The Frackers: The Outrageous Inside Story of the New Billionaire Wildcatters (47 page)

It won’t be easy to shift to shale, however. China’s more challenging rock formations require more water to frack each well compared with the United States. That’s a problem for a country with a water system that is already strained. China also doesn’t have the pipelines, service companies, or other infrastructure necessary to ramp up shale production. It doesn’t help that most of China’s shale is in difficult, mountainous terrain that’s prone to earthquakes.

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F
oreign nations lack perhaps the key element behind the U.S. energy revolution: an entrepreneurial culture and ample incentives for the years of trial and error necessary for shale breakthroughs. George Mitchell, Harold Hamm, Mark Papa, and other headstrong wildcatters persevered because they knew they could gain both fame and remarkable fortune finding economic ways to tap shale. Comparable prizes don’t always exist in other countries, where governments can play a larger role in society.

The United States also boasts an extensive energy infrastructure, such as pipelines and elaborate databases of underground geology, deep capital markets to finance newfangled drilling, more rigs than anyone else, collection and storage facilities, and an experienced labor force.
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The U.S. legal system gives individuals ownership of mineral rights under their land and the ability to lease the rights to others. That has accelerated drilling in comparison with foreign nations, where mineral rights are controlled by slow-moving governments. And the United States benefits from light population density in places like North Dakota and Texas, where much of the richer shale beds are located.

There are a few things the United States seems to do better than anyone else, such as create computer apps, drones, and rap stars. Fracking, so far, has been another area where there’s a distinct American advantage.

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I
t may be a while before oil and gas production surges around the world, but the shale revolution already is impacting global geopolitics.

Once, the fate of the United States, like dozens of other nations, was dictated by having full access to Middle Eastern oil. Starting in the 1970s, embargoes by members of the Organization of the Petroleum Exporting Countries (OPEC)—and even the threat of such action—restricted U.S. foreign policy, forcing leaders to commit precious resources to keep the region secure.

Oil never was the sole reason why America entered into conflicts in the Middle East, of course, but a series of American leaders has acknowledged the imperative of keeping crude from Saudi Arabia and other Gulf states flowing.

“An attempt by any outside force to gain control of the Persian Gulf region will be regarded as an assault on the vital interests of the United States of America,” President Jimmy Carter declared in his 1980 State of the Union address. “Such an assault,” Carter said, “will be repelled by any means necessary, including military force.”

The first U.S.-led invasion of Iraq came after the nation took control of Kuwaiti oil fields. It’s no coincidence that it also came at a time when a consensus was building around the peak oil theory and the view that oil production was in terminal decline.

“Kuwait was about Iraq gaining too much control of oil,” says Dennis C. Blair, the retired U.S. Navy admiral who served as the country’s third director of national intelligence under President Obama. “American military involvement in that part of the world really all goes back to oil, and it’s all because the Saudis and Gulf states were swing producers.”

As recently as 2006, fears abounded that America’s global influence was waning and that the country was beholden to various Middle Eastern states, few of whom shared many values with the Western democracies.

Now that’s all changing, as is the perspective of many U.S. political and military leaders. Exploding oil and gas production from U.S. fields has reduced American oil imports from OPEC members by about 25 percent since 2009. Today, the United States gets about 8 percent of its oil from the Middle East; these imports could be reduced to a mere trickle in the next few years. The United States has already become a net exporter of refined petroleum products, including gasoline, for the first time in decades. Growing crude output from Canadian oil-sands fields means the United States has another friendly supplier with which to replace oil from the Middle East and other countries.

It all means the United States’ economic future is less dependent on energy-producing countries such as Saudi Arabia, Russia, Iran, Turkmenistan, and Venezuela, all of which have at times had strained relations with various Western nations.

America’s new bounty likely gives it more flexibility to conduct policy as it sees fit. Already, new U.S. oil supplies are a key reason the country was able to engineer a boycott of Iranian oil and ratchet sanctions on the country to try to discourage it from developing nuclear weapons.

In 2012, Secretary of State Hillary Clinton created a dedicated energy bureau within the State Department and said energy would play a key role in future diplomacy. The United States could push its allies to develop their own shale resources, so they, too, can be weaned away from energy supplies from unstable and unfriendly nations.

If U.S. oil production continues to grow, the country could further reduce its involvement in the Middle East, helping it avoid costly conflicts, likely saving the United States money and lives and perhaps improving relations in that volatile part of the world. Heavy involvement in the Middle East succeeded in “keeping oil flowing, but we built huge resentment in the region that played a big role in the September 11 attacks and its cost us enormously,” Admiral Blair says.

To be sure, America likely will always have extensive involvement in the region. Unlike natural gas, oil prices are set by global buyers and sellers, so additional American production won’t be enough to keep American prices low or to allow the nation to ignore the next flare-up in the Middle East. As long as we care about oil, we’re going to care about the Middle East. Just as important, America’s allies have huge stakes in keeping the region as calm as possible, with oil pumping, necessitating continued American involvement.

But in an age of rising oil and gas supplies and growing budget limitations, America likely will be less willing to get bogged down in the dangerous region or pay deference to the interests of Middle Eastern energy producers. The United States has already reduced its aircraft carrier fleet operating around the Strait of Hormuz, which connects the Persian Gulf to international oil markets and has been a flash point with Iran since the late 1970s.

Wild cards abound in the new era. Nations that are more dependent on Middle Eastern oil, such as China, may be asked to assume more of the burden of keeping the region stable. It’s not yet clear how China might handle an increased role on the international stage. And conflicts could arise as traditional energy powers, such as Russia, Iran, and Venezuela, lose some of their influence and feel threatened.

Still, the shifts brought by growing oil and gas production in U.S. shale formations likely will make the country more secure and could spark a shift in power away from OPEC and Russia.

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T
he unexpected and extraordinary shale revolution, which is affecting just about anyone who heats a home, flips a light switch, or drives a car, is a reminder and reaffirmation of America’s enduring greatness. But the antagonism and animosity generated by the ongoing fracking debate raise disturbing questions about the nation’s future.

The great leap forward should have involved alternative energy, not oil and gas. The U.S. government allocated over $150 billion to green initiatives between 2009 and 2014, according to the Brookings Institution, including money for wind farms, solar panels, and other renewable energy sources. Investors from Silicon Valley and Wall Street poured billions of their own into alternatives. Overall, the world has made more than $2 trillion of investments in renewable-energy projects over the past twenty years, according to the International Energy Agency.

There’s too little to show from the investments, however. Cars don’t run on waste, and wind and solar aren’t yet ready to power the world.

Instead, a group of frackers, relying on market cues rather than government direction, achieved dramatic advances by focusing on fossil fuels, of all things. It’s a stark reminder that breakthroughs in the business world usually are achieved through incremental advances, often in the face of deep skepticism, rather than government-inspired eureka moments.

George Mitchell’s team spent seventeen frustrating years trying to get meaningful amounts of gas from shale, Harold Hamm’s men failed to pump much oil out of the Bakken until 2007, while Charif Souki’s company was on its last breath before he seized on the idea of exporting gas. Their achievements are a reminder of the role of perseverance and obstinance in history’s advances. Breakthroughs in alternative energy will come, but they, too, will take trial and effort.

The successes of the architects of the shale era are attributable to creativity, bravado, and a strong desire to get really wealthy. It doesn’t get more American than that. Indeed, while the huge rewards promised in the market-driven American economy have led to an unfortunate income divide, they also provide incentive for remarkable achievement.

Two of the largest energy deposits of the past decade were discovered by sons of Greek immigrants—George Mitchell and Michael Johnson. Each met frustrations earlier in life and won acclaim after their seventy-fifth birthdays, becoming true embodiments of the American dream.

For all the criticism the country has fielded for losing its edge in innovation, surging American energy production is a reminder of the deep pools of ingenuity, risk taking, and entrepreneurship that remain in the country. Author Niall Ferguson and others argue that Western civilization has entered a period of decline, but many smaller American towns are experiencing a rebirth, with some young people in the energy business enjoying six-figure salaries, suggesting an underlying resilience in a country still recovering from the deep economic downturn.

Sadly, the story of the nation’s energy rejuvenation also is a reminder of how divided the nation has become on almost every topic of importance. When it comes to energy production from shale formations, one camp argues that fracking poisons and should be abolished, while the other snickers at legitimate health concerns while clinging to the mantra of “drill, baby, drill.”

As with other raging political, social, and economic debates, the nation would be best suited edging back toward the forsaken middle ground, finding ways to work together for the greater good.

George Mitchell, the father of shale fracking, celebrating his company’s three thousandth well in 1976. Mitchell and his team would spend seventeen frustrating years trying to fracture challenging rock so that gas would flow.

Cliff Roe

Mitchell, who in 1998 finally figured out how to get significant amounts of natural gas from shale, after selling his company for $3.1 billion.

Baylor School of Medicine

Aubrey McClendon, cofounder of Chesapeake Energy, at a well in Texas’s Eagle Ford Shale formation. McClendon stood out for his vision of a shale revolution as well as comfort with heavy debt and aggressive trading.

Courtesy of Chesapeake Energy Corporation