Ethylene and propylene are building blocks for a wide variety of consumer products including plastics, fibers and lubricants.
Of course, the drilling industry itself is creating jobs. Over the past 12 months, some 48,000 people were hired in Pennsylvania by companies working in the Marcellus Shale, a massive deposit that underlies several Eastern states, including Pennsylvania and New York. A new study by Tim Considine, an energy economist at the University of Wyoming, estimates that drilling in this area could add as many as 15,000 new jobs to the New York economy by 2015. The study also estimated that shale drilling in New York could add some $1.7 billion to the state's economy by 2015 and increase the state's tax revenue by more than $200 million.
Our oil production has been helped by this process. Hydraulic fracturing is unlocking huge quantities of oil from shale. In March, domestic crude production was 5.63 million barrels per day, the highest level since 2003. Amazingly, production is rising despite the Obama administration's de facto moratorium on drilling in the Gulf of Mexico. And shale oil production will likely continue rising from deposits like the Bakken Shale in North Dakota, where state officials are predicting output will hit 700,000 barrels per day by 2018, double the state's current production.
So what's the bottom line here? America needs cheap, abundant and reliable sources of energy to keep a vibrant industrial base. The shale revolution now underway is terrific news. I hope we continue to develop this technology despite the attempts of the greens to send us back to pre-technological dreamland.