Three biggest downsides to US oil boom

Unless you’ve been living under a rock, you’ve no doubt heard that the US is in the middle of an oil boom. Advances in technology have enabled the recovery of oil and gas from shale formations that were previously impossible to drill effectively or economically, and have led to a surge in the production of both commodities. This is generally presented as a good thing, for sound reasons. As every pessimist will tell you, however, in front of every silver lining is a great big black cloud.

The upside to the shale oil boom is well known. Increased production means lower prices, and lower energy prices translate to a better economy, from which everyone benefits. In addition, anything that leads America closer to self-sufficiency in energy is a plus for the country. Reliance on a still factionalized and unstable Middle East is not a good position to be in.

While this is all true, there are downsides, namely, its environmental impact, storage and transport problems, and economic distortion.

Hydraulic fracturing or “fracking”, the technique being used to unlock the Earth’s riches, is not new. It has been around since 1908 and has been used in oil and gas wells since 1949, but its massive expansion has raised many concerns.

In 2004, the EPA concluded that “injection of hydraulic fracturing fluids into coal bed methane wells poses little or no threat” to drinking water supplies and “does not justify additional study at this time.” But the study was done at a time when fracking was rare, and researchers also found that fracking fluids were toxic and some residue was left behind in bedrock after fracking operations.

In 2004, that small residue was no cause for alarm, but now that there are around 1.1 million wells using hydraulic fracturing in the U.S. according to this report, so the situation has changed. The EPA has conducted new studies and the results are expected later this year.

The possibility that fracking is polluting out drinking water is not the only risk we’re taking. There is evidence that earthquakes have been caused by the earth-fracturing process. So far, they have not been destructive, but again, fracking on the current scale is a new thing and we cannot be sure that that will be the case in the future.

To some extent, the problems that come with the storage and transportation of the huge amounts of oil being produced are also environmental. There is always the risk of spills from pipelines. According to this Guardian report, around 300 pipeline spills have gone unreported in North Dakota alone in the last two years. This and other concerns have led to the US moving most of the newly extracted oil by rail, but this causes its own problems.

The huge volume being transported means that many older tanker cars are being used, often with disastrous consequences. This Politico article highlights the fact that exploding train cars have become a massive danger. As of June, the total damage done by oil train accidents in 2014 was already around twice that done in the previous four years combined. (Related Article: More Oil Means More Environmental Concerns, With Good Reason)

Economic distortion is another downside, but one that’s hard for most people to get their head around. The economic benefits of the boom are immediate and obvious: cheaper oil and gas than would otherwise have been the case and, according to a 2012 IHS Global Insight report, the creation or support of 1.7 million jobs.

The long-term effects are less obvious, but may have more impact.

The resources being exploited are, by definition, finite, and the boom reduces the incentive to research and invest in alternatives that will be needed at some point in the future. Even in the boom areas, the economic effects of massive drilling are not clear-cut. Skyrocketing land and real estate prices are great for some, but leave others priced out of their hometowns.

In the longer term, it should be recognized that investment dollars are also finite. The diversion of resources to the oil and gas industries will leave other areas short of investment, a fact that will become all too obvious when the wells run dry. In fact, they don’t even have to run dry. A serious drop in the price of oil would make many wells economically unfeasible and the boom could vanish as quickly as it appeared.

On balance, the short-term economic benefits of the fracking boom are probably a good thing, but to ignore the downsides would be foolish. The fracking debate has two sharply divided sides, but, as with most things in life, there is a middle ground.

We can and should be grateful for the benefits of the oil boom, but we should also be aware of the risks, and even begin to devote some of the enormous money being made to efforts that will mitigate those risks, where possible.

Source: http://oilprice.com/Energy/Crude-Oil/The-3-Biggest-Downsides-to-the-U.S.-Oil-Boom.html