Increasing government oversight of the hydraulic fracturing process for drilling oil and gas wells would have calamitous effects on the U.S. economy, according to a study issued by the American Petroleum Institute (API), a trade group representing the oil and natural gas industries.

The API study looked at three scenarios that could happen should the U.S. Congress pass the FRAC ACT – Fracturing Responsibility and Awareness of Chemical Act, which would remove the oil and gas industries’ exemption from compliance with the Safe Drinking Water Act.

The group came to the unsurprising conclusion that the passage of this act would reduce the U.S. gross domestic product (GDP), increase unemployment, expand the federal deficit, and increase the imports of crude oil and natural gas.

The study looked at each of these aspects under three scenarios: the total elimination of hydraulic fracturing; the restriction of fluids that are approved for hydraulic fracturing; and an increase in federal Underground Injection Control (UIC) compliance regulations on top of those currently found on the state and local levels.

API’s study found that real GDP losses would hit $374 billion, in 2008 dollars, in 2018 with no fracturing approved, $172 billion with fluid restrictions, and $84 billion in additional UIC compliance.

According to the study, unemployment would peak at 3 million jobs being lost in 2015 with no fracturing, 1.4 million jobs would be lost in the fluid restriction scenario, and 676,000 jobs would be lost in a scenario in which UIC compliances were added.

The federal deficit would expand by $139 billion in 2014 under a no-hydraulic fracturing scenario, the same timeframe would see a $66 billion increase with fluid restrictions in place, and a scenario in which additional UIC compliance would be required would see a deficit increase of $32 billion, according to the study.

According to the API study, the U.S. trade balance with foreign nations on crude and gas would grow by $135 billion in 2014 with no hydraulic fracturing taking place. The deficit would increase $95 billion in 2014 with fluid restrictions, and additional UIC compliance would widen the deficit by $46 billion.

“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 Gerard. “More than one 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.”

The FRAC ACT was introduced as companion legislation in both the House and the Senate last month by Sen. Bob Casey (D-Pa.), Sen. Chuck Schumer (D-N.Y.), Rep. Diana DeGette (D-Colo.), Rep. Maurice Hinchey (D-N.Y.) and Rep. Jared Polis (D-Colo.)., in an effort to close the exemption passed under the Bush administration in 2005 (GPR 6/17/09).

It should be noted that the bill, which would provide the Environmental Protection Agency (EPA) with the authority to oversee the frac’ing process, would not bad the practice.

However, some in the natural gas industry feel that the bill could have the undesired effect of creating an unofficial ban with producers withdrawing from some areas if the price of drilling would rise significantly in order to be compliant with the legislation.

EPA officials stated that should the legislation pass they would cede oversight of the process to the state in cases were state regulations of hydraulic fracturing are already in place.

To view the full study, visit http://www.api.org/Newsroom/upload/IHS_GI_Hydraulic_Fracturing_Task1.pdf

-- Frank Nieto