Fracking’s Dynamic Impact on the Energy Economy: Winners and Losers

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By: Jessica Durden, Staff Member

As hydraulic fracturing (“fracking”) gains traction in the American energy economy, the supply of American natural gas has skyrocketed, triggering a downshift of the price of gas.[1] Fracking has opened up vast stores of previously inaccessible gas trapped in shale rock more than a mile underground, particularly in gas-rich areas like the Marcellus Shale.[2] This technological boon has benefited natural gas producers, and in the current competitive economy, the new kid on the block (fracking) is edging in on the old standby’s financial territory (coal).[3] For the short term, that power shift has put the coal industry on its heels, as coal prices out of central Appalachia have tanked 15.4% in the last year.[4] In roughly the same time frame, natural gas producers and drillers have invested more than $4 billion dollars into the Marcellus Shale—which spans the Appalachian Basin.[5]

However, this dynamic swing of interest, which has prompted coal companies like Alpha Natural Resources to back off production in much of central Appalachia,[6] may not be a long-term economic event. Fracking has problems of its own, primarily in the form of intense Environmental Protection Agency (EPA) scrutiny. Hydraulic fracturing is currently state-regulated, but the EPA and the environmental lobby have teamed up to close the loophole that exempts fracking from federal regulation under the Safe Drinking Water Act.[7] If legislation like the FRAC Act (HR 1084) passes in the near future, the entire fracking industry could be subject to much harsher federal regulations that could stymie or even temporarily stop active fracking operations.[8] The EPA’s first section of its forthcoming 2014 study on fracking’s environmental impact has garnered mixed reviews.[9] However, the initial report emerged from Wyoming, while the major players in fracking are eastward in Texas and the Appalachian Basin, and the EPA has indicated Wyoming is not indicative of the rest of the country.[10] So while coal has felt the blow of a burgeoning natural gas industry, the natural gas companies face a tough road ahead to remain state regulated: coal has lost the battle, but not the war, and the long term economic effects of the fracking boom remain unclear. In an unexpected twist, an environmental crackdown could actually salvage the struggling coal industry.

[1] See Liam Denning, Coalface Cracks Under Pressure from Cheap Gas, Wall St. J., Feb. 7, 2012, http://online.wsj.com/article/SB10001424052970203315804577206860331660388.html?mod=WSJ_Energy_leftHeadlines.

[2] See America’s Natural Gas Alliance, Safe & Responsible Development: How We Produce America’s New Natural Gas, anga.us, http://anga.us/media/206825/hydraulic%20fracturing%20101.pdf.

[3] See Denning, supra note 1.

[4] Id.

[5] See Marcellus Shale Coalition, Production Processes, MarcellusCoalition.org, 2011, http://marcelluscoalition.org/marcellus-shale/production-processes/.

[6] See Ian Thomson & Maya Pope-Chappell, MarketBeat: Stocks to Watch: Micron Technology, Hasbro, Alpha Natural Resources and More, Wall St. J., Feb. 6, 2012, http://blogs.wsj.com/marketbeat/2012/02/06/stocks-to-watch-micron-technology-hasbro-alpha-natural-resources-and-more/?mod=WSJ_qtnews_wsjlatest.

[7] See Adam Orford, Hydraulic Fracturing: Legislative and Regulatory Trends, Marten Law, Oct. 4, 2011, http://www.martenlaw.com/newsletter/20111004-fracking-roundup.

[8] Id.

[9] See Mead Gruver, Reps. scrutinize EPA frack-pollution link in Wyo., Washington times/Associated Press, Feb. 1, 2012, http://www.washingtontimes.com/news/2012/feb/1/reps-scrutinize-epa-frack-pollution-link-wyoming/#.TymnOB8wHms.email.

[10] Id.