The fracking revolution in the United States has had a profound impact on the country’s balance sheet.
In just the first six months of this year, the country’s petroleum-related deficit has fallen by a whopping 16% over the same period last year, from $125.7 billion to $105.3 billion.
These numbers are astounding.
With more resources being pumped out of the ground, we’re just not buying as much oil from foreigners as we used to. Petroleum imports in June fell to $27.4 billion, the lowest amount since November 2010 – in the middle of the Great Recession.
Some estimates show that the fracking revolution, when measured in jobs created and economic impact, has added 1% to the country’s GDP.
Indeed, the fracking boom could lead to a tax cut of sorts for U.S. consumers.
An Unexpected Gift for Consumers
As fracking grows and production increases, the prices for oil and gas are moving in the opposite direction.
Barring a conflict in the Middle East or Russia that affects oil production – or a colder-than-expected winter – the U.S. consumer will likely enjoy lower prices heading into the end of the year.
Gas prices in some parts of the country like South Carolina are under $3.16 per gallon for regular gas.
It’s likely, based on current trends and the end to the summer driving season, that gasoline prices might break below the $3-per-gallon level in the fall.
When gas prices fall as sharply as they have since the beginning of this year, it’s like a tax cut for consumers, further underpinning economic growth.
Indeed, these types of economic results ensure that fracking is here to stay – and will continue to grow.
That is, unless outside forces try to block the industry’s momentum…
Environmentalists Staging a Natural Gas Coup
In recent months, there have been some negatives surrounding the future of fracking.
Just a few weeks ago, I wrote about the ruling in New York that allowed local governments and municipalities to decide whether or not to allow fracking operations in their own areas, contrary to existing state law.
The ruling was seen as a victory for anti-frackers. But I’m convinced that the fracking revolution is much too big to fall victim to the whims of government.
It’s a mega economic engine that drives job creation, housing prices, municipal wealth, and energy dependence. There’s no way environmentalists are going to derail those benefits.
Case in point is Colorado. The state was in the midst of a major battle between anti-fracking groups (led by the Democrat candidates for office) and the pro-fracking groups (led by the Republicans).
At issue were the residents’ concerns about fracking and how to limit the practice. The battle was to be played out on Election Day 2014 and was considered a major flashpoint in the state.
Well, the initiative is no longer on the ballot – surprise!
It turns out that the Democrats weren’t too keen on looking like they were against economic growth. Now backroom dealings between all the parties are moving towards a resolution that would satisfy everyone (except the diehard environmentalists).
Not only is fracking here to stay, rig counts indicate that the industry is on track to grow substantially. In the Permian Basin, for instance, rig counts are up by more than 100 (rising from 463 last year to 563 this year).
It’s just important to keep in mind that the biggest danger to the fracking industry is itself. As production rises, the price of the commodity will fall – which ultimately affects profitability.
So stick with the companies that maintain a lower-cost structure and rely on less leverage. For example, Laredo Petroleum (LPI) is a great early-stage, low-cost play on the Permian Basin.
And “the chase” continues,