By Sam Kennedy
First fracking gave us more and cheaper natural gas. Now it promises to do the same for oil.
TransCanada Corp. announced last week it would begin operations along the southern stretch of its Keystone XL pipeline on Jan. 3. This will allow a glut of crude oil extracted through fracking to be moved from stockpiles in Oklahoma to refineries along the Gulf Coast.
The development is the latest indication that at least some of the benefits of fracking, long associated with natural gas, will increasingly flow to consumers of home heating oil too, as well as to anyone who drives a car.
“It’s really good news,” said Tancred Lidderdale, an analyst for the U.S. Energy Information Administration “It points to a promising future.”
In the Lehigh Valley, the price of heating oil is about $3.50 a gallon, give or take about 25 cents or so, depending on the dealer and the particulars of a contract. That’s about a dime less than a year ago, which may not seem like much but is actually a big improvement over the last few years when prices surged by double-digit percentage increases.
Gasoline prices also are down. On Tuesday, the average price of regular unleaded gasoline in Allentown was $3.39, which is 13 cents less than a year ago, according to GasBuddy.com, a website that tracks gas prices nationally.
In its monthly Short-Term Energy Outlook published Tuesday, the EIA predicted heating oil and gasoline prices would continue to decline marginally through 2014.
Fracking, or hydraulic fracturing, is a method of extracting natural gas and oil from otherwise inaccessible underground deposits. Essentially, a solution is injected into shale, creating fissures in the rock through which gas or oil can be pumped to the surface.
It has been used extensively for natural gas across the Marcellus Shale formation that cuts across Pennsylvania.
The technology has given rise to a range of high-profile environmental concerns, especially about well water contamination from the toxic chemicals used in the fracking solution. Policy makers, however, have shown little inclination to challenge the energy industry.
Since January 2011, domestic oil production has surged 45 percent, to 8 million barrels a day, according to the EIA. The increase is largely attributable to just two sources, the Eagle Ford Shale formation in Texas and the Bakken Shale deposit in North Dakota, each of which is producing more than a million barrels a day.
Together, they have nearly offset the unexpected loss of oil imports due to wars and other problems throughout the world, particularly in the oil-rich Middle East and North Africa.
“We’ve seen some declines in gasoline’s prices, but they have been modest,” Lidderdale said. “Without the growth in [oil] production in the U.S., prices would likely be a lot higher.”
Unlike natural gas, whose trade is constrained by a pipeline system that does not extend beyond North America, oil is a global commodity. This means the benefit of increased domestic oil production, compared to that of natural gas, will be diluted as it is shared with the rest of the world.
Nonetheless, analysts expect declining prices to become increasingly apparent to consumers, especially if oil imports return to normal as global disruptions decline.
“We may start to see some impact perhaps in 2014, but it is difficult to pinpoint when that could occur,” said GasBuddy’s Gregg Laskoski. “It’s a trend we are going to see come in gradually.”
Lidderdale said the benefits are likely to ripple throughout the broader economy, as well. Manufacturers that use oil either as a source of energy or a raw material will be among the beneficiaries, he said.
But not everyone is celebrating.
On the other side of the Atlantic Ocean, the U.S. fracking boom has come to be regarded as a competitive threat to European businesses. Last month, the International Energy Agency in Paris predicted the United States will become the world’s top oil producer by 2015, surpassing Saudi Arabia and Russia.
At the moment, a barrel of Louisiana crude is selling for under $100, about $10 less than comparable Brent crude in London.
“This is a serious problem,” Fatih Birol, an economist for the agency told the Guardian newspaper in London. “This will have huge costs in terms of employment, as there will be significant losses.”