November 4, 2011 · 0 Comments
By Dean Baker:
As a deep thinker, David Brooks always takes the middle positions between the extremes of the left and the right. We know it is the middle position because David Brooks holds it. Today, David Brooks discusses shale gas and essentially says “drill, baby, drill.”
There have been many issues raises about the safety of drilling for shale gas since the companies that are engaged in this process, known as “fracking” don’t have to disclose the chemicals they use. While companies in other industries would have to publicly report chemicals used in mining under the Safe Water Drinking Act, the gas companies doing fracking arranged to get a special exemption from Congress because, well, because they could. While a recent study by scientists at Duke found evidence of methane contamination of drinking water in areas near fracking sites, David Brooks assures us that there are no problems.
Brooks also is a bit off on the economics of the industry. He tells us:
“Already shale gas has produced more than half a million new jobs, not only in traditional areas like Texas but also in economically wounded places like western Pennsylvania and, soon, Ohio. If current trends continue, there are hundreds of thousands of new jobs to come.”
Let’s look at this one a bit. According to the Energy Information Agency (EIA) [Table A14], current production of shale oil is around 5 trillion cubic feet a year. At $4 per thousand cubic feet, this gets us $20 billion a year. For the economy as a whole we spend an average of more than $100,000 per job ($15 trillion GDP, 130 million jobs). If we use this number for the shale oil industry, then we [have] 200,000 jobs direct jobs in the industry. It would take a multiplier of 2.5 to get us Brooks number of more than 500,000. (Economists usually assume a multiplier close to 1.5.)
In the longer term economic models assume that the economy is at full employment, so the contribution of shale oil to employment would only be the extent to which it reduces U.S. energy costs below what they would be otherwise. This is likely to be very limited. In the EIA analysis, even in the long-run shale oil is projected to supply around 70 percent of gas production, which is only one source of energy.
If it turns out that fracking results in polluted drinking water, the resulting increase in health care costs could quite possibly exceed any benefits from lower energy prices. Anyone committed to a free market (as opposed to government subsides to the gas industry) would insist that the gas companies internalize the cost of whatever damage is caused by fracking. Then fracking would only take place if it were justified by market prices.