Of Cheap Oil and Fracking

oilrig

A new geological survey performed in Texas has revealed the largest oil discovery in US history. An area that encompasses Lubbock and Midland Texas is now estimated to have 20 billion barrels of oil and 1.6 billion barrels of natural gas according to CNN. This discovery of shale oil is 3 times larger than the discovery in North Dakota that lead to the oil boom there that started in 2006 and ended in 2015.

You might think that this discovery is really good news for the United States. But there is one problem.

The oil that was found in Texas, like the oil in North Dakota, is shale oil. In other words it requires the use of horizontal drilling and hydraulic fracturing (fracking) to capture it. This means that it is expensive.

According to Morris Burns, the former president of the Permian Basin Petroleum Association, who spoke with KWES Newswest9, the oil will sit in the ground for the foreseeable future because of the low price of oil, currently around $47/barrel. It will not make financial sense to drill for this oil unless prices reach the $60 to $65 range.

The reason that oil prices dropped so much last year was due to a glut of supply created by the oil boom in North Dakota among other things. OPEC reacted to this glut by dropping prices to a point below where shale oil could be produced profitably.

Here is the economic issue.

We want to create jobs in the good old USA, right? We want to stop sending our jobs overseas, right? We want to stop using all of the foreign oil and making bad guys in the Middle East rich, right?

Do we stop oil exports into the United States either directly outlawing them or by some punitive tariff so that we use our own oil? This would cause the oil price to increase dramatically and suddenly going after the shale oil in our country would make sense. It would create a lot of jobs here. The people that had those new jobs would buy cars, flat panel televisions, and houses.

Before you say yes, are you enjoying paying $2.00/gallon for gasoline? Are you willing to pay $3.00/gallon or even $4.00/gallon for this cause of getting off foreign oil?

Let me put it this way. Are you enjoying buying polypropylene in the $.70s. Would you like to go back to paying $1.10/lb?

I live in the Detroit area. There are a lot of people here that think we should block foreign made cars from coming into the US. Forgetting that many so called foreign cars are built here, they think this would be good for the economy. I would bet that many of these same people would scream like stuck pigs at the notion of returning to $4.00/gallon gas.

One argument would be that oil is a commodity, why would consumers want to pay more for oil that is produced in a certain region? They would not do so voluntarily so why should the Government force them to do it? Do we need the Government to protect us from ourselves, our own desire to buy the right product at the right price?

However, I can see the other side as well. Many people would say that while we might see an increase in prices, there will be more people working in our country and this would have a net positive effect on the economy. Would the economic growth created by all of the jobs that would be associated with an oil boom make up for the damage that higher prices for petrochemicals would have on the economy? I think that would be difficult to calculate.

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