During most of my college days, I commuted to classes about 12 miles away, requiring that I fill my gas tank weekly. Near my home was a gas station that ran a special every Wednesday, with gasoline priced at $0.259 per gallon. Needless to say, this college kid found his way to that station every week.
Since that time, I have watched as the Organization of the Petroleum Exporting Countries (OPEC) has controlled the price of gas by manipulating production levels. In 1973 OPEC created a shortage of gas, thus driving prices up and creating long lines at the gas pumps, as gas was quasi-rationed in the United States.
Fifty years ago, the concept of hydraulic fracturing — a process by which water and chemicals are forced underground to create pressure to break up shale and rock, thus releasing oil and natural gas — was unheard of. That process is commonly known today as fracking. Until a few years ago, fracking was executed either straight down or with only one drill turn. Since then, technological advances have created the ability for a single drill hole to branch out tentacles in multiple directions, enlarging the fracking area to a miles-wide diameter. Because shale and rock are pretty evenly divided throughout the world, fracking should result in diminished reliance on OPEC oil; however, many countries do not possess the ability or desire to utilize fracking.
Consequently the United States has assumed a huge lead in fracking production worldwide. One reason is that our laws clearly assign landowners the rights to their land down to the middle of the earth. Other countries do not have that clarity, resulting in protracted legal proceedings for definition. Second, the United States enjoys more efficient access to capital than most of the globe. Third, the United States owns about 90 percent of the equipment capable of performing fracking operations. Lastly, the United States has the infrastructure to distribute the water needed in the fracking process.
It is predicted that the United States will be the leading producer of oil and natural gas by the year 2020. The geopolitical ramifications of this shift are mind-boggling. Our ability for advancements in manufacturing will be greatly enhanced by cheap oil and natural gas. A concern, however, of some countries is that U.S. oil independence might lessen our role as world police, and that we will not involve ourselves in defending other nations. Will other nations become more financially dependent on the United States; if so, how will we respond?
It seems like a wonderful problem for the United States to face. Anything that gives our nation a competitive advantage will be good long-term for our economy and for most industries, including financial services. More wealth creation provides for increased economic stability and growth, to the benefit of each and every bank doing business in the United States. While we certainly will not see gas priced at $0.259 again, perhaps we can attain long-term oil price stability and a growth environment for banking services.