A Fracking Ban Would Trigger Global Recession Mark P. Mills

Posted By on January 2nd, 2020

https://www.manhattan-institute.org/issues-2020-economic-consequences-fracking-ban-recession

“”A fracking ban, regardless of motivation, is anchored in magical thinking that non-hydrocarbon energy sources could fill a massive global energy shortfall if the U.S. exited the world stage as a major supplier of oil and natural gas. Both fuels will be critical for the global economy for decades to come. The key issue is not whether wind and solar can supply more energy—they can and will—but whether a future American administration would reverse the progress of the last decade in lowering energy prices and enhancing geopolitical stability.”

Reality

The extraction of oil and gas through the techniques of horizontal drilling and hydraulic fracturing (colloquially, “fracking”) has catapulted the United States into leadership of the world’s energy markets. Since 2007, fracking has doubled U.S. oil production and increased gas production by 60%. Instead of a major importer, America is rapidly becoming the largest exporter of oil and is expected to supply the majority of net new energy traded on global markets over the next two decades.

If the U.S. imposed a fracking ban, the supply disruption would trigger the biggest oil and natural gas price spikes in history—almost certainly by more than 200%—which would, in turn, tip the world into recession. Even the expectation that a ban could be enacted would destabilize markets. U.S. imports and the trade imbalance would soar, as would consumers’ spending on energy. To keep the lights on, America would have to nearly double the quantity of coal burned, as well as import up to 1 million barrels of oil per day for dual-fueled power plants that would lose access to natural gas.

Key Findings

1. Fracking technology has nearly doubled U.S. oil production, an increase of some 7 million barrels per day (mmbd) since 2007, as well as another 10 mmbd (in energy-equivalent terms) rise in natural gas production.[4]

  • The massive increase in supply from U.S. shale fields triggered a roughly 50% drop in global oil and natural gas prices.[5]
  • U.S. net oil imports have collapsed from 12 mmbd a decade ago to nearly zero now. Exports of crude oil have soared from zero to 3 mmbd following the 2015 legislation that revoked the ban on U.S. petroleum exports.[6]
  • The U.S. is expected to account for 70% of the global growth in oil supply over the next five years[7] and to supply at least half the world’s new demands for natural gas.[8]

2. A ban on fracking would eliminate 7% of world oil and 17% of world gas supply in a global commodity market where changes of even 1%–2% in the supply/demand balance trigger huge price swings.

  • When, in 1973, Saudi Arabia implemented an oil embargo and took some 4 mmbd off world markets (approximately 7% of the total at that time), world oil prices jumped 400% and triggered a global recession. Similarly, in 1979, the Iranian revolution took a comparable 5% of oil off world markets and prices spiked over 200%, sparking another global recession.[9]
  • A 200% price hike would increase U.S. consumer spending at the gas pump alone by over $100 billion a year, an average of $1,000 per household. A collateral spike in natural gas prices would also add billions of dollars in heating costs for 50% of all U.S. homes and offices.[10]
  • To keep the lights on, electric utilities would need to quickly replace natural gas (currently 35% of all electricity) with coal. This would mean burning an additional 400 million tons of coal a year. That would increase carbon-dioxide emissions by 300% more than the emissions eliminated by all wind and solar capacity in the United States.

3. Alternative energy sources—in particular, wind and solar—could not replace what would be lost from a ban on fracking in time to prevent massive economic and social disruptions.

  • Oil and gas together supply 54% of global energy, little different from a 55% share a decade ago or the 53% share forecast by the International Energy Agency for 2040. Oil alone powers 98% of all global transportation.
  • Wind and solar together supply 1.8% of the world’s energy, and electric vehicles have displaced 0.1% of global oil use over the past decade.
  • The entire world would have to increase global wind and solar installations by 500% to replace the energy that would be lost from an American fracking ban—never mind the additional energy needed to fuel global economic growth.
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