Saturday, November 16, 2013

Fracking economics - review of presentation given by Deborah Rogers

SU hosted hosted an anti-fracking speaker, Deborah Rogers, on Thursday night.  (link here.)  

She is an anti-fracking activist, focusing on the financial side. I knew this going into the speech, but I was still hopeful she would give an objective presentation of the facts, then just discuss her interpretation of them.  That didn't happen.

As somebody who reviews economic impact studies and sees the bias on both sides, many of her statements were misleading or interpreted in a way I found questionable. 

Here are four issues I had with points she made:

1. Do you want to produce something using more inputs, or less inputs?  She talked about how the direct jobs with natural gas drilling were "only" 180,000 nationwide.  That produces 45% of our country's energy.  This is while the direct jobs with renewable energy was about the same, but produced 15% of energy.  She then concluded that it would be better to promote renewable energy because it creates more jobs.  (Note - you could make an externalities argument for why to use renewables - but that's not what she was doing.)

This is faulty economic logic.  If you can produce more output with the same amount of workers, then you're better off.  If it takes 3 times the workers to produce some level of output, the price will be higher. 

2. She laughed off the statement that "fracking has helped the poor", claiming that natural gas companies had no interest in helping the poor.  Here is an excerpt from  the story she was discounting:
Thanks to the lower price for natural gas, families saved roughly $32.5 billion in 2012. (That's 7.4 billion MMBTUs of residential use of natural gas times the $4.40 reduction in price.) The windfall to all U.S. natural gas consumers—industrial and residential—was closer to $110 billion. This is greater than the annual income of all of the residents in 14 states in 2011.
She, of course, didn't go into the specifics, she just called it laughable that companies would want to help the poor.  With that, she might be right.  But the great thing about the free market is that sometimes the poor do benefit, even if the companies had no intention of helping the poor.  Because of fracking, the quantity of natural gas increased, pushing the price down.  This helped the poor.  She can deny this all she wants, but its pretty clear the lower natural gas prices have benefited the poor, and, as I argued, are a big reason Obama got reelected.

3.  Is the natural gas industry being unfairly subsidized relative to "green energy"?  She described, several times, how the drilling industry damages roads and don't pay the fair share of the damage.  This, she says, gives them an unfair advantage over green industries.  Several points related to this:

A. In research I'm doing with Dave Ramsaran, we have found that these companies are paying for road improvements, and citizens are saying their roads are better.  What she claimed didn't match what we found in our research.

Let's assume she's right for a moment, however ....

B. It's disingenuous to talk about fracking being subsidized by government relative to green energies.  The only reason windmills, solar panels, etc. are somewhat viable now is they've been so heavily subsidized by tax dollars.  Many times, quite poorly.

C. Do other companies pay road taxes?  For example, what about Fed Ex or UPS?  Or environmental companies?  If no companies pay traveling on roads, should frackers?

4. She disregarded the indirect jobs, saying they're counting "prostitutes and strippers".  If any statement showed her bias, it was this.  Technically, she's right.  If fracking brings in 1,000 jobs, one or two might be for strippers and prostitutes. The others are for grocers, restaurant workers, hotel workers, lawyers, etc., however.

There was one part of her talk that I thought was informative and interesting.  She made an argument for why she thought production would drop and prices would rise.  I've heard others make the case before, but she made it as clearly as I've ever heard.  I don't think I agree with her (and it's different from other reports), but it was a well-argued case and was informative.  Overall, however, I was quite disappointed.

Both the left and right make assumptions that can help give an incomplete story on the economics of fracking.   Those who do this work, from both the left and right, get paid for this, and it's a common problem with many economic impact studies, not just fracking.  Unfortunately, I felt like yesterday's speech was a good example of this.


  1. Matthew, the "people on the right" have their own money at stake, while those on the left are against fracking for their other reasons. If fracking doesn't work financially, let its investors lose money. Given what is going on in Mid East, but for fracking what do you think oil prices would be?

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