A Decade in Which Fracking Rocked the Oil World

Source: By Rebecca Elliott and Luis Santiago, Wall Street Journal • Posted: Wednesday, December 18, 2019

Shale drillers made the U.S. the globe’s top producer of oil and natural gas, but the boom is showing cracks as the decade ends

A decade later, it leads the world in oil as well as natural-gas output, having more than doubled the amount of crude it pumps while raising gas production by roughly two-thirds, according to federal data.

There is a simple reason for the surge: fracking. Horizontal drilling and hydraulic fracturing techniques spurred a historic U.S. production boom during the decade that has driven down consumer prices, buoyed the national economy and reshaped geopolitics.

Though some of these methods had existed for years, they were successfully applied to dense rock formations only about two decades ago as technologies improved, allowing companies to unlock vast amounts of oil and gas.

Drillers first targeted natural gas in the Barnett Shale of North Texas, and later unleashed a trove of the fuel in Appalachia. Further advances allowed them to release heavier oil molecules from shale formations. That led to a renaissance of one of America’s most venerable oil fields, the Permian Basin of Texas and New Mexico.

A decade ago, drilling and fracking in tight rock formations such as shale produced less than one million barrels of oil a day in the U.S., according to data from the Energy Information Administration. Today that figure is roughly eight million barrels a day.

Before the surge in shale drilling, U.S. crude production had been steadily declining since the 1970s, leaving the country vulnerable to price shocks such as after the 1973 Arab oil embargo. Now, the country is more insulated, thanks in large part to the shale boom. After Saudi Arabia shut down more than half of its oil production following a September attack on its oil facilities, U.S. benchmark oil prices briefly shot up but declined to pre-attack levels in about two weeks. Fracking also has limited the domestic effects of sanctions on countries such as Venezuela, which had long been one of the top suppliers of crude to the U.S.

The shale boom, meanwhile, has supported a surge in overseas crude sales, allowing the country to become a net exporter of oil and refined products such as gasoline for the first time in decades.

“At the beginning of the decade, energy independence was still a joke for late-night television comedians,” says author Daniel Yergin, who is vice chairman at IHS Markit. “Turn around a decade later, and we’re here.”

Soaring U.S. oil production also helped create a global glut of crude that has forced the Organization of the Petroleum Exporting Countries and Russia to curb output to prop up prices, a dynamic that continued through the end of the decade.

Rapid U.S. natural-gas production, meanwhile, created a surplus of the cleaner-burning fuel and made it inexpensive. That led to a historic shift: Gas surpassed coal as the top source of U.S. electricity during the decade, the EIA says. The average price of gas for residential customers also has fallen by about 25%, adjusted for inflation, since 2009, EIA estimates show.

The added oil production changed the relationship between crude prices and the U.S. economy. Whereas higher oil prices were once an unequivocal drag on the country’s economy, the impact is now more mixed. More-expensive crude still hurts consumers, but it is an economic boon to the country’s revived oil-producing regions, partially offsetting the impacts.

“Oil prices go up—Texas wins, North Dakota wins, New Mexico, Oklahoma,” says University of Chicago economist Ryan Kellogg.

But while the boom has had dramatic ramifications for markets and the economy, it has not in recent years delivered good returns for investors in shale companies, which have spent far more than they have made as they pursued rapid growth. Clear signs have been emerging of a slowdown, as shale companies pull back on spending in response to fed-up investors and tightening access to capital.

Many companies have said they plan to reduce pumping in 2020. EQT Corp. , the country’s largest natural-gas producer, is among those planning to scale back next year under pressure from shareholders more interested in profits and healthy balance sheets than breakneck growth.

“There’s still growing demand for natural gas. It’s just that demand has not been growing as fast as we grew supply,” EQT Chief Executive Toby Rice says. “We’re responding to the owners of the business, investors.”

Shale producers also have been grappling with mounting concern from some investors and government officials about their environmental footprint. Some 2020 Democratic presidential candidates have proposed to ban fracking altogether.

“Climate change and investors are the two big challenges,” says Scott Sheffield, chief executive of Pioneer Natural Resources Co. , one of the largest Permian producers.

Ms. Elliott is a Wall Street Journal reporter in Houston. Email rebecca.elliott@wsj.com. Mr. Santiago is a Journal graphics editor in New York. Christopher M. Matthews, a Journal reporter in Houston, contributed to this article.