Federal hydraulic fracturing regulation's economic impacts estimated

US economic strength would be reduced by several billion dollars in the next five years if hydraulic fracturing was federally regulated, the second part of an American Petroleum Institute-commissioned study found.

Adopting proposals to essentially duplicate existing state regulations of a process which is helping open up significant domestic shale gas resources would lead to job losses and a wider US trade deficit, API said on July 1 as it released the second part of the study by IHS Global Insight.

The latest report looked at three scenarios: a hydraulic fracturing ban, restrictions of fluids which could be used, and implementation of federal underground injection control (UIC) compliance regulations in addition to current state regulations.

With a total ban, it said that real gross domestic product would plunge $374 billion, or 2.3%, from the economic reference case and 2.9 million jobs, or 2%, would be lost by 2014 as a result of the 79% drop in oil and gas well completions which would result.

US GDP would drop by $172 billion, or 1.1%, and 1.3 million jobs, or 0.9%, would be lost under the study’s fluid restrictions scenario, while the UIC compliance approach would cut domestic GDP by $84 billion, or 0.5%, and oil and gas industry payrolls by 635,000 jobs, or 0.4% during the same period, the study said.

Economies of the leading US gas production states (Texas, Louisiana, Wyoming, and Oklahoma) would probably be hit hardest, although many states with little or no oil and gas production would indirectly feel the effects rippling through the overall US economy, it added. Impacts would be particularly severe in states with relatively small economies such as Arkansas, Mississippi, Montana, Utah, and Virginia, it said.

The latest report follows the study’s initial findings, which API released on June 9. They indicated that the number of new US wells drilled would drop 20.5%, reducing domestic gas production by about 10% from 2008 levels if Congress placed additional federal hydraulic fracturing regulations on top of existing state programs.

“Hydraulic fracturing is a safe, proven, 50-year-old technology that is critical to developing the natural gas used to heat homes, generate electricity, and create basic materials for fertilizers and plastics,” said API President Jack N. Gerard. “More than 1 million wells have been completed using this technology. Unnecessary additional regulation of this practice would only hurt the nation’s energy security and threaten our economy.”

Contact Nick Snow at nicks@pennwell.com

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