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Fracking Would Revive Texas' Energy-Patch Glory  

Peter Suciu,|Special to CNBC.com
Wednesday, 20 Jun 2012 | 9:37 AM ET

Natural gas has often taken a backseat to crude oil in the Texas energy business, but the advent of fracking shale gas has given it star billing in the Lone Star State — and the U.S.

drilling equipment
Don Young/FWCanDo
drilling equipment

Texas already leads the U.S. in natural gas production and holds about 23 percent of the nation’s natural gas reserves.

The Permian Basin in West Texas and southeastern New Mexico could be the next region to strike it big, bringing jobs and development.

“Cities like Midland are poised to see a big comeback,” says Andrew Coleman, managing director at Raymond James. “The Permian Basin was like OPEC in the 1930s and 1940s."

“The easy stuff to get was the oil,” adds Coleman. “But now they’re going back for the gas. There were places in West Texas that became ghost towns after the easy stuff was gone, but now fracking and other technology is poised to bring people back to places like Midland.”

The basin is just one of several areas in Texas and the western Gulf region where fracking may come to rule the local economy.

Eagle Ford in East Texasis already one of the hottest North American shale fields — part of what several estimates say could be a 100-year supply of domestic natural gas — and perhaps the largest recoverable oil deposit ever in the lower 48 states, according to astudyby the Center for Community and Business Research at the University of Texas at San Antonio’s Institute for Economic Development.

The study estimates gas production in Eagle Ford could generate more than $25 billion in economic development and support almost 50,000 jobs, and that between 2008-2011 it accounted for some 6 percent of the economic output of the 24-county area.

The sales tax revenue generated by Eagle Ford shale production could even provide a “credit positive” effect on the bond rating for local governments according to a study by Moody’s Investor Service.

It could even spur a transformation far beyond Texas.

“We are seeing terminals that companies spent billions of dollars on for importation of fuel are now being changed to allow for exportation,” says Thomas Tunstall, director of the Center for Community and Business Research at UT San Antonio. “The United States has no need for the importation of natural gas at this point. Instead we are looking to become an exporter.”

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Many in Texas — where energy has been the lifeblood of the economy for about a century —think shale gas could be a game changer not just for the region but the United States as a whole.

According to a new study by research firm IHS Global Insight, the coming shale gas boom could create some 1.5 million jobs by 2015, and another 900,000 by 2035.

“This is the best thing that has happened to America in 200 years, and natural gas production could help make the country independent from other sources,” says Michael E. Powell Jr. publisher of the industry newsletter Powell Shale Digest. “We’re talking much in the way of economic growth for the region, too — hundreds of thousands of jobs and billions dollars in the local economy for Texas. This is some very serious money.”

Not everyone in Texas believes shale gas heralds such boom times. Nor do they say it is likely to have much of a trickledown effect.

“The amount of gas in the ground has been vastly inflated,” says Don Young, founder of Fort Worth Citizens Against Neighborhood Drilling Ordinance, whose concern is what the Barnett shale region of North Texas means for those living in the Dallas-Fort Worth urban sprawl.

Young's skepticism about the amount of recoverable reserves is echoed in other areas of the country as well as in Washington, D.C.

Rig situated very close to near by home.
Don Young/FWCanDo
Rig situated very close to near by home.

“There are just a few people getting rich off this, but residents have been bombarded with advertising telling them they’ll be the next Jed Clampett,” says Young, referring to the patriarch of the 1960s TV show "Beverly Hillbillies."

At the moment, rock-bottom gas prices have hurt some areas, such as Louisiana's gas-rich Haynesville shale field, where the number of rigs has dropped from 140 to 40 in the past 18 months.

At one point in 2009,

The rigs, and the jobs that come with them, are unlikely to return until prices rebound.

"It will be worth drilling next year, but isn't worth it today," says James L. Williams of WTRF Economics, which tracks energy prices.

And that will mean jobs and income.

The operating assumption, say experts, is that over time demand will increase as natural gas is used more as a source for transportation and electric-power generation and more is exported, which will support prices and development.

A big issue under debate is whether fracking could contaminate the water supply of a region where water is scarce and droughts common.

“The water table is just once concern, not just the water removed to do the drilling, but the pollution from runoff as well as spills,” says Young. “People think this is a clean process but it really isn’t. This is Texas, which is notorious where environmental concerns of any kind are swept under the rug.”

Some experts say what is actually inflated are the environmental concerns. In April, the Environmental Protection Agency dropped a claim that an energy company contaminated drinking water in Texas following a showdown with Texas Gov. Rick Perry, who called environmental concerns “a fear tactic" of the Left.

“In every case but one, where there was improper management, water contamination hasn’t been an issue,” says UT's Tunstall. “There is also no evidence that directly links hydraulic fracturing that is being done 6,000 feet or deeper to water contamination. The concerns are justified, but any concerns that this could be another BP type disaster aren’t. This is a very different process from drilling to production.”

Even the amount of water being used has been widely overstated, says Williams.

“If you look at the use and compare it to a town of 10,000 to 20,000 people, it is actually far less water than is what people use to water their lawns over the course of a few days.”

Despite the outstanding environmental concerns, once the price of natural gas rises again, it could likely change the Texas landscape in many ways — but the debate will continue — for better or worse.

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