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October 21, 2019

What Would A Ban On Hydraulic Fracturing Mean For The Economy?

Several cities, some states, and many leading candidates for president have proposed bans on hydraulic fracturing, or fracking. Drawing from published data, the Energy Equipment and Infrastructure Alliance (EEIA), which MSCI is member of, has compiled a picture of what a fracking ban might mean.

To start, banning fracking would mean the end of all U.S. production of oil, natural gas, and natural gas liquids from shale within about four years – the time it would take from the start of the ban until existing shale wells are played out.

A ban also would result in the loss of 70 percent, or nine out of 13 million barrels per day, of U.S. crude oil production; 70 percent or 70 out of 100 billion cubic feet per day (bcf/d) of natural gas production; and 60 percent, or more than out of 6.5 million barrels per day of natural gas liquids such as propane, ethane, and butane.

A ban also would impact the labor market, consumers, the environment, industry, and the United States’ economic and foreign policy standing in the world. Specifically:

  • Labor Market: There would be massive loss of jobs in crude oil production, infrastructure construction, and the supply chain. In the construction and production supply chains alone, more than 1.6 million jobs will be lost, or 200,000 jobs per each million barrels of oil per day not produced. Jobs will be lost in all 50 states.
  • U.S. Consumers: World crude oil prices will likely rise to pre-shale levels of $100 to $150 per barrel or higher. These increases will cause fuel prices to at least double, with gasoline prices rising to the vicinity of $5 per gallon. Natural gas prices for home heating and cooking would quadruple. Electricity prices would follow suit as the cost of fuels rise. Rising household energy costs will reduce consumer purchasing power, and increased energy costs to business and industry will add to the price of food, goods and services and the overall cost of living. The cost of everything that arrives by ship, train, plane or truck will rise and be passed through to consumers in the price of goods.
  • The Environment: The United States steadily has shifted away from coal to natural gas. Returning a larger share of power generation to coal would add up to one billion tons annually of carbon dioxide emissions into the atmosphere, reversing the historic gains in carbon dioxide reduction achieved over the past two decades from fuel switching.
  • Industry: Recent and planned investments in the vicinity of $200 billion in U.S. shale gas-dependent petrochemical manufacturing capacity will be stranded or cancelled. The same will occur with liquified natural gas and crude oil export infrastructure in place, under construction or planned, with loss of another $200 billion of investment. Hundreds of billions of dollars of production infrastructure investments would be stranded. Large fleets of well drilling, pumping, hauling and storage equipment and specialized pipeline construction equipment would be devalued.
  • The U.S. Economy: Loss of employment, investment, purchasing power, and household wealth would likely tip the economy into recession. Before fracking, in 2008 the U.S. imported over $400 billion dollars of crude oil and petroleum products more than we exported. A ban will result in an early return to that greatly increased trade deficit, and along with it upward pressure on interest rates.
  • U.S. Geopolitical Standing: The country would return to dependency for oil on the Middle East and particularly the Persian Gulf. This will again make us hostage to the geopolitical instability of the region, and reliant on our military to defend Middle Eastern producing allies and sea lanes. The United States also would be forced to rely heavily on imported LNG from Russia and the Middle East, at substantially higher cost than US shale gas, and produced under much less careful environmental controls.
  • State and Local Budgets: U.S. cities, states, and the federal government will lose important tax and royalty revenue and billions of state severance tax and impact fee revenues, along with state and local income and property tax revenues, would be lost, negatively affecting producing states’ budgets and public services.