How Fracking Is Driving Gas Prices Below $2 Per Gallon
Wondering why the price of gasoline has plummeted to around $2 per gallon?
Photo credit: Shutterstock
Hydraulic fracturing, or fracking, has in recent years caused a revolution in petroleum extraction. Using a new technique to split underground shale formations, it has vastly expanded gas and oil output in the U.S.
But it is a messy and polluting process. Massive amounts of water and 600 chemicals are shot into the ground under high pressure to release the gas and oil. But gas from fracking wells leaks into underground water tables causing serious contamination and also the phenomenon of what comes out of a water faucet bursting into flames when touched with a lit match.
The 2010 Oscar-nominated film Gasland and subsequent Gasland Part II, both written and directed by Josh Fox, document this fiery aspect of fracking, along with the many instances of water pollution and impacts on people’s health caused by the contamination of water.
Another major problem involves fracking setting off earthquakes. A new fracking technique—horizontal fracking—was first developed with federal government support in the U.S. in the 1980s. It has enabled the U.S. to again become a global giant in petroleum production. The International Energy Agency projected that in 2015, because of fracking, the U.S. would displace Saudi Arabia as the world’s largest oil producer.
Fracking, however, is a relatively expensive process—about 10 times more costly than the $5 to $6 per barrel cost of drilling oil from conventional wells in Saudi Arabia. By letting the price of oil drop, OPEC, in which Saudi Arabia is the key partner, has been applying financial pressure on the fracking industry.
Oil in much of 2015 went down to $60 a barrel making fracking a problematic undertaking economically. And consequently there have been reductions in and cancellations of numerous fracking operations.
Still, the fracking industry cut costs in seeking to survive.
And that has resulted in even greater OPEC pressure—the drop in price of a barrel of oil to less than $40—as low as $37—in recent weeks. Thus $2 per gallon gasoline in the U.S.
Manipulation of the petroleum market is not new. John D. Rockefeller with his Standard Oil Trust mastered it between the end of the 19th and start of the 20th century. Rockefeller and his trust succeeded in controlling virtually all the oil industry in the U.S. and also dominated the international market. The Standard Oil Trust fixed prices, set production quotas and ruthlessly forced out competitors.
The U.S. Supreme Court in 1911, in the wake of muckraker Ida Tarbell’s investigative articles and book on the Standard Oil Trust, utilized the Sherman Antitrust Act to break the trust up into 34 pieces. ”For the safety of the Republic,” the court declared, “we now decree that this dangerous conspiracy must be ended.”
With discoveries of oil in the Middle East in the 1930s and with Standard Oil offshoots deeply involved, the Arabian American Oil Company—Aramco—was created in Saudi Arabia in 1944. In the 1970s, the Saudi government began acquiring more and more of a stake in Aramco, taking over full control in 1980 of what is now called Saudi Aramco.
OPEC was formed in 1960 to “coordinate and unify the petroleum policies of its member countries and ensure the stabilization of oil markets in order to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers and a fair return on capital for those investing in the petroleum industry.”
Saudi Arabia is the key partner in the 12-nation OPEC cartel because it has the world’s largest proven crude oil reserves at more than 260 billion barrels.
OPEC sets production targets for its member countries and its method for lowering the price of petroleum is by keeping production high.
So the price of a barrel of oil is less than half of what it was as recently as midway last year.
As Alan Greenspan, former chairman of the Federal Reserve, has explained, “At the root of the price collapse was the development in the U.S. of technologies for extracting tight oil, mostly from shale deposits, by horizontal drilling and hydraulic fracturing. This reversed the decline in U.S. oil production.”
“After the oil embargo of the 1970s,” Greenspan said, “OPEC wrested oil pricing power from the U.S.” But now, there’s been a “shale technology breakthrough.”
“As a result, the gap between global production and consumption has widened, precipitating a rise in U.S. and world inventories and a fall in prices. Saudi Arabia, confronted with an oil supply glut but not wishing to lose market share, abandoned its leadership role as global swing producer and refused to cut production to support prices,” Greenspan added.
Jamie Webster, an oil market analyst at HIS Energy in Washington, DC, said, “The faster you bring the price down, the quicker you will have a response from U.S. [fracking] production—that is the expectation and the hope. I cannot recall a time when several [OPEC] members were actively pushing the price down in both word and deed.”
There are other factors, too.
The descending price of oil has severely impacted Russia, causing some analysts to see collusion between the U.S. and Saudi Arabia to hurt the Putin regime in Russia. Some have extended this to seeing such a conspiracy also being aimed at major oil producers Iran and Venezuela, too.
Russian President Vladimir Putin has raised this prospect declaring: “We all see the lowering of the oil price. There’s lots of talk about what’s causing it. Could it be the agreement between the U.S. and Saudi Arabia to punish Iran and affect the economies of Russia and Venezuela? It could.” Martin Katusa, chief energy investment strategist at Casey Research in Vermont, said, “It’s a three-way oil war between OPEC, Russia and North American shale.”
Is a Saudi Arabian assault on the clean-energy movement a factor, too?
“Now energy experts are seeing evidence that the oil bust is helping Saudi Arabia achieve another long-term goal: undermining global efforts to reduce dependence on fossil fuels,” wrote Joby Warrick, who has written on energy and environmental issues for the Washington Post.
Indeed, with the sharp decrease in the price of gasoline, sales of SUVs and other low-efficiency vehicles has been rising.
There’s the big question of whether oil—from fracking or conventional drilling in the Middle East—can compete with with renewable energy technologies.
A report done for the National Bank of Abu Dhabi by the University of Cambridge and PriceWaterhouseCoopers, “Financing the Future of Energy,” declared: “The energy system of the past will not be the same as the energy system of the future. It is clear that renewables will be an established and significant part of the future energy mix, in the region and globally.”
Solar photovoltaic power and wind energy have “already a track record of successful deployment,” the report noted. “Prices have fallen dramatically in the past few years: solar PV falling by 80 percent in six years and on-shore wind by 40 percent. The speed of this shift towards grid parity with fossil fuels means that, in many instances, perceptions of the role of renewables in the energy mix have not caught up with reality.”
The report noted the bid of the Dubai Electricity and Water Authority to build a 200 megawatt solar photovoltaic facility in Dubai, “set a new world benchmark for utility scale solar PV costs, showing that photovoltaic technologies are competitive today with oil at $10 per barrel.”
How far down will the price of oil go?
“Oil producers prepare for prices to halve to $20 a barrel” was the headline in The Guardian this month.
The article in the British publication by Larry Elliot, its economics editor, stated: “The fall from a recent peak of $115 a barrel in August 2014 has left all OPEC members in financial difficult, but Saudi Arabia has refused to relent on the strategy of using a low crude price to knock out U.S. shale producers. Hopes that OPEC would announce production curbs to push up prices were dashed when the cartel met in Vienna last Friday, triggering the latest downward lurch in the cost of oil.”
At this rate, will gas prices continue to drop?
And how long will low oil prices last as OPEC tries to smite the frackers?
The history of oil industry market manipulation says not that long.
As the secretary-general of OPEC, Abdulla al-Badri, said this year, with prices “around $45-$55 [per barrel], I think maybe they [have] reached the bottom and we [will] see some rebound very soon.” Indeed, he ventured that oil prices might skyrocket back up as they had plummeted down, to “more than $200” a barrel, although he wouldn’t give a time frame.
YOU MIGHT ALSO LIKE
Britain's Prince William interviewed famed broadcaster David Attenborough on Tuesday at the World Economic Forum's annual meeting in Switzerland.
During the sit-down, the 92-year-old naturalist advised the world leaders and business elite gathered in Davos this week that we must respect and protect the natural world, adding that the future of its survival—as well as humanity's survival—is in our hands.
What's more, the accounting firm predicts that another 21 million electric cars will be on the road globally over the next decade due to growing market demand for clean transportation, government subsidies, as well as bans on fossil fuel cars.
By Matthew Savoca
Plastic pollution in the world's oceans has become a global environmental crisis. Many people have seen images that seem to capture it, such as beaches carpeted with plastic trash or a seahorse gripping a cotton swab with its tail.
Greenland is melting about four times faster than it was in 2003, a new study published Monday in the Proceedings of the National Academy of Sciences found, a discovery with frightening implications for the pace and extent of future sea level rise.
"We're going to see faster and faster sea level rise for the foreseeable future," study lead author and Ohio State University geodynamics professor Dr. Michael Bevis said in a press release. "Once you hit that tipping point, the only question is: How severe does it get?"
Finally, some good news about the otherwise terrible partial government shutdown. A federal judge ruled that the Trump administration cannot issue permits to conduct seismic testing during the government impasse.
The Justice Department sought to delay—or stay—a motion filed by a range of coastal cities, businesses and conservation organizations that are suing the Trump administration over offshore oil drilling, Reuters reported. The department argued that it did not have the resources it needed to work on the case due to the shutdown.
Most people have heard of the Amazon, South America's famed rainforest and hub of biological diversity. Less well known, though no less critical, is the Pantanal, the world's largest tropical wetland.
Like the Amazon, the Pantanal is ecologically important and imperiled. Located primarily in Brazil, it also stretches into neighboring Bolivia and Paraguay. Covering an area larger than England at more than 70,000 square miles, the massive wetland provides irreplaceable ecosystem services that include the regulation of floodwaters, nutrient renewal, river flow for navigability, groundwater recharge and carbon sequestration. The wetland also supports the economies of the four South American states it covers.
By Andrea Germanos
Organizers said 35,000 people marched through the streets of the German capital on Saturday to say they're "fed up" with industrial agriculture and call for a transformation to a system that instead supports the welfare of the environment, animals and rural farmers.
By Patrick Rogers
If you have ever considered making the switch to an environmentally friendly electric vehicle, don't drag your feet. Though EV prices are falling, and states are unveiling more and more public charging stations and plug-in-ready parking spots, the federal government is doing everything it can to slam the brakes on our progress away from gas-burning internal combustion engines. President Trump, likely pressured by his allies in the fossil fuel industry, has threatened to end the federal tax credits that have already helped put hundreds of thousands of EVs on the road—a move bound to harm not only our environment but our economy, too. After all, the manufacturing and sale of EVs, hybrids, and plug-in hybrids supported 197,000 jobs in 2017, according to the most recent U.S. Energy and Employment Report.