Bet You'd Be Shocked by How Much of Our Natural Gas Comes From Fracking

By Jason Hall Markets Fool.com

While crude oil dominates the energy news, natural gas is one of the most important -- yet often overlooked -- sources of energy in the United States. According to the U.S. Energy Information Administration, more than one-third of America's electricity comes from natural gas;half of American homes use it for cooking, heating water and drying clothes; tens of billions of dollars' worth of goods are made from it, and hundreds of thousands of vehicles use it as a fuel.

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A whopping two-thirds of the natural gas produced in the U.S. is produced with hydraulic fracturing. And while there is some controversy around the risks of fracking, it has driven a huge increase in natural gas production and lowered the cost of the goods and energy produced from it.

Image source: Getty Images.

How much of our natural gas is fracked

This table shows how hydraulic fracturing has increased significantly over the past nearly 20 years:

Image source: U.S. Energy Information Administration.

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Fracking isn't a brand-new innovation -- it's actually used to some degree for decades to enhance oil and gas recovery. But as the table shows, it's only been in the past decade that it's become a key method for extraction.

But it's not just fracking alone that's increased; it was the pairing of horizontal drilling with hydraulic fracturing that's driven the increase in the use of fracking.

Here's how fracking and horizontal drilling changed natural gas production

This chart shows U.S. natural gas production since 1990:

US Natural Gas Production data by YCharts

Around a decade ago, there were serious concerns that America's supply of accessible natural gas was running out. Traditional vertical drilling methods had nearly exhausted the majority of North America's conventional reserves.In 2002, U.S. natural gas production peaked and would fall for the next four years.This situation caused natural gas prices to more than triple from 2000 to 2006:

Henry Hub Natural Gas Spot Price data by YCharts

This jump in natural gas prices affected every American, driving up energy and heating costs, increasing food production prices (natural gas is a primary ingredient in fertilizer), and affecting the price of consumer and industrial goods made from natural gas derivatives.

The interesting thing was, the U.S. wasn't really running out of natural gas. Geologists knew about deposits trapped in shale and "tight" formations that could provide 100 years or more of natural gas to the country. The problem was, there wasn't a technology that could produce it cost-effectively.

The pairing of fracking with horizontal drilling changed things.Since 2006, natural gas production in the U.S. has increased 40%, and natural gas prices have fallen by more than half:

Henry Hub Natural Gas Spot Price data by YCharts

How fracking works

Hydraulic fracturing is the use of high-pressure water injection and sand to fracture the rock formations where oil and natural gas is trapped. The water causes microfractures in the shale and tight formations, while the sand holds those fractures open, allowing the oil and gas to be extracted.

When paired with horizontal drilling -- and the modern drills capable of extreme drilling depths -- producers can access far more natural gas from a single well. This is the key that has unlocked decades of natural gas that was otherwise inaccessible.

Fracking has seen its share of controversy, from allegations of releasing gas and chemicals into the water supply to causing earthquakes. And while there's thin evidence that fracking has caused any harm to drinking-water supplies since it takes place a mile or more underground, far below the water table, Oklahoma's recent spike in earthquakes is likely related to fracking. In recent years, the storage of wastewater from fracked wells has increased sharply in the state, and the evidence supports that this process has been at the very least a contributor to the uptick in earthquakes.

How the U.S. has benefited from the natural gas boom

Natural gas is used for much more than just producing electricity:

Chart source: U.S. Energy Information Administration.

Over the past decade it has become the biggest source of electricity in the U.S., supplanting coal. Not only does natural gas generate fewer emissions and particulates, but it has also proved to be cheaper both as a feedstock and in lowering power plants operating and maintenance costs.

Natural gas has also helped offset the trade deficit. Nearly all of U.S. consumption is met by domestic production, and domestic manufacturing is booming, reducing imports of products and feedstocks in many industries. Excess natural gas production is also now being liquefied and sold overseas.

Image source: Getty Images.

It has even helped create jobs outside the energy industry.According to the American Chemistry Council, nearly $180 billion in completed or planned investment has been made in new petrochemical manufacturing in the U.S. since 2010,which can be directly attributed to American low-cost natural gas reserves.

The economic contributions of these projects are expected to be significant, creating more than 820,000 permanent jobs paying an average of $69,000 per year. Nearly half of these projects were completed or under construction to date. These facilities produce a number of products used to manufacture thousands of different consumer and industrial products ranging from fertilizer to plastics to medicines.

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