Fracking made the U.S. a major oil producer, but not energy independent
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The oil shortages of the 1970s triggered laws that banned the export of American crude oil. Those lingering fears of scarcity kept those laws around for decades. Then came the shale revolution in mid-200os, otherwise known as the fracking boom, which helped the United States become one of the world’s top oil and gas producers. In her book, “Saudi America: The Truth About Fracking and How It’s Changing the World,” author and journalist Bethany McLean explores fracking’s nuanced success, but also cautions that this energy revolution is not the country’s golden ticket to energy independence. She spoke to host Sabri Ben-Achour on Marketplace Morning Report.
Below is an edited transcript of their conversation.
Sabri Ben-Achour: Your book opens with the story of a tanker delivering American crude oil to a port in France about three years ago. Why did you start there? Why was that so significant?
Bethany McLean: Because for about four decades, it was actually against the law to export American oil. And the basis of this goes back to the 1970s when there was just this desperation about American shortages of oil, and this belief that we had to hang on to every last drop we could possibly produce because we were going to face looming shortages. And so, when the shale revolution – fracking as it’s commonly known – began in the mid-2000s, there were still this huge fear that we were going to be dependent on other countries for our oil needs for the foreseeable future. Instead, we grew to become the oil and gas powerhouse, so people are talking about American energy independence. And in the waning years of the Obama administration he actually overturned the ban on exports so that American oil can now be exported and sold to other countries. It was a huge moment.
Ben-Achour: “Saudi America” is centered on a businessman, Aubrey McClendon, a real person, who is a relentless believer in fracking. Can you describe him briefly and why he’s so important to the story of American oil and natural gas?
McLean: I think Aubrey McClendon is one of the great characters in American business, love him or hate him, and there are people who do both. But we wouldn’t be where we are and this story of fracking if it weren’t for McLendon. He was not the guy who came up with how to do this, technologically speaking. But he’s the guy who figured out how to bring the other necessary ingredient to American fracking, and that was capital. He was a pioneer in going around the world and convincing people to lend him and his company literally billions of dollars in order to drill for natural gas and eventually oil. And he’s a really controversial guy, and he ends up dying in a fiery car crash in the spring of , right when it looks like the American fracking industry is dead. And so it’s a punctuation mark on what looks like the death of the industry. And it turned out that wasn’t quite the case. I found McClendon a really great way to illustrate some of the complexities and challenges in the fracking revolution.
Ben-Achour: That oil explosion that you mention, the common narrative is that it’s because of fracking. That expanded the access and supply of gas and oil in the U.S. and then we could export it. But you actually write that it may have less to do with technology and more to do with the financial crisis. Can you explain that?
McLean: Yes, absolutely. So, it does have to do with fracking, this very controversial method of getting oil and gas out of ground. That’s what has dramatically changed the picture in the United States, taking us from a decade ago, these constant and looming fears of shortages, to this belief that we are an oil and gas powerhouse on par with Saudi Arabia and Russia for the amount of oil and natural gas we can produce. And fracking is an ugly method in some ways of extracting resources from the ground. And most of the controversy about this has been focused on the environmental consequences. What I focus on in the book is the financial consequences. Most people think that chemicals are the key ingredient in fracking but it’s actually capital. And what fascinated me about this industry is it doesn’t make money. These companies lose billions of dollars. They’ve never produced free cash flow. They’re really dependent on Wall Street’s willingness to fund them. And I think that’s a big weakness in this picture of American oil and natural gas surplus that most people don’t focus on that I think is really important to understand.
Ben-Achour: One of the themes of your book is fragility of the oil and gas industry and the fragility of the concept of energy independence. You kind of write about it as if it’s a mirage. Why is that?
McLean: One of the things that made me so interested in this book was this conundrum, this idea of American energy independence. Here we are, beating our chest about how we don’t need to rely on Saudi [Arabia] or the Middle East anymore because we’re producing so much of our own oil and natural gas. But then, this idea that these companies don’t make money. But then I discovered even underneath the idea that the companies don’t make money, this whole idea of energy independence is really illusionary. And the reason why is that the price of a barrel of oil is a global price. It’s set by events around the world. We can never be independent of that the way we were in the 1970s. We can’t control the price of a barrel of oil. So, this notion of energy independence itself is very fraught and not all that it’s cracked up to be.
Ben-Achour: Texas is set to be the world’s third largest oil producer in the world behind Saudi Arabia and Russia. On the other hand, we are seeing reports that the shale oil industry is struggling. So, what do you think the future of shale is in America?
McLean: So, one of the things I learned in doing this book is that it is the height of arrogance to try to predict the future of the oil industry in any way. People do this, and they are routinely wrong. The only consistency in forecasting the direction of the oil industry is that it’s wrong. So, I decided to be pretty humble about this. There are a lot of factors that are just so hard to know. Right now, shale producers are struggling and there’s this big financial overhang on them. But shale has been much more resilient than even its proponents would have ever dreamed. So, predicting shale oil is kind of, it is calculus, it’s not even algebra. And it’s really complicated. And I think perhaps a strength of the book is that it’s nuanced and there isn’t an easy conclusion about where it’s going to go. What I try to do is more tell the story and tell the story through great characters about things we should be thinking about as we weigh this really important issue for our country.
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