In 2013 the Wall Street Journal’s Gregory Zuckerman published The Frackers (my review here), a rather laudatory account of the intrepid ways of America’s modern wildcatters. What’s important about the timing of the publication is that in 2013 the price of a barrel of oil was in the $100 range. Please think about this for a minute. Or more.
Frackers were in the limelight, and having splashy books written about them at the exact same time that the price of crude was in the triple digits. Which is the point. And it’s one that Zuckerman made in a book that one senses all-too-many fans of fracking purchased, but did not read very carefully.
Indeed, had they read closely they would have happened upon a truth about the 1980s and 1990s in the U.S. oil patch. Per Zuckerman’s book, the latter was largely dormant to non-existent in those decades. Please think about that for a minute, or many more.
Please do because politicians, pundits and economists are falling over themselves to out-shout their colleagues when it comes to “opening up” the U.S. for energy exploration. It will bring down Putin, they cheer with great gusto! About their desire to free U.S. lands of federal control, sign me up for it. Similarly sign me up for oil drilling wherever it makes economic sense. The notion that carbon consumption threatens the future of the planet is theoretical as opposed to factual.
At the same time, the happy-talker notion of opening up U.S. lands to abundant oil exploration on the way to the U.S. becoming “Saudi America” is similarly theoretical. It has nothing to do with reality, and the clues to why can be found in what’s been written so far.
The simple truth is that oil is not nominally expensive right now because Vladimir Putin views invasion of Ukraine as the path to his country’s advance. At the same time, it has little to do with Joe Biden either. Figure in 2013 Putin was relatively quiet, and Barack Obama (no fan of oil exploration) was in the White House, yet oil was still around $100/barrel. The problem all along was that the dollar in which oil is measured was weak in 2013, and it remains weak in 2022. Just as Americans would on average stand over 11 feet tall if the inch were cut in half, so is oil expensive given a dollar measure that is rather shrunken relative to the 1980s and 1990s.
About the decades that closed the 20th century, it’s worth repeating what was said here earlier and that was reported in Zuckerman’s book: the U.S. energy industry was near non-existent in the ‘80s and ‘90s. Well, of course it was. In both decades the price of a barrel fell as low $10, and sometimes below that. The dollar measure in which oil is yet again priced was strong - or long - then, hence inexpensive oil and gasoline in dollars. Just as Americans would on average stand under 3 feet tall if the foot were elongated, the price of a barrel collapsed as the dollar rose.
All of which brings us to the present. Those long on vocal cords but short on understanding of history claim that if we just unleash fracking and frackers, that Putin will be brought to his knees. According to a packed-to-the-gills fracking church full of parishioners not aware of the economics of what they espouse, oil that’s abundant stateside just needs to be brought to market to bring down prices. No, such a view isn’t true.
It's not true simply because the lower oil prices that fracking is said to be capable of producing would bankrupt every fracker in the United States. Yes, you read that right. Innovative as fracking is, the oil exploration technique generally requires a price per barrel of oil north of $50 to make even the barest of economic sense.
All of which explains why frackers and the U.S. energy explorers more broadly were so difficult to find in the late 20th century. When oil is cheap, exploration for it in the U.S. is a big money loser. Translated for those who need it, U.S. frackers would be the demographic hurt most by actually cheap oil. To then pretend they’re our path to lower prices at the pump is a triumph of hope and fantasy over reason.
The above statement of reality raises an ongoing question about why some supremely talented commentators continue to promote fracking as the solution to expensive oil. More realistically, expensive oil is what’s singularly necessary for fracking to make any kind of economic sense.
