The Benefits of Fracking

New methods of harvesting natural gas and oil from shale formations through fracking (hydraulic fracturing) have already provided several benefits to the U.S. But how widespread and long-term will those effects be, and how will they impact the companies that make up the supply chain throughout the U.S.?

Lower energy prices

Unconventional production methods have produced an abundance of natural gas in the U.S., and that is reflected in its price, which is less than half of what it was 10 years ago. Natural gas prices are three times higher in Europe and five times higher in Japan. Lower gas prices impact electric rates, since many U.S. generating plants already run on natural gas.

In addition, utility companies are either converting coal-burning plants or building new natural gas-powered plants to take advantage of this plentiful resource. Retailers, warehouse operations and other companies in the supply chain all benefit from lower electric prices.

The costs of transporting goods may also be affected, with trucking companies buying more vehicles that run on liquefied natural gas (LNG) or compressed natural gas (CNG) for their fleets. UPS has announced plans to add nearly 1,000 LNG tractors in the next two years, and engine manufacturer Cummins projects that in seven more years nearly 30 percent of its high horsepower engine production will be natural gas.

Oil prices (and thus the price of gasoline) may also level off because of the oil extracted from shale.

More jobs

An October 2012 study from IHS Global attributed more than 1.7 million jobs today to unconventional oil and gas development, and predicted an additional 3 million jobs by 2020 and 3.5 million by 2035. That includes direct jobs, which result from the production of the gas and oil; indirect jobs that support that production and induced jobs that come when people with direct and indirect jobs spend money.

Together, these jobs will impact the supply chain in several ways. There is the increased demand for construction materials and construction components required to get the wells and pipes in place and for the transportation and wholesale retailers that will move and sell those supplies. In areas where production is taking place, there will also be an increased demand on consumer goods ranging from food

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– By Mary Lou Jay