The cost of energy is on the up, well in Western Europe any rate, and the continued increase in price of gas and electricity has been given as a major reason as to why the recovery is taking so long.
This is not the same in America though. In the US there has been a major increase in the production of oil and gas which has meant a drop in costs for both manufacturers and consumers. This has helped the economy enormously and has led to over two million new jobs. Not only that but it has meant more revenue for both federal and state tax collectors and increased the average family income by well over USD1,000. One of the main reasons for this is fracking, which is also known as hydraulic fracturing.
So, if it is working so well in America why isn’t everyone doing it? Protestors say that large scale fracking will be an environmental nightmare and this has hampered governments from pursuing fracking more actively. The UK is meant to have huge reserves as do a lot of other European countries. What is the problem? Exactly what is fracking?
Simply put, hydraulic fracturing (fracking) is a type of drilling that loosens hydrocarbons (oil and gas) that are in formations of shale rock. A combination of water, proppant and chemicals are pumped into the shale rock to break it up so it can be released and then get to the surface.
It is reckoned, in America, fracking has guaranteed the country gas until the next century and, as intimated above, has reduced prices and increased oil production. In the UK, it has been calculated that shale gas could keep the country going until around 2050.
In a recent report, the Institute of Directors has worked out that investment would be nearly GBP4 billion and be responsible for almost 75,000 jobs. This has obviously attracted the notice of the government as it will benefit the economy, bring down unemployment, reduce benefit expenditure and boost GDP. On top of this, it will mean there will be less reliance on imported gas which will help the balance of payments. The government has also promised that any community located near to a fracking site will be given a lump sum up front to be of benefit to the local population as well as one percent of the revenue from the drilling itself.
That is all the good news. The bad news is that there will be an environmental impact. This comes from several things such as a large increase of traffic and potential pollution of drinking water. Some believe that fracking also allows methane to escape into the atmosphere and is responsible for earthquakes.
Where does this leave us? The US has ploughed ahead with fracking come what may. It is in a better position than the UK and Western Europe to do this as it is more isolated and a lot more advanced. The latter has to contend with the environmentalists and the fact that they are not as far down the line as the Americans. However, the benefits are there for all to see and unless Greenpeace et al have their way then I cannot see any alternative to the fact that fracking will become much more common than it is now.
As yet, there are no fracking funds but the following companies in the UK could be worth looking at if you want to invest in this type of thing:
– iGas Energy can be found on the Alternative Investment Market
– Centrica is a FTSE 100 company
– Dow Chemicals are very active in the US and can be found on NYSE. They are an S&P500 company
If you do want to invest in fracking then please remember the risks. This would be the aggressive part of a portfolio so please do not invest anything but a small portion of your investments in this field.
| The above data and research was compiled from sources believed to be reliable. However, neither MBMG International Ltd nor its officers can accept any liability for any errors or omissions in the above article nor bear any responsibility for any losses achieved as a result of any actions taken or not taken as a consequence of reading the above article. For more information please contact Graham Macdonald on [email protected] |
