Economies of shale: hydraulic fracturing has unlocked huge amounts of oil and gas, helping boost state economies even as it generates environmental and public health concerns.

• Author: Hartman, Kristy
• Position: ENERGY

North America's energy outlook has significantly changed over the last decade. With the widespread use of hydraulic fracturing and horizontal drilling, oil and natural gas resources--previously locked within thick, dense shale and tight sandstone formations--are no longer as expensive to develop.

These new technologies have helped boost the domestic supply of crude oil and natural gas, and they continue to reshape the U.S. energy economy. In fact, the United States is the world's largest natural gas producer and third largest oil producer--with oil production reaching a 30-year high.

The processes involved in hydraulic fracturing--injecting water, sand and chemical additives deep into the ground at high pressure to create and expand fissures in the rock, allowing oil and gas to flow to the surface--have led to a shale revolution.

But the rapid spread of fracturing, or "fracking," has also generated concerns and drawn the attention of state legislators and their constituents. This year alone, lawmakers in 31 states have introduced more than 200 bills relating to hydraulic fracturing.

Barrels of Benefits

Oil and natural gas development can offer tremendous benefits to state and local economies, but the recent drop in global oil prices isn't helping some states. After five years of stability, the price of a barrel of oil has fallen by almost 50 percent, dropping from a high of more than $100 in 2014 to a low of $48 in January this year.

Oil and gas revenues and their associated economic activity have taken huge hits in the oil-producing states of Alaska, Louisiana, North Dakota, Oklahoma and Texas. In North Dakota, to boost production, lawmakers recently passed a bill to lower the extraction tax on oil and to eliminate the current practice of tying the tax to the price of crude oil. Opponents of the bill argued that the new tax structure could prevent the state from receiving future revenue. But supporters "thought it would be beneficial to have a stable tax system," says House Majority Leader Al Carlson (R), which, he argued, would ultimately boost production.

Targeting Severance Taxes

Many of the bills would change the severance taxes states place on oil and gas development. Thirty-four states levy a fee or tax on the extraction (severance), production or sale of oil or natural gas, which in 2013 generated more than $16 billion nationwide. In Alaska, North Dakota and Wyoming, severance taxes generate more than 40 percent of total state tax...