If you watch the news or read the paper, you’ve probably heard the good news: the United States is in the midst of an oil boom! Supply is higher than was anticipated even just a few years ago, imports are decreasing, exports are increasing, and we should be seeing better prices at the pump for the foreseeable future. This all sounds great, and it might be, but what are the broader implications?

For a good overview of the increase in U.S. oil production recently, see this article. A quick summary: oil production has exploded recently in the U.S.; the U.S. has reached the goal President Obama laid out in 2011 to decrease imports by one-third by 2025 in just 3 years. Texas is now producing more crude oil than Iran, twice as much as it was producing just 2 years ago, according to the EIA (Energy Information Administration). Where is the oil coming from, and what are the consequences of its production?

Most of the oil boom can be attributed to the growth of two major technologies, usually used together: horizontal drilling and hydraulic fracturing. You’ve likely heard of “hydrofracking” with regards to natural gas, but it can also be used to extract oil from tight shale formations. Oil reservoirs underground are less like an underground lake and more like an oil-soaked rock. In high quality oil reserves, the pressure from the natural gas in the reservoir sitting on top of the oil (or the air, water, or gas pumped into the ground by the drillers) is sufficient to push the oil to the surface. In shale formations, the pores holding the oil are smaller and hold the oil “tighter”, making it more difficult to extract. Hydraulic fracturing is used to crack open the shale formations to allow the oil to flow more easily out of the formation and to the surface through the drilling pipes. As the Bloomberg article mentions, this is done using high-pressure water flows, and sometimes explosives. Traditional wells for gas and oil are vertical, but technology now allows for horizontal drilling. This means that for each drilling rig, the oil companies are able to drill vertically and then horizontally from there, allowing them to drill a larger surface area and extract more oil per drill rig than with a simple vertical well. Used in conjunction with hydraulic fracturing, this technology has allowed previously unproductive or uneconomical fields to be produced.

There are some benefits to this oil boom. It does allow us to decrease imports and, as the article mentions, have some more leverage with sanctions in the Middle East since we are slightly less dependent upon them. Theoretically, this production boom is also creating jobs in the oil industry and helping the local economies around the newly producing oil fields, but the evidence is shaky on whether the long-term benefits are really there. Hopefully, we will continue to see relatively low gas prices and perhaps lower prices for other products dependent on oil for their production, including food.

But at what cost are we obtaining this oil? First, there is the environmental cost. Oil drilling of any kind is risky in terms of potential environmental damage, and hydraulic fracturing is considered to be one of the riskier practices. However, as we were reminded this week by the water crisis in West Virginia, all fossil fuels have a large environmental cost. Which ones do we decide are too much? Second, there are high economic and energetic costs. The technology is expensive and drilling unconventional sources is almost always more expensive with less return. David Ricardo described the “Best First Principle” in terms of development of agricultural land, stating that the highest quality land (that which produces the greatest yield) would be put into production first, followed by lower and lower quality land over time as more land was required. This principle can also be applied to oil production. The easily-obtained, low energy and monetary cost oil (think Spindletop, with oil essentially shooting out of the ground) was produced first and now we are required to go after lower quality oil, with its higher energetic and monetary costs. Although the initial surge in production has allowed gas prices to remain low, production in hydraulically fractured wells tends to drop off quickly. Additional fracking is required to continue production, but the production of the well will continue to taper off as time goes on. We’re experiencing the boom now, but we should look ahead to how we will handle the bust. Think about it the next time you’re filling up your car with the “cheap” gas.