Falling oil prices and fracking

[PatrickforO]

Paul Krugman has written an editorial posted on Truthout. Basically, he says that falling oil prices might render some fracking operations less-than-feasible economically. The 'drill baby, drill' mentality that has seemed to rule our domestic oil production was made possible by horizontal drilling combined with fracking; when oil prices are high, it is economically (though not environmentally) feasible to frack in order to extract oil from shale beds. The so called 'patriots' told us that it would be good for the United States to have all this fracking because they reasoned that if lots more oil is produced here, we won't have to import as much. However, we all know the oil companies sell this oil to the highest bidder, so the only real bottom line impact is to increase profits for oil companies. Same for the fracking process; these same 'patriots' tell us fracking is good for us, but if you think it through, it is only good for increasing profits for oil companies. At BEST, it is neutral for us, unless, of course the fracking fluid is spilled or leaks into the water table. Then it's not so good for anyone.

But now, oil prices have gone down. Krugman is saying that as this happens, more and more fracking operations will be too costly to break even for the oil companies, so they will stop in these cases until the price per barrel rises again. He says it may contract the economy when these operations are put on hold. He doesn't say the word 'recession,' but in my state of Colorado, our economy could slow down because of it.

Since we now have higher carbon dioxide levels in the atmosphere than we have ever had, and we're getting alarming climate reports from all over the world, now would be the time to be way more aggressive in trying to convert us to much higher percentages of energy coming from renewables. In spite of what Alison Lundergen Grimes said while pandering to the coal industry in KY, coal is certainly NOT the way to go. There is no 'clean' coal.

So do you guys think we'll actually have the wisdom and fortitude to lead the world in converting to renewable power sources? The political will?

LOL. Nah. But here's Krugman's article, which is his first take on the oil price plunge.

http://truth-out.org/opinion/item/28028-oil-prices-the-impact-of-the-plunge

[NYC_SKP]

1. Natural gas and Petroleum are not interchangeable commodities. Krugman is an ass.

Maybe I just "know too much" about energy but I'm sick and tired of reading Hydrogen claptrap and conspiracy theory oil and fracking ideas.

People ought to STFU until they learn some goddamn thing about the industry and market.

Fucking Natural Gas is Fucking Not Fucking Oil!

Let's talk:

Natural gas is used for generating electricity, space heating, and some transportation (only 1%-3%).

Petroleum is refined into transportation fuels like gasoline and diesel (combined ~70%), asphalt, plastics, propane, etc.

They are NOT interchangeable, and only in the state of Hawaii is petroleum used to generate any significant portion of their electrical power (most of it).

Little known secret: Wholesale nat gas prices were already so low in 2012 that the number of drilling and fracking operations were falling from previous years.

[PatrickforO]

4. I've been thinking for some time about your reply to my post.

I can't help but notice you live in New York City. I live in Colorado. There is a shale formation on the western slope of the Rockies where they were extracting natural gas using fracking. And yes, low natural gas prices closed most of those wells. However, I live just south of Arapahoe County on the front range (or eastern slope) of the Rockies. This is where most of the people in Colorado live. In fact, if you go from the Wyoming border south to Colorado Springs, you include Ft. Collins, Greeley, Boulder and the Denver Metro Area. This area contains about 89% of Colorado's workforce and most of the economic activity.

There is a shale formation on the front range called the Niobrara formation. Now, just north of me, in Arapahoe County, Conoco Phillips has been leasing land and drilling OIL wells. And, yes, since it is a shale bed with pockets of crude oil, they drill sideways and frack. The point in the article I was citing was that if oil prices go down, operations such as those in Weld and Arapahoe counties that require fracking to extract OIL may be affected employment-wise. In fact, that's the gist of the article - it has to be economically feasible to frack for either natural gas or OIL.

It has been interesting to watch the labor patterns. Between 2008 and about 2013, employment in Arapahoe County in the oil and gas industry shot up. However, the drilling subsector of that industry tends to use transitory labor - they drill and then they go. Once the wells are in operation, it is the actual oil and gas extraction and support activities that are still active, so we've seen a drop through 2014 in employment numbers in this industry group.

I also get asked often about the 'job multiplier' effect in the oil industry out along I-70 in eastern Arapahoe County, where there are quite a few OIL wells. It is significant - around 2.5 direct, indirect and induced jobs for every one job added in the industry, but this is not nearly equal to the multiplier in other regional driver industries, such as wired and satellite telecommunications, which add around 4.75 jobs for every one job added.

The thing about your post is that I in fact do know what I'm talking about, particularly in this one little region where I reside. To receive a condescending lecture from someone on the east coast about the difference between gas and oil was rather insulting. Which is why I've been thinking about it and have finally replied today.

The other reason for my reply is that Colorado, particularly this front range area, is heavily into aerospace and defense. In fact, Colorado is ranked in the top five nationally for civilian aerospace employment. So, when we talk about cuts to defense, we need to have some plan for the people displaced due to the cuts to get retrained and repositioned in other industries. Something like the Trade Adjustment Act (TAA) for people who lose jobs as a result of NAFTA. We've got to think things through or else be adversely affected by unintended consequences. But I digress. My point with the whole post in the first place was to cite an economist I like who had something to say about how price affects employment, which it does.

[NYC_SKP]

5. My problem was with what Krugman wrote, not with your thoughts. Sorry about that!

Even he said, "This is just an, um, crude first pass."

I left NYC in 88, now live on the Central Coast of California.

Krugman draws a line from oil prices to fracking and it just isn't there.

There is an indirect link, naturally, but not one that can produce causal relationships in short time because, as I said, oil and gas are not interchangeable commodities in the way many people think they are.

Your figures about the job multipliers seem about right. Extraction projects are short term and often "manned" by folks who come from other states or regions just for the work. I know a few of these workers.

I'm confident that you know more about the industry and the science than most, and I apologize for the tone of my reply, it wasn't directed toward you.

In the last two years I've been to Colorado specifically related to gas extraction, spent a couple days at San Juan College in Farmington, NM, with their oil & gas industry instructors, and became very familiar with hydraulic fracking and the industry.

Energy is basically all I do, that and some volunteering.

The nature of the Internet and trolls and such prevent me from disclosing my identity, or I would share a few published articles.

Take care and Happy New Year.

[PatrickforO]

6. Same to you! Thanks for reply.

[The2ndWheel]

2. Why would falling oil prices not put a dent in renewable energy production as well?

We just want cheap energy. I don't think we really care how we get it.

[NYC_SKP]

3. Petroleum does not run the electrical grid. Petrol less than 1% of electrical generation.

Petroleum doesn't even contribute one-third of one percent of our electricity.

http://www.eia.gov/electricity/annual/html/epa_01_01.html