As the Maryland General Assembly session opens today in Annapolis, one of the hot topics will be whether Governor-Elect Larry Hogan will try to loosen up restrictions on hydraulic fracturing to allow drilling companies to frack in Western Maryland for the first time.
But the state forests may be protected from drilling, at least in the short term not by politics, but by economics. Industry analysts say that plunging natural gas and oil prices – caused by a glut of fuel produced by fracking -- are causing oil and gas companies across the country to shut down rigs, lay off workers, and avoid new development in places like Maryland.
Drew Cobbs, executive director of the Maryland Petroleum Council, said oil and gas extraction companies have allowed many of their drilling leases in Western Maryland to expire because they are not interested in producing more gas in this down market.
“I think things have changed significantly,” Cobbs said. “There are tens of thousands of less acres leased now than there were three or four years ago. And I don’t think there are any companies at this time are expressing immediate interest in drilling or applying for permits.”
Of course, natural gas prices are notoriously volatile – and they could easily rocket back upward in a few years, bringing renewed risk of pollution and heavy truck traffic to rural Western Maryland.
But for the moment, fracking’s worst enemy appears to be….fracking.
“The industry consistently becomes a victim of its own success,” said Joseph Triepke, managing director at director at OilPro.Com, which analyzes trends in the industry. “If you go back in time, every time we have success in extracting hydrocarbons, invariably, we do it to a level that makes it uneconomic for some period of time.”
Over the last six years, the amount of natural gas produced by injecting water, sand and chemicals into shale rock formations has more than quadrupled across the U.S. As a result, the price of natural gas has fallen by about half, according to the U.S. Energy Information Administration.
The amount of oil produced by fracking – especially in North Dakota and Texas -- has also surged. This summer, America reclaimed its title as the world’s largest producer of oil, surpassing Saudi Arabia. Saudi Arabia retaliated by keeping its oil production high, which drove down prices.
Triepke said the intent of the Saudis is to cripple the American oil and gas fracking industry through low prices because the Saudis and other allied oil producing foreign nations in OPEC view U.S. fracking as competition. In November, OPEC decided not to cut back on oil production – as it has in the past -- in response to the falling oil prices, because they see US fracking as a threat, Triepke said.
“OPEC pulled the floor out from under the oil markets,” Triepke said. “That effectively resulted in the crash that we are seeing now."
Economists say that falling gasoline prices – now less than two bucks a gallon at some places – are good for much of the economy. The average American should have about $1,000 more cash this year to buy a variety of good and services, said George Magliano, senior auto economist with IHS Global Insight.
But the impact of low fuel prices on the environment is mixed – with fewer people buying fuel-efficient and hybrid cars, Magliano said. More people are buying gas guzzlers, and in general, driving more.
“We’ve seen a shift away from cars – and in particular, small cars – and back into trucks, and in particular pickup trucks and sport utilities,” Magliano said.
Normally, low fossil fuel costs would undercut the economic viability of alternative energy projects like wind and solar. But industry analysts say that the cost of solar panels has fallen as fast or even faster than the price of oil and gas, because solar panels are being mass produced in China. And wind energy is also competing well because turbines are also being produced more affordably.
Bob Deans, a spokesman for the Natural Resources Defense Council, cautions that all this talk of low fossil fuel costs does not take into account their extreme, long-term cost to society through climate change, which is causing rising sea levels, floods, and droughts.
“Whatever we pay at the pump is just a down payment, really, on the real cost of oil,” Deans said. “And the first point we want to make is oil is not cheap at any price. When he dig it up, when we ship it, when we burn it, we are driving up damage, destruction and risk to our environment, across the board, in ways that are piling up costs for ourselves and our children.“
So when you fill up at the gas station, take a long look at what you are driving – and an even longer look down the road, into the future.
