Troubles In The Fracking Industry Are Nothing To Celebrate

With oil prices plunging from over $60/bbl to $30/bbl and lower in a matter of weeks, mid-sized American oil producers reliant on fracking have been identified as likely casualties from the sudden upheaval. The prospect of failures in the space is causing celebration among those opposed to fracking, with some trumpeting the end of an environmentally damaging process. The excitement is misguided: the failure of fracking companies in the current environment will portend increased difficulty stemming the climate crisis.

Hydraulic fracturing, or ‘fracking,’ is an oil and gas extraction technique that came in to heavy use in the United States around 2007. The process involves drilling long, horizontal wells deep underground in shale deposits, and then pumping high pressure water and chemicals to fracture the rock, increase permeability, and extract valuable hydrocarbons. Fracking was the key driver in pushing the U.S. to again become the largest oil producing country in the world over the last decade.

The technique has also been assailed as environmentally destructive. Poor control at some locations has been blamed for allowing drilling fluids to contaminate local water supplies. Earthquakes in Oklahoma dramatically increased after fracking became widespread. And leakage from fracking wells has been identified as a likely source of the increase in the atmosphere of the potent greenhouse gas methane since 2008.

But despite the environmental costs of fracking, the current situation is not one to celebrate. The underlying driver leading to pain at fracking companies is cheap fossil fuels, which will lead to more use of climate-driving fossil fuels and undermine efforts to decarbonize large swaths of the global economy. Saudi Arabia is now looking to pump over 12 million barrels of oil a day in April, an increase of 20% over January. Although global demand is currently constrained with the COVID-19 pandemic, cheap oil will surely lead to a rebound in demand and undercut competing alternatives, including biofuels and electric vehicles.

The situation is shedding light on a long-known truth in the energy world: prices are not driven by an efficient market based on supply and demand. Instead, the Saudis have longed dictated global prices, artificially limiting supply to hold a higher price. With a reported production cost of $2.80/bbl, the Saudis make considerable profit by constraining production. But as the last few weeks show, the Saudis also have the power to dramatically undercut competitors with little to no warning.

For those fighting climate change, the damage that American frackers are experiencing should be sobering: Saudi Arabia’s ability to suddenly flood the global market with cheap oil and undermine market-based efforts to supplant fossil fuels is an existential risk. If American frackers can’t compete with Saudi oil in an open market, greener alternatives surely won’t either.