Hydraulic fracturing technology has transformed America’s energy status. Instead of running out of domestic oil and gas, an abundance scenario has reduced energy costs throughout the economy, affected the domestic jobs mix, diminished the threat of Russian strategic withholding of oil or gas supplies, and reduced the economic power of OPEC.
The far-reaching effects of this energy technology breakthrough provide an opportunity to examine in detail how the interdependent energy technology and energy market systems interact to affect many other decisions and developments. For example, the success of shale gas development to the point where there being oversupplies lowered market prices for natural gas. The lower prices first led to more natural gas-fired power being dispatched because of lower price bids for the gas-fired power versus coal-fired power. This, in turn, led to lower overall prices for electric power priced in organized markets, such as PJM. As the price of electricity declined, revenues for renewable power and for base load power (both coal-fired and nuclear) declined. The decreased profitability of nuclear plants has driven the early retirement of several of these plants. This has lowered the production of zero carbon emitting power. The FERC, nuclear facility owners, and some state commissions are trying to address this challenge to keep nuclear power in the Clean Power Plan options. Other technology effects include the improved outlook for gas-dependent manufacturing. With shale oil, the rapid production growth in the non-traditional area of North Dakota out-paced pipeline capacity growth. This, in turn, affected railroad systems. Railroads expanded tanker car capacity and moved significant volumes of crude oil from ND to the east, gulf and west coasts. The oil unit trains displaced many coal unit trains - which adversely affected coal power plant operations. Internationally, the significant growth of US oil/gas production affected global prices. For both geological and policy reasons, hydraulic fracturing with horizontal drilling is quite limited elsewhere in the world.
The success of hydraulic fracturing for U.S. shale development offers specific lessons for contemporary energy policy as well as more general lessons about the impact of technology innovation on policy and markets.