Can a Free Market Innovation Help Jumpstart the U.S. Fracking Boom?
Earlier this week, EOG Resources, Inc., a Houston-based oil and gas exploration company, reported on an earnings call that their engineers had recently used natural gas to successfully extract more oil from 15 of its mature horizontal oil wells. EOG plans to expand the pilot project to 32 other wells later this year. If this innovative process can be replicated on a mass scale, it could be a game-changer for a continually evolving industry.
U.S. oil production from hydraulic fracturing has declined over the past two years due to increased production from Saudi Arabia and other OPEC countries, which has dramatically depressed oil prices worldwide. These low prices (though great for the consumer) have made unconventional drilling (i.e., fracking) too expensive in many parts of the U.S. to continue. As a result, roughly 100,000 jobs have already been lost in the petroleum industry in recent years.
While existing oil wells are still being fracked and generating some profit in the U.S., industry experts point to $60 a barrel as a rough price-point for when petroleum companies might explore and drill for new oil. Although on somewhat of an upward trend, the current price of oil – roughly $46 a barrel – falls below this break-even point.
EOG’s new fracking technique uses natural gas instead of water, sand, and trace amounts of chemicals to further stimulate horizontal oil wells far deep beneath the earth’s surface. In the oil patch, natural gas is typically cheaper than water, which would presumably make it less expensive for companies to extract oil going forward.
Despite the apparent breakthrough, EOG remains cautious since the 15 wells where the new method has been used to date were geologically unique and might not be able to be replicated in other shale plays. Nonetheless, this latest example of industry innovation shows once again how the free market can incentivize visionaries to find solutions to the world’s challenges. This is just one reason why ALEC fights to save free markets from undue government intrusion.
This new, innovative drilling technique and the role it may play going forward is certainly something worth keeping an eye on, especially after a couple years of nothing but bad news for the petroleum industry.