The boom in U.S. supplies of both oil and natural gas as a result of ongoing hydraulic fracturing, or fracking, operations may be the saving grace that rescues the Federal Reserve, the Obama administration, and the overall economy. While Chesapeake Energy Corporation (NYSE:CHK) and others came under significant criticism for their national land-grab scheme to buy up potentially lucrative land, the oil majors, including Exxon Mobil Corporation (NYSE:XOM), stand ready to capitalize on the development. In a completely different wave, oil servicers such as Halliburton Company (NYSE:HAL) are looking to capitalize on the boom, and companies such as Clean Energy Fuels Corp (NASDAQ:CLNE) have targeted liquefied natural gas, or LNG, as a way toclean up the country.
The intersection at which each of the developments, and the companies that support them, play a role in affecting the economy is where U.S. energy dependence affects inflation and economic stability. As an ever-increasing percentage of U.S. energy needs are met internally, several major global macroeconomic factors shift in America’s favor. As that occurs, the actions of the Fed and the administration are at least bailed out, and the economy is given a greater chance to heal.
How can fracking save the Fed?
Over the past several years, the Fed has grown its balance sheet by a staggering $3 trillion in defense of the U.S. economy and risk assets. The current course of quantitative easing has the Fed pumping up to $85 billion per month into the economy by way of the bond market. This policy has been clearly defined as the set path for as long as the unemployment rate remains above 6.5% and inflation remains in check. In a vacuum, you would expect this type of easy-money policy to create significant inflation, but thus far, that hasn’t been what the data suggests is happening.
According to the U.S. Department of Energy, the country’s dependence on foreign oil peaked in 2006 at 60% of a larger total number than what’s seen today. Current reports show that this figure has fallen to 32% of the smaller overall consumption number; dependence on foreign oil has decreased significantly. In terms of natural gas, where it is estimated that the U.S. spent $216 billion on the commodity in 2008, a recent BofA Merrill Lynch estimate suggests that this number has fallen all the way to $76 billion. This last statistic is significantly affected by the fact that the average price of natural gas in 2012 was roughly a third of the price in the U.S. as it was in both Europe and Asia.