Fracking And The Milkshake Dilemma

Last week, the continuing legal battle between the energy industry and the environmental movement in the United States took a dramatic turn in favor of industry. A court in the state of Colorado ruled that cities and towns could not, under state law, ban fracking within their territorial boundaries.

Fracking (or hydraulic fracturing), of course, is the controversial practice of injecting water and chemical additives into the earth in order to extract energy products. The activity has been blamed for earthquakes, pollution of water tables, and other environmental maladies.

Although last week’s court decision applied solely to the town of Fort Collins, other Colorado municipalities had banned fracking as well. Voters in Lafayette and Longmont, for instance, had approved moratoria on such development activities.

Ironically, though, the court system may have paid the environmental movement a favor by overturning local bans on fracking operations. After all, such bans often fail to address the environmental effects of fracking when applied in a geographically piecemeal manner.

This dilemma was vividly illustrated in the film There Will Be Blood. The actor Daniel Day-Lewis played an oil prospector named Daniel Plainview, an entrepreneur who purchased several plots of land that were scattered across a region. By placing rigs on those individual plots, he accessed a massive oil field beneath the earth.

Eventually, a rival entrepreneur offered to sell Plainview his plot. Plainview replied that he no longer needed more land because he had already drained the entire oil field (including the oil that existed under his rival’s property) from his existing rigs. Plainview colorfully explained:

Drainage! Drainage, Eli, you boy. Drained dry. I’m so sorry. Here, if you have a milkshake, and I have a milkshake, and I have a straw. There it is, that’s a straw, you see? Watch it. Now, my straw reaches acroooooooss the room and starts to drink your milkshake. I… drink… your… milkshake! [sucking sound] I drink it up!

Plainview’s point was a simple one: geological formations and water tables extend across vast distances that lie underneath numerous cities and towns. Although a fracking ban in Fort Collins may hinder the extraction of some energy resources, the residents of the town would nevertheless suffer the effects of any regional environmental damage from fracking operations in neighboring towns.

In other words, if individuals are truly concerned about protecting the natural environment, they can far more effectively address their concerns through regional, statewide, or national legislation. So what can we expect from a municipality-by-municipality approach to banning energy operations? It simply will not suffice.

Petro States Cheer American Shale!

America is poised to become the world’s largest energy producer. By utilizing new technologies for fracking its domestic shale resources, the United States is expected to become self-sufficient in energy within a generation.

Wouldn’t you expect the oil exporting OPEC nations to voice a little concern about the competitive threat that is posed by American shale? Not all! So claimed experts at today’s Energy Insights Forum at the London Business School.

Apparently, the experts believe that North America will now become a magnet for OPEC’s technological expertise and business acumen. On the one hand, perhaps that will prove to be true.

But on the other hand, perhaps this expert prediction represents the most optimistic “spin” that the oil industry can place on a highly ominous economic prospect: the evolution of a significant amount of demand towards an alternative source of supply.

Gasoline Prices: Driving Economic Prosperity?

The American economy has been stuck in a rut for a very, very long time. The unemployment rate, for instance, has been lodged above 8% since February 2009; it has remained there throughout President Obama’s term of office. And the Dow Jones Industrial Average has yet to surpass the 14,000 point level that it first reached in the pre-crash days of July 2007.

At first glance, last week’s news of a retail sales increase appeared to represent a rare signal of hope. But then it was reported that the increase was attributable, in large part, to a recent surge in the retail price of commercial gasoline.

The rise in the price of gas is particularly surprising, occurring in the post-Labor Day period when prices customarily decline as Americans return to work from their summer driving vacations. But is it possible that higher gasoline prices might actually help lift the United States out of its economic rut?

An Addiction To Imported Fuel

Traditionally, high gasoline prices have been detrimental to the American economy. The spike in energy costs during the 1970s, for instance, wreaked havoc on the financial security of the United States; it led President Jimmy Carter to declare that the development of a national energy policy represented the moral equivalent of war.

But that was a time when the American energy industry was focused on the importation of fossil fuels from foreign sources. Under such circumstances, any increase in the price of fuel would inevitably draw funds away from alternative domestic uses and fuel the profits of foreign providers.

For a while, America’s domestic nuclear power industry appeared to offer a home-grown solution to the nation’s addiction to foreign fuels. But the specter of nuclear disaster that was imposed on the nation’s psyche by the Three Mile Island crisis in 1979, stoked by films such as The China Syndrome that year, locked the American energy industry into a strategy of importation.

Energy Independence

So how has the American economy evolved during the past few decades? Why might higher fuel prices actually trigger an increase in domestic energy output, and ultimately lead to economic prosperity, today?

A primary reason, first and foremost, is that the United States is now producing a significant amount of energy resources to meet its own domestic needs. North Dakota has surged past Alaska to become the nation’s second largest energy provider, trailing only Texas. Pennsylvania, a major producer of crude oil in the late 1800s, is again producing energy resources with the use of fracking technologies and methods. And soon, the southern tier of New York State may begin doing so as well.

Furthermore, the Canadian province of Alberta has also recently become a major producer of fossil fuels. Given the extensive integration of the national economies of the United States and Canada, additional upstream energy activity in the Albertan region inevitably stimulates the economies of the northern American states too.

These developments have prompted Republican Presidential candidate Mitt Romney to declare that North America would achieve “energy independence” by his prospective eighth year in office, i.e. by the year 2020. Although some analysts believe that full energy independence may not necessarily represent an achievable (or perhaps even a desirable) goal, most do acknowledge that the emerging domestic energy industry is strengthened by higher energy prices.

A Gas Tax For The Deficit

High fuel prices generate indirect benefits as well. When the costs of fossil fuels are very high, the (generally always high) costs of renewable energy begin to represent competitive alternatives in comparative terms, and American consumers and businesses shift to these new “green” technologies.

The demand for solar panels, for instance, has increased in tandem with the recent spike in the costs of oil and gasoline. Although American panel manufacturers like the ill-fated Solyndra have yielded market share to Chinese producers lately, all panels (even those manufactured in Asia) require installation and maintenance in the United States, necessitating new jobs for the American economy.

Some well known commentators are actually advocating for higher retail taxes if the cost of gasoline drops back towards historical norms. Thomas Friedman, a global columnist for the New York Times and the author of the book The World Is Flat, has repeatedly called for an American taxation policy that imposes a retail gasoline surcharge of $1.00 and then applies all government revenues to reductions in the federal budget deficit. The United States, interestingly, has never paid a tax that is explicitly designed to reduce its accumulated debt.

Considering the aversion of America’s Republican Party to any new streams of taxation, it is unlikely that Americans will experience a national $1.00 per gallon gasoline tax at any time in the foreseeable future. Nevertheless, they shouldn’t be surprised if the recent surge in retail gasoline prices eventually produces some unexpected (and yet quite welcome) benefits for the American economy.

Fracking: A Metaphor of Decline

“We’re in decline.”

It was a dramatic statement by an American political leader, one unvarnished by politically correct posturing or knee-jerk optimism. And it was verbalized by one of the most respected public figures in the United States.

Former Florida Governor Jeb Bush offered the comment during an interview in which he also opined that Republican icon Ronald Reagan (as well as his own father, President George H.W. Bush) would struggle to find a role within today’s Republican party. Although the political pundits focused on his opinion regarding Reagan, others were struck by his prognosis of the nation’s fiscal health.

Meanwhile, television viewers who were searching for tales of America’s economic prowess discovered the resurrection of a classic show about the world of American business. New episodes of Dallas, the oil industry saga that was broadcast on the CBS television network from 1978 to 1991, suddenly reappeared on TNT cable television with actors Larry Hagman, Patrick Duffy, and Linda Gray reprising their original roles as JR, Bobby, and Sue Ellen Ewing.

34 Years Later

Fans of the original television show engaged in extended online discussions about how the three original characters have changed during the 34 years that have elapsed since the program’s initial premiere. Likewise, we can discuss the evolution of the show’s underlying assumptions about the American economy to observe how our society has evolved as well.

For instance, the original Ewing Oil of 1978 was a family owned firm that focused primarily on developing land-based energy projects in the United States. Ewing family funds were also invested in Texas based ranching, farming, and media operations, thereby maintaining a domestic focus and avoiding any foreign entanglements.

Were there any exceptions to this unified American perspective? During the third season, JR Ewing did briefly invest $200 million in an Asian oil operation. But the diversion did not last long because local government regulators nationalized the energy fields, though only after the crafty JR obtained insider information about the impending nationalization and unloaded Ewing’s ownership interest on his unsuspecting business rivals!

In the contemporary version of the series, however, there is no such emphasis on domestic American business strategies. Christopher Ewing’s primary focus, in fact, is a methane gas operation off the coast of China. And John Ross Ewing’s efforts to develop fracking operations on the land under the family’s Southfork ranch is considered an environmental degradation by his extended family.

From Southfork to the Southern Tier

This very fracking controversy, of course, is currently playing out across the United States. Governor Andrew Cuomo of New York, for example, recently restricted the controversial production activity to the economically depressed Southern Tier of the Empire State after deciding initially to permit the technique on a statewide basis.

His recent restrictive decision satisfied no one. Critics of fracking predicted that the technique would pollute the state’s water supply, while proponents retorted that a geographically narrow production region would deter energy companies from making economically profitable investments.

Was Cuomo’s decision reflective of a state in decline? Some might opine that a state in a position of ascendancy would legalize fracking and then search energetically for technological solutions to its complications; others might opine that an ascendant society would prohibit the practice and then search energetically for replacement sources of energy. Cuomo’s compromise solution, regrettably, does not appear to match either profile.

The Metaphor of Fractures

Interestingly, John Ross Ewing’s focus on fracking activities may well serve as a metaphor for the challenges that face American society. Fracking itself is a process whereby pressurized fluids are blasted into deep underground rock formations, fracturing the earth and thus freeing the energy deposits from the soil.

In a sense, the Ewing family of Dallas has been fractured throughout its 34 year history in the world of television. And the television audience itself has grown increasingly fractured during the past three or four decades as well. Although it was possible for the iconic “Who Shot JR?” cliffhanger episode of the third season of the original show to attract an estimated 41.5 million households, the subsequent splintering of the American public among hundreds of cable and web based television shows makes such a unified television audience impossible today.

In a sense, the fragmentation of the contemporary American television audience reflects the type of social fracturing that Jeb Bush had in mind when he described the United States as a nation in decline. The same centrifugal social forces that are pulling American television viewers into segregated networks and shows are likewise isolating them into disparate political cliques, making compromise unlikely and political agreements impossible.

The result? Most critics have expressed doubt that the contemporary version of Dallas will be able to find its legs and ascend to the top of the television world. Likewise, there are many skeptics who are expressing doubt that American society will be able to reach consensus on its most pressing challenges and reverse its trajectory of decline.