By Benita M. Dodd
Georgia boasts no native sources of fossil fuel – coal, natural gas or oil – yet the energy industry fuels this state’s economy just as surely as if it were the epicenter of operations.
As the state slowly recovers from the economic downturn, the 50 percent drop in prices at the nation’s gas pumps over the past year has been a mixed blessing. On one hand, it gives commuters a cheaper trip and lowers the cost of doing business for companies. On the other, it reduces the viability of recovering “unconventional” oil and natural gas resources in an already-hostile regulatory environment.
While hydraulic fracturing – “fracking” – has been around in one form or another for about 150 years, the energy industry boom began when higher oil and gas prices combined with innovative horizontal and directional drilling to make it economically viable to extract previously inaccessible, “unconventional” U.S. shale gas and oil resources. From 2007 to 2012, increased production resulted in U.S. crude oil reserves increasing 43 percent and natural gas reserves growing 30 percent.
Economic viability for fracking, according to industry experts, requires oil prices around $80 a barrel. This week, oil was trading at $48-$56 per barrel, the result of a deliberate effort by OPEC to drive U.S. shale producers out of the market by driving prices lower than they can afford. As Bloomberg News reports, “That way Saudi Arabia, the cartel’s biggest exporter, can keep its market share in the U.S.”
How long OPEC can keep this up is anybody’s question. Obama administration policies exacerbate the challenge. Last month, President Obama vetoed the Keystone Pipeline project, ignoring scientific research and depriving Americans of jobs and our allies’ resources – as this Foundation warned. Last week, tougher new regulations for fracking in federal lands doubled down on the hurt.
Just 25 percent of fracking takes place on federal lands, but the industry is justifiably concerned states will embrace the regulations – for uniformity’s sake – and that it’s only the beginning. As a Sierra Club spokesman maintains, “the only true way to protect communities from fracking is not to frack at all.”
A 2014 U.S. Census Bureau report found, “mining, quarrying, and oil and gas extraction industries were the most rapidly growing part of our nation’s economy over the last several years.” Today, the industry responsible for abundant, affordable fuel using environmentally safe methods is scaling back operations and auctioning off equipment. The number of oil and gas rigs drilling new wells has fallen more than 38 percent.
Middle Georgia’s “kaolin belt,” especially, feels the hurt as the fracking downturn affects mining and manufacturing of proppants, tiny ceramic beads using kaolin and bauxite ore. Described as the “foot in the door,” proppants prop open the fractures as shale gas and oil are extracted. Some examples:
- In February, French company Imerys announced it was indefinitely “mothballing” a facility in Andersonville (opened in 2012) and reducing production at a $140 million facility in Wrens that it purchased in April 2013. The Andersonville facility includes 16,000 acres devoted to mining and processing kaolin and bauxite ore into proppants.
- In March, Carbo Ceramics, a 36-year-old Houston-based company that is the world’s largest supplier of proppants, announced it was closing its plant opened in McIntyre in 1998. The company, which has plants in Toombsboro and Millen, said it’s “managing output at other facilities,” which includes slowing down and idling production as deemed necessary. In February, it deferred completion of a second proppant manufacturing line at its Millen plant. According to news reports, Carbo’s Georgia investment of more than $350 million provided more than 200 Georgians with jobs.
“Our business is about 80 percent local and about 20 percent tourist, so when we lose a company like Imerys, when they lay off people, it really hurts us,” an Andersonville store owner told WBRC News. “[A] lot of the people that work there, even though it’s 15-20 miles away, live here, and shop here in our community and eat in our community so it’ll be a big difference for us.”
Georgia companies involved in pipeline and drilling equipment manufacturing also are trying to outwait OPEC and compensate for bad policy. Meanwhile, it behooves Georgians to remember that unfriendly energy policies out of Washington, D.C., and the White House don’t just hurt far-off Canada or Alaska’s Arctic National Wildlife Reserve. When they slam the door on economic opportunity, Georgia’s foot is in that door.
Benita Dodd is vice president of the Georgia Public Policy Foundation.