Geologists have known about vast reservoirs of natural gas and oil trapped in shale formations across the United States for decades, but extraction techniques weren't available and the resources remained untapped. Shale didn't factor into most serious analyses of U.S. energy prospects until the combination of two old technologies—horizontal drilling and hydraulic fracturing, known colloquially as fracking—was perfected. A drilling renaissance over the past five years has transformed the United States into a leading natural gas producer and potential energy exporter, reversing a decades-long trend of increasing reliance on foreign sources of oil and gas. Shale production helped reduce net imports of energy by one-third between 2011 and 2013, according to the U.S. Energy Information Administration, heralding a new era of U.S. energy security with broad implications for global markets and international relations.
Meanwhile, Americans are benefitting from lower energy prices and jobs are being created in the oil and gas sector and related industries. Many other countries are studying the U.S. example and plan to tap their shale resources. But analysts, environmental groups, and governments are concerned about the costs of fracking and the risks to the environment.
What is fracking, and where is it happening?
Hydraulic fracturing, or fracking, refers to one of two processes used to extract natural gas trapped in shale formations. The first step is to drill down to the sedimentary rocks, sometimes as far as ten thousand feet, then drill sideways for a mile or longer. Horizontal drilling has been widely practiced since the 1980s to extract conventional oil and gas. But shale gas is trapped in thin layers between the rocks and can't flow through the well by drilling alone, so producers deployed hydraulic fracturing—first introduced into commercial practice in 1947 and effectively commercialized in the late 1990s—which pumps millions of gallons of water, sand, and chemicals at high pressure to open fractures in the rocks and allow oil and gas to flow. Fracking is used in nine out of ten natural gas wells in the United States.
Horizontal drilling and hydraulic fracturing have allowed producers to tap into large shale gas deposits—some of which span multiple states—in the United States, such as the Barnet, Permian Basin, and Eagle Ford shales in Texas; Haynesville in Louisiana; Marcellus in Pennsylvania, New York, and Ohio; and Bakken in North Dakota.
How much oil and gas can fracking unlock?
The U.S. Energy Information Administration (EIA), which publishes widely anticipated annual reviews of the sector, didn't even include shale gas in its 2009 outlook, but by 2012 the EIA was reporting that more than one-quarter of U.S. natural gas production was from shale, and would increase to one-half by 2035, as CFR Senior Fellow Michael Levi noted in his book The Power Surge.
Meanwhile, tight oil, also known as shale oil, which is extracted from shale and other rock formations, has been the fastest-growing segment of U.S. crude production, hitting two million barrels per day in 2012, up from nothing in 1999. The EIA projects that tight oil, which surpassed offshore production in 2012, will overtake onshore crude by 2015 and could remain the largest contributor to domestic supply for at least a decade after that. In 2012, shale oil and gas comprised more than one-quarter of U.S. energy resources.
The EIA's estimate of "technically recoverable resources," or energy that can be exploited using existing technology, found that 10 percent of the world's crude oil and 32 percent of natural gas comes from shale formations. These newly accessible resources bolstered global crude oil reserves by 11 percent and led to a 47 percent surge in natural gas reserves. Although these projections will likely be altered as the industry drills into more fields and better data on the depletion rate of existing wells is gathered, it's clear that global reserves of oil and natural gas have increased and that the long-term energy security outlook for the United States has improved due to shale exploitation.
What are the environmental risks associated with fracking?
Although natural gas burns cleaner, emitting lower levels of carbon dioxide than oil or coal, producing it through fracking (and conventional drilling) has a negative impact on the environment, particularly on water. Millions of gallons of water have to be trucked in to fracture the shale in each well, in some communities diverting water from other uses. The chemicals, some of them hazardous, that are mixed with water and injected into wells can be released through spills, leaks, or badly constructed wells. After a site is fractured, drillers remove the wastewater, which then must be treated and either disposed of or reused. The industry practice of temporarily storing wastewater in open pits prompted concerns that harmful chemicals could find their way into freshwater aquifers. A Duke University study [PDF] found elevated radium levels in wastewater that was discharged from a treatment plant in western Pennsylvania.
Both the fracking process and the practice of injecting wastewater into deep wells cause small earthquakes according to the U.S. Geological Survey. The tremors from fracking are too small to be a safety concern, but the earthquakes from disposing wastewater can cause damage. More than one hundred small earthquakes were recorded in Youngstown, Ohio, in 2011, a remarkable number for a town that has never been the epicenter of seismic activity. The cause of the earthquakes, which didn't effect significant damage, was traced to an injection well.
Critics of shale gas have also raised concerns about leakage of the greenhouse gas methane and other hydrocarbon gases and liquids. Federal government estimates affirmed that more than one million tons of methane were emitted annually from shale gas production. But a peer-reviewed study by researchers at the University of Texas at Austin [PDF] showed that, at least for wells in the production stage, when most of the methane leakages are believed to happen, the volume of escaped gas was less than government estimates.
While many companies are already complying with the Environmental Protection Agency (EPA) requirements on well containment that will go into effect in 2015, researchers found that other leaks from pumps and valves, which are not subject to regulation, were releasing more methane than estimated.
Shale gas production also has a broader environmental impact, from laying new roads through farms and forests to the strain on towns that have to take in new workers and families. Some complain that oil and gas workers negatively affect their communities, but these types of effects are common across many expanding industries.
How is the government regulating fracking?
Much of the oversight falls to local and state governments, and laws and enforcement priorities vary between states. Critics have accused the federal government of being weak on fracking due to a controversial decision to bar the EPA from regulating the practice under the Safe Drinking Water Act, a 1974 law (amended) that protects drinking water. The Energy Policy Act of 2005 sided with the oil and gas industry's argument that disclosing specifics on the chemicals used in fracking liquid could harm trade secrets.
The federal government has encouraged oil and gas companies were encouraged to expand U.S. energy production. President Barack Obama, who campaigned on shifting the country away from fossil fuels, largely continued his predecessor's policies of opening new federal land to drilling, offering new tax breaks to recoup drilling costs of dry wells, and giving the Department of the Interior the power to issue permits without conducting extensive environmental impact studies.
"State level regulation can be quite sensible, but there is a question of whether there is an important federal overlay that's needed." –Michael Levi, Council on Foreign Relations
Congress has entertained proposals to give the EPA greater authority to regulate fracking, but no bills have passed. The EPA has begun to require drillers to control leaks during well completions, but most of the oversight remains local, which is preferred by both oil and gas producers as well as many environmental groups.
"State-level regulation can be quite sensible," says CFR's Levi, given the various geologies and community attitudes that need to be considered in an industry that spans dozens of states. "But there is a question of whether there is an important federal overlay that's needed. I think there should be, for the industry's own good, because bad news in one state is going to migrate to others and affect prospects elsewhere." Common federal rules, in theory, can help companies transfer rigs and procedures across the country more efficiently, Levi says.
Many states are augmenting their laws to address specific issues relating to fracking, such as water use and disposal, disclosure of chemicals used in fracking, and guidelines for casing, cementing, and well completion. Christopher S. Kulander, an assistant professor at Texas Tech University School of Law, provided a comparative analysis of these laws in a paper published in the Case Western Reserve Law Review [PDF]. (The five-hundred-page Case Western journal includes other studies about the laws and policies governing hydraulic fracturing).
Are other countries exploring hydraulic fracturing?
The 2013 EIA analysis of global shale formations outside the United States revealed large shale gas resources in China, Argentina, Australia, and South Africa, all countries that could benefit from increased energy production. Some countries, such as Poland, Turkey, and the Ukraine, see their shale resources as potential geopolitical game changers that reduce their dependence on conventional gas exporters such as Russia and Iran. More than half of the world's shale oil resources are located in Russia, China, Argentina, and Libya. Natural gas production hasn't approached the scale seen in the United States, and drilling activity in Poland has been disappointing so far.
Some countries in Europe have been reluctant to exploit shale gas due to environmental concerns. France has repeatedly ruled out exploration, but its reliance on nuclear energy isn't an option for most countries.
The shale revolution in the United States will inevitably be emulated overseas. Foreign companies and investors have partnered in U.S. shale plays to gain management and technical expertise that can eventually be applied around the world. Oil field services companies such as Baker Hughes, Halliburton, and Schlumberger are moving equipment, technology, and workers from shale operations in the United States to tap into one of the world's largest and most difficult to extract shale oil reservoirs in Siberia.
Has the rising supply of natural gas benefited the U.S. economy?
Unconventional oil and gas activity, as the extraction of shale energy is known, increased average U.S. household income by $1,200 in 2012, in the form of lower energy costs and a related decrease in prices of other goods and services, according to IHS Global Insight, a consultancy and research firm. Levi wrote that as many as 250,000 jobs may be created due to the shale boom by 2020, up from 150,000 in 2010. More than 190,000 jobs supporting the shale gas industry were added by 2010, from steel makers to chemical producers, and the number is expected to rise to 370,000 by 2020 when shale gas is projected to contribute $150 billion to the U.S. economy. In September 2008, the United States thought it would soon need to secure new foreign supplies of natural gas. Now it's clear the country will become an exporter, and is importing less natural gas than before, a dynamic that IHS calculates will improve the U.S. trade position by $164 billion in 2020.
One risk of the growth of the energy industry is that it can lead to wild swings in employment between oil-producing and nonproducing states as commodity prices fluctuate. A 25 percent increase in oil prices, for example, would result in more than 550,000 jobs lost nationwide, but employment will be boosted by 100,000 in eight states that have a large energy sector, according to a CFR Energy Brief, "The Shale Gas and Tight Oil Boom: U.S. States Economic Gains and Vulnerabilities," by Stephen P. A. Brown, professor of economics at the University of Nevada, Las Vegas, and Mine K. Yücel, senior vice president and director of research at the Federal Reserve Bank of Dallas.
Find comprehensive data and analysis on the oil and gas sector in the U.S. Energy Information Administration's Annual Energy Outlook.
This Congressional Research Service report examines the natural gas industry in the U.S. economy.
Case Western Reserve Law Review looks at the law and policy of hydraulic fracturing.