Is fracking the future?
That’s been the assumption of the energy market for a while. Hydraulic fracturing has been the drilling method of choice since 2010. While the technology has been available since the 1950s, it gained widespread currency after the oil-price run-up in the mid-2000s.Now it’s being used to extract oil, gas, and even uranium from previously inaccessible deposits. Because fracking has become so widespread, it has been estimated that the US will become the world’s top oil producer by 2015.
So people are pretty excited about what this new technology could do for the US economy. But is George Mitchell—the person who pioneered this technique—destined to become an icon of American business, like Henry Ford or Bill Gates? Royal Dutch Shell recently took a $2.1 billion write-down on its US shale beds. Other companies have found shale oil hard to discover and develop. And there are environmental concerns.
Some analysts are projecting only a marginal effect from fracking on the US economy. But this seems wrongheaded. Cheap—or at least stable–energy prices will invigorate energy-intensive industries like chemicals and steel. It’s the inverse of the ‘70s and early ‘80s, when economists underestimated the effects of higher oil prices.
Fracking may not cure everything that ails the US economy, but it sure won’t hurt. With employment growth modest and demand stagnant, we can use all the help we can get.
Douglas R. Tengdin, CFA
Chief Investment Officer