This article is taken from World Energy (WE) number 39, "Disruption and Opportunity". Read the magazine.

The mining of shale deposits is almost exclusively a U.S. phenomenon, but the benefits, in terms of falling fuel prices and reductions in carbon dioxide emissions, are widespread across the globe. Without it, oil prices would be USD 200 a barrel. The U.S. fracking revolution has released an additional volume of 5 million barrels a day (MMb/d) between 2010 and 2018, during which demand has risen by 11 million barrels a day, close to the new historical peak of 100 MMb/d. Texas, where the Permian geological basin is located, the most productive site of many in North America, is becoming an independent country in energy terms and is one of the main players in the international market, as it was in the early days of the modern oil industry in the 1920s. Thanks to fracking, the United States, the country that consumes more oil than any other, has reversed the decline in domestic production that lasted from 1985 to 2010, suddenly doubling its production to 11 MMb/d in mid-2018, with forecasts indicating this will reach 14 MMb/d by 2020. 

There are few comparisons in the past for such an increase in availability, both in the oil industry and, more generally, in the energy industry, so much so that it can be defined as a game changer at a global level. From a perceived lack of supply, with fears of exhaustion, certainty has emerged in recent years about the abundance of oil, with prices plunging from over USD 120 to lows in 2016 of under USD 30 a barrel. In mid-2018, they are hovering more cautiously above USD 70 a barrel.

For the United States, foreign oil imports have plummeted to historic lows not reached since the 1950s, which means that the long-awaited energy independence has been achieved. The issue has been of great political relevance since the Second World War, when it became clear that oil fuels were essential to drive the war machine. With the crises of the 1970s, the problem became more dramatic and since then all American presidents have placed energy independence among the main objectives of their policies. The first was Nixon, who, in a famous TV speech on November 7, 1973, announced drastic measures to achieve energy independence by 1980. His famous Independence Project failed, but its objectives continued to be pursued by successive presidents. Now, thanks to fracking, the target is closer and, unsurprisingly, U.S. policy in the Middle East, the main supply area, has changed dramatically in recent years.

The fracking revolution involved first the production of gas from the same geological formations, starting from the early 2000s. The abundance of gas on the U.S. market has brought down prices and made it more convenient for power plants to use it instead of dirtier coal, with a net cut in CO2 emissions.  From a peak of 6 billion tons of CO2 in 2007, almost a fifth of the world total, U.S. emissions have fallen by 15 percent in 10 years, about 0.9 billion less, the bulk of it achieved by the replacement of coal in power plants. The penetration of gas in the U.S. electricity generation sector is the greatest single contributing factor to limiting the growth of CO2 emissions from energy consumption. U.S. electricity production from gas more than doubled to 1,700 billion kilowatt-hours, leading to a reduction in CO2 emissions, compared to coal-fired plant emissions, of 0.5 billion tons. The increase in renewable sources, in particular wind power, avoided emissions of 0.2 billion tons over the same period. In essence, fracking by oil companies, many of them Texan, has been better for the health of the planet than renewable sources.  

Around 20 years since the systematic start of fracking activities, the issue of the environmental impact on the local area remains open, although it is less controversial than in the early years. The environment is one of the main reasons, though not the only one, why it is currently impossible to export this technology to the rest of the world. The United States has wide uninhabited expanses and less than strict environmental regulations, in several states at least, that favor fracking. The problem of contaminating groundwater has so far mainly been a concern in densely populated areas, such as in states like New York, New Jersey and Maryland. Here permits have been blocked, while in the rest of the country huge spaces mitigate the criticism, but water consumption is enormous. Abroad, as in China, where water is not abundant, little fracking has been possible, despite the presence of many potentially interesting reserves.

Extracting water from the most superficial layers, down to 200-300 meters, can cause subsidence or even micro-seismic phenomena, while actual fracking in rocks takes place so far from the surface, usually over 1000 meters down, that it is unlikely to cause similar effects. The greatest fear is the possibility that the numerous wells drilled far and wide across the formations will end up releasing chemicals into the surface water. In reality this is a remote possibility, given that deposits are located at greater depths than the aquifers from which drinking water is taken and these are separated by layers of hundreds and hundreds of meters of rocks that are impermeable and do not allow anything to pass through.

Environmental opposition has been attenuated over the years by the fact that the person owning the land, the one who is potentially most exposed to pollution damage, has a direct interest in the extraction. In fact, U.S. mining legislation uniquely establishes that the owner of the land also owns the resources in the subsoil and must be paid royalties, sometimes considerable, deriving from the extraction of gas or oil.

Large expanses of land and modest environmental opposition are two of the many reasons that explain why the industry has grown massively in the United States, despite the abundance of similar reserves throughout the world. Except for a few rare cases, such as in Argentina, fracking remains almost entirely an American phenomenon, which somewhat disappoints the optimistic expectations of 10 years ago when it seemed certain that similar kinds of production would take place in Europe, Africa and Asia.

An equally important factor, which is not found in other parts of the world, is the extensive geological knowledge that exists of the U.S. subsoil, a wealth of geological information accumulated thanks to the more than 3 million wells drilled over the last two centuries. The presence of gas and oil in clay rocks was known for decades, but, except for a few attempts that were made with poor results, little had ever been extracted. In Europe, many countries have similar knowledge of the subsoil, but strong local environmental opposition by people in densely populated areas actually makes existing reserves unrecoverable.

Equally important is the unique ability of the United States to innovate and disseminate this knowledge across the market.  From North Dakota to Texas, there is a rich and dense fabric made up of hundreds of thousands of companies involved in every stage of the industry, from the collection and analysis of underground data, to the supply of equipment for recycling the water used, from drilling services and to legal advice for negotiating with the owner of the land. There are entrepreneurs who have come up with the idea of combining two techniques we have known about for some time, horizontal and fluid-assisted drilling. These companies have conducted experiments, initially considered bizarre by the major oil companies, for the mining of fields considered unproductive for decades. Linked to the previous aspect is the fact that in the U.S. there is a very widespread gas transport network. With relative ease, after constructing a few lines, even those producing gas in remote areas can access the main transport backbones leading to consumption centers where the prices are higher and more profitable. This was initially an element that favored gas, but which was then replicated for oil. However, precisely on this point, in mid-2018, some bottlenecks are developing in Texas due to the huge additional volume of crude oil being produced for which there are no adequate transport facilities to the coast from which to export it.

Another crucial element is the American financial system, characterized by a great propensity to grant easy financing to fracking companies, despite the fact that for many years they have operated at a loss, a less brilliant and somewhat forgotten aspect of this industry. On the one hand, the desire to make easy profits, such as those achieved in the Californian technology industry, has pushed financiers, who have plenty of liquidity available at low interest rates, to invest in this industry, one that is considered very technological and capable in the imagination of investors, and one that will make big profits in the future. Also, American legislation is particularly favorable to corporate bankruptcy, as it allows businesses, once they have declared themselves insolvent, to settle their debts to banks with risk capital and start again from scratch.

All of this explains how unconventional gas and crude oil production has so far mostly been a U.S. phenomenon, one difficult to replicate abroad. In the meantime, thanks to the abundance of gas, the environment has been able to benefit from lower CO2 emissions, while the leap in American crude production has allowed consumers all over the world, including European environmentalists, to enjoy low fuel prices.