We all known that oil has been one of the most important economic and political factors in the last years. For decades, it has been vital for different nations, letting them play a significant role in our world. Thanks to the importance of hydrocarbons in our planet, countries like the United States, Spain, India or Canada, have developed different alternatives to be more competitive in the oil market, in addition, with these strategies, they have achieved not only more independence for their production, but also reducing the oil prices.
One of the most significant alternatives developed by these mentioned countries is fracking. This technique has given to them not only the possibility of being more self-sufficient but reducing the oil demand in the world, which reduces the oil prices. In other words, the fracking technique is letting to those countries like the United States or Canada, to be less dependent on external hydrocarbons, due to the possibility of having their own oil from their soil.
Before talking about the influence of fracking in oil prices, it is important to know how this technique works and some of its most important concepts.
What is fracking?
We can define fracking as a revolutionary method for extracting oil and gas from soil, which can reach these elements from deep places. This practice works introducing a cement tube to more than 2500 meters of depth, permeating with water all the rock, fracturing it and making possible the oil outflow. This technique has been used in multiple oil wells in different states, but those who use this method most are countries like the United States, India or Canada.
For permeating water, the fracking practice uses different fluids. One of the most important ones is the hydrochloric acid, which cleans the drilling area, facilitating the introduction of the pipe in the rock soil. Another significant element used in fracking is the Ethylene glycol for sediments prevention in the cement pipe. Other vital components for this technique are the citric acid is used for corrosion prevention, the isopropanol, the borate salts, among other things.
The fracking technique has been used for more than 20 years. In 1998, George P. Mitchell was the first person working under the fracking methods through his company Mitchell Energy in the United States, achieving a cost reduction for oil production. Today, with all the advances and evolution of this practice, the fracking system has made that more than 60% of the oil wells in the United States increase their production in a significant way.
However, this system is considered more expensive than the traditional ones, which could affect the profitability of the hydrocarbons extraction industry, but it gives more independence, so the countries using this technique, can be important players in the international oil market. In other words, this method gives to those producers the possibility of increase the oil offer around the world, which can decrease the oil barrels’ price in the oil market.
Understanding what fracking is and its importance in the global economy, then we can talk about the significant influence of this technique on the oil prices and how it has reduced the hydrocarbons demand in some countries.
The fracking and the oil prices
As we have mentioned, the fracking technique is making more independent those countries that are using it, however, there are some factors to consider, causing some movements in the hydrocarbons market. Let’s see some of these aspects.
One of the most important factors for the hydrocarbons prices are the great oil producers with huge reserves, like Saudi Arabia, Russia, Venezuela, among other states, which are working under traditional methods impacting the oil prices. Thanks to this low production costs, those countries using fracking can be affected, due to this procedure is very expensive, and if other nations are producing cheaper oil, the fracking practices would not be profitable. In other words, the fracking can give more independence, but for being a high-priced technique, its profit-earning capacity may be affected.
This is a very important reason, because if those countries that are betting their future oil production to fracking, could be in serious issues in the next years, due to the high manufacturing costs it has, while the great producers are selling cheaper oil.
Another important reason to consider is that the OPEC defined that the oil production levels were going to be kept for some years, so the hydrocarbons prices would stabilize. Put differently, if the oil production has the same production levels, the hydrocarbons prices will not have great variations, so the fracking production technique will be more expensive, making that the oil produced with this technique could be less attractive for its high cost.
The economic slowdown of China and Russia is also another critical factor for the oil prices because if they do not have a high demand, the oil prices around the world will decrease, so the oil produced under the fracking technique, will not be attractive for other nations.
Related: The OPEC: More Than 60 Years Of History by Suzzanne Uhland
* Featured Image courtesy of Simon Fraser University – Un at Flickr.com