Obama's Hydraulic Fracturing Pledge
The Biggest Promise Obama Didn't Break
For all of Obama's flipping and flopping, it looks like he got one right.
Last week, the White House released a report entitled, “Investing in America: Building an Economy that Lasts.”
Amidst tensions between state governments, energy companies, the EPA, and a self-appointed panel of scientists and college professors, the White House sent a clear message when it credited hydraulic fracturing and the Marcellus Shale formation with fueling an economic boom in the United States.
This represents a major deviation in policy by an administration which just yesterday denied approval of the Keystone Pipeline, a transcontinental delivery system designed to carry 500,000 barrels daily from Canada to consumers in the U.S. — creating 20,000 jobs in the process.
More significant, however, is that the White House is making this policy shift at a time when hydraulic fracturing is under more scrutiny than ever...
And this is the reason why:
Despite the fact that the EPA — as well as numerous private environmental groups, activists, and scientists — has been trying to demonize the process as inherently dangerous to the environment, specifically citing threats to groundwater, the Obama administration is left with no choice but to accept that this relatively new industrial process is largely behind the recent resurgence in domestic oil and gas production.
Efforts to block (or at least discourage) federally-mandated regulations are finding broad support as U.S. natural gas production hits an all-time high and prices touch 10-year lows.
However, what's good news for the job market and for the economy is still seen as a negative development for special interest groups:
"The Environmental Protection Agency announced Thursday for the first time that fracking — a controversial method of improving the productivity of oil and gas wells — may be to blame for causing groundwater pollution." — USA Today, December 2011
With isolated reports of groundwater contamination reported in several areas around the country, environment groups spent much of last year calling for increased regulations and transparency in drilling and fracturing practices...
Specifically, chemical residue from the hydraulic fracturing process has spurred groups to call for full disclosure of industry secrets that energy companies have spent decades perfecting.
But even with this pressure, the power of economic development has finally proven to be too much...
In an article published on Wednesday, January 18th, analysts at BP stated fracturing will transform the global fossil fuel industry as we know it in as little as 20 years.
Natural gas drilling rig in the Barnett Shale field in Fort Worth
Already the world's top ranked natural gas producer, the U.S. could become a net exporter of all major fossil fuels by the year 2030.
“Growth in shale oil and gas supplies will make the US virtually self-sufficient in energy by 2030, according to a BP report published on Wednesday. In a development with enormous geopolitical implications, the country's dependence on oil imports from potentially volatile countries in the Middle East and elsewhere will disappear.” — The Guardian, January 2012
Obama's apparent change of heart in the matter of clean energy has, predictably, not found much support from special interest groups.
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In August of last year, an independent panel of scientists from 22 universities and institutions sent Secretary of Energy David Chu an open letter urging him to modify the membership of the U.S. Energy Advisory Board committee
Dubbed the 'fracturing panel', the Energy Advisory Board — which was appointed to study the effects of fracturing on the environment — was openly criticized by environmental groups for consisting only of biased, pro-fossil fuel members who suppressed scientific testimony in an effort to block further scrutiny and potential regulation.
Critics claimed the fracturing panel failed to invite any external reviewers or independent experts, and was openly accused of having strong financial and political ties to the gas industry.
Of course, one man's controversy is another man's opportunity...
And as far as opportunities go, few have ever been as big — or as fast-moving — as this one.
Clearly, D.C.'s mainstream political machine is now waking up to the realities of the American fossil fuel renaissance...
And it's about time.
In 2010 alone, total U.S. proved natural gas reserves increased by an all-time annual record of 11%, with crude reserves surging by 9%.
All of this, though, is just the tip of the iceberg.
Hydraulic fracturing represents such a paradigm-shifting change in the way we mine for fossil fuel that even the famously indecisive Obama administration has no choice but to accept the realities unconditionally.
According to geological projections, an estimated 4.36 trillion cubic feet of natural gas — worth over $10 trillion, even at today's deflated prices — resides in the Marcellus Shale formation alone...
And as much as 24 billion barrels of total crude resource lies in wait in the Bakken.
To understand just how big a deal this is, think of it this way:
By 2018, Williston, North Dakota — a town of less than 15,000 and the heart of the Bakken formation industrial complex — will produce as much crude oil as the entire nation of India.
Before recent progress in the implementation of fracturing technology, however, the bulk of these reserves were inaccessible.
As the potential wealth is finally unlocked, and as traditional oil wells across the world peak out and go into decline, even the most green-leaning administration will have trouble ignoring reality.
Put simply, it's here to stay... and eventually, to dominate the world energy industry.
In the coming years, fracturing will become as commonplace as "strip mining" and "off-shore drilling" were in the 20th century.
In fact, thanks in large part to the widespread acceptance of this process, Obama's 2008 campaign commitment to cutting U.S. fossil fuel imports by one-third by the end of the decade could very likely prove to be the biggest promise he doesn't break.
None of this is news to industry insiders, of course. Professional investors have been tracking and profiting off this burgeoning sub-industry since the end of the last decade.
And at least for the next 20 to 30 years, things will only be ramping up as Uncle Sam heads toward energy independence for the first time since the 1960s.
Make no mistake about it; decades from now, American economic history will be separated into the pre-fracturing and post-fracturing periods...
Everything that comes after will rewrite everything that came before.
Stay ahead of the curve.
Brian is a founding member and President of Angel Publishing and investment director for the income and dividend newsletter The Wealth Advisory. He writes about general investment strategies for Wealth Daily and Energy & Capital. Known as the "original bull on America," Brian is also the author of the 2008 book, Profit from the Peak: The End of Oil and the Greatest Investment Event of the Century. In addition to writing about the economy, investments and politics, Brian is also a frequent guest on CNBC, Bloomberg, Fox and countless radio shows. For more on Brian, take a look at his editor's page.