Study: Fracking Cuts Energy Costs, Raises Living Standards

Published November 8, 2013

The recovery of natural gas through smart drilling and hydraulic fracturing is cutting energy costs and raising living standards throughout the United States, a newly published study has found. Economists at IHS Inc. report hydraulic fracturing, also known as fracking, will likely raise average U.S. household income by $2,700 per year and create 1.2 million new jobs by 2020.

Hydraulic fracturing is the process of extracting oil and natural gas from shale rock layers deep within the earth. Engineers drill thousands of feet below the earth’s surface and then create cracks in the shale formations by injecting water, sand, and trace chemicals under high pressure. Although energy producers have utilized fracking since the middle of the last century, Americans are benefiting from a fracking revolution today thanks to recent technological advances and new oil and natural gas discoveries.

Widespread Economic Benefits
“A revolution is under way in the production of unconventional oil and natural gas that is transforming America’s energy future and strengthening its overall economy,” the study reports.

IHS economists report fracking, by increasing energy supplies and lowering energy prices, is creating extensive benefits in the U.S. manufacturing industry. By 2020, total manufacturing production will increase 3.5 percent over baseline levels thanks to the lower energy costs, the IHS study concluded.

The study also found the increase in manufacturing production will create a $51 billion increase in annual revenue for federal, state, and local governments by 2020.

The United States leads the world in shale oil and natural gas resources, and fracking is giving American entrepreneurs a new edge in global economic competition, the study observes.

“The unconventional [energy] revolution is also contributing to a shift in global competitiveness for the United States by unlocking new production cost advantages for U.S. industries benefitting from lower prices for raw materials and the energy they use,” according to the study.

Government Threats Loom
The only appreciable danger to this increase in production and revenue, the authors state, is government regulations or prohibitions. Although top EPA officials have repeatedly testified they have never found a single incident of the fracking process contaminating groundwater, environmental activists claim fracking endangers groundwater and seek to ban or severely restrict fracking.

Revenue Windfalls
Merrill Matthews, a resident scholar with the Institute for Policy Innovation, says both taxpayers and tax collectors benefit from fracking.

“Fracking has dramatically increased the supply of natural gas, which has, one, turned the U.S. into one of the top producers—if not the top producer—of natural gas in the world, and, two, reduced costs so much that natural gas has become cheap,” said Matthews. 

“The energy boom has also been a windfall for states and the federal government. In 2012 the energy industry, gas and oil, paid $9.7 billion in federal royalties, rents, and bonuses. And in 2010 the energy industry paid $8.5 billion in federal income taxes. That’s money that the federal government doesn’t have to take from taxpayers or borrow,” he explained. 

Environmental Benefits
Despite the huge economic windfall, environmental activists would like to smother the baby while it’s still in the crib, Matthews said.
“Ironically, it is the increased use of natural gas in power generation plants that has reduced our energy-related carbon dioxide emissions to near 1990 levels. While most countries that signed the Kyoto Protocol promising to dramatically reduce their CO2 levels have increased their emissions, the U.S. has been reducing its energy-related CO2 emissions—and the U.S. never signed the treaty,” Matthews explained. “Limiting fracking, which would reduce U.S. natural gas production, would likely have the effect of increasing CO2 emissions.”

Boon to Manufacturers
Josiah Neeley, a policy analyst at the Armstrong Center for Energy & the Environment at the Texas Public Policy Foundation, says reliable energy is the lifeblood of businesses and manufacturing.

“If you manufacture or ship products and goods, you use electricity to produce and deliver them. There will be nationwide benefits from fracking due to resultant lower energy costs. Businesses will expand, and new plants will open. What this all means is there will be more jobs,” said Neeley.

International Security Benefits
Fracking also offers international and national security benefits, Neely observed.

“U.S. natural gas production and exports will undercut Russia’s role as a dominant natural gas producer. Accordingly, other nations will no longer be at Russia’s energy mercy. Also, by stabilizing the world’s energy reserves, America and other nations won’t have to do business with odious and unstable regimes,” he explained.

Politics Could Jeopardize Benefits
H. Sterling Burnett, a senior fellow with the National Center for Policy Analysis, says the United States could increase oil and gas production even more, and further reduce its need for foreign oil, if the federal government would remove barriers to increased production and forego new ones.

“The Obama administration is considering more stringent regulations, despite numerous studies showing fracking has few, if any, negative environmental consequences. Additionally, the EPA has already tried to halt a number of operations, but they’ve had to back down when challenged in the courts,” said Burnett.

Kenneth Artz ([email protected]) writes from Dallas, Texas.

Internet Info:

“America’s New Energy Future: The Unconventional Oil and Gas Revolution and the US Economy,” IHS Inc, Sep. 2013,