"Whenever I go into a restaurant, I order both a chicken and an egg to see which comes first"

Wednesday, September 12, 2012

Fracking Has A Positive Side (Like Most Everything)

Fracking has been almost universally criticized for being environmentally unsound and another example of corporate greed.  On the other hand, fracking and other alternative methods of energy exploitation, such as oil sands, oil shale, and gas shale, are moving the United States towards energy self-sufficiency and away from dependence on foreign imports.  Since 2006 imports for oil are down by approximately 10 percent and natural gas by almost one-third (US Energy Information Administration).  Since major oil companies such as Exxon have given up attempts to produce oil in unstable African countries they have turned to the United States and Canada.  While energy exploration and exploitation from hard-to-reach sources is initially more expensive, costs of shipping and security are far less; and as more local sources come on line, economies of scale for refining, storage, and distribution are realized.

A recent article by Scott Malone for Reuters (9.12.12) reporting on a recent PriceWaterhouseCoopers industrial energy study showed how the move towards American natural gas has an unexpected beneficial effect. Because of the low net cost of American energy, manufacturing jobs are returning to the United States.

Makers of metal industrial components and chemicals are the manufacturers most likely to shift production back to the United States from Asia in the coming years due to the rising cost of shipping their products, according to an analysis by PricewaterhouseCoopers.

Higher shipping costs, coupled with lower energy prices at home that have resulted from a surge in U.S. natural gas production, will have an outsized effect on those industries since their factories use more energy than average and the heaviness of their products makes them costlier to ship, the study said.

A number of factors including rising wages in Asia and a need for quick response to changing demand have encouraged the move of manufacturing back to the US; but the new energy economics have accelerated the process

The reversal has begun to show up in U.S. manufacturing employment -- about 12 million Americans worked in factories in August, according to U.S. Labor Department data, up 3.6 percent from a 2010 post-recession low.

In the steel sector, the economics are clear, the study said. It found that shifts in labor and transportation costs meant that in 2010, using the most recent data available, it was 2.1 percent cheaper to make and sell a steel pipe in the United States than to manufacture it in China and ship it. That was a change from 2006, when China was 3.6 percent cheaper.

GE last year moved much of its appliance manufacturing from Mexico to Louisville, Kentucky, while South Korean automaker Hyundai Motor Co this month began running its Montgomery, Alabama, factory 24 hours a day in response to growing demand for its cars.

The study noted that steelmakers Nucor Inc. and U.S. Steel Corp were boosting their U.S. production, in part to meet demand for steel from new projects to tap the nation's natural gas reserves through fracking.

Another positive factor in this American resurgence is automation.  Manufacturing industries such as chemicals and steel have become automated and no longer rely on the cheap labor offered in Asia – labor which is becoming more expensive since wages are rising quickly.  While the total number of jobs in an automated plant may be fewer than in older ones, the jobs are of a higher professional level.  Furthermore, moving a manufacturing plant back to the United States makes homegrown subcontractors who provide the parts, maintenance, and technical services, even more competitive.

[A major shift is occurring.] "If end-market production - if automotive and appliance and other markets begin to shift production to the U.S. - the steel and the aluminum industries will supply those businesses from the U.S.," McCutcheon [principal author of the PriceWaterhouseCoopers study] said.

While the concerns of environmentalists who are currently mounting vigorous opposition to fracking, the Keystone XL transcontinental oil pipeline, and the exploitation of Canadian oil sands should be heard, the significant economic benefits derived from increased domestic drilling, the use of alternate technologies, and trade partnerships with politically stable neighbors are likely to vastly outweigh them.  Furthermore, the geopolitical benefits resulting from diminishing reliance on Persian Gulf and African oil are equally important.  

What is often forgotten in environmentalists’ equations is risk – e.g. what is the actual risk of fracking to the environment?  Are the risks any more than traditional gas drilling? If so, are they statistically significant?  What are the risks of an oil leak in the Keystone pipeline?  They never can be zero, but are they acceptable?  There is no way to reduce any risk to zero, and even in major disasters like the Gulf Oil Spill and Exxon Valdez, environmental recovery is possible.

Most importantly, are these risks – if lowered to a minimal level – acceptable given the benefits to the economy, the return of jobs to the United States, increasing energy self-sufficiency, and a more stable geopolitical position?

In conclusion, the issue of alternate energy exploitation has at least two sides, and any decision made concerning production or distribution should be made by considering both.

1 comment:

  1. It had not much to do with fracking. More just of energy prices etc...


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