Fracking. which has become very popular in recent times, is short form of “Hydraulic Fracturing. It has enabled increased oil and gas production and significant efficiency improvement. It is a systematic process to fracture rocks by injecting hydraulic pressurized liquids, allowing the natural resources like oil and gas to flow freely. As the hydraulic pressure is removed, the induced chemical substances called proppants continue to keep the fractures open.

As per the Department of Energy report of 2013, “Up to 95 percent of new wells drilled today are hydraulically fractured, accounting for more than 43 percent of total U.S. oil production and 67 percent of natural gas production ”.

Economic impact of fracking on US economy:

Fracking accounted for 49% of domestic US gas production in 2010, which enabled a decline of around 37.5% in the natural gas imports by the US between 2007 and 2013. All thanks to the improved efficiency due to fracking, expectations are that this trend would continue and the US could become a net exporter of natural gas by around 2020, compared to the current importer status. The US also made a significant achievement in 2012 when it beat Russia as the world leader in natural gas production.

Bloomberg similarly reported about US declines in oil imports due to increased domestic oil production—nearly all due to enhanced fracking technology and processing. Currently the third largest oil producer behind Saudi Arabia and Russia, the US is expected to become the world leader by 2020.

This increased self-sufficiency (due to fracking) has enabled the US to reduce its gas prices as opposed to its European and Asian counterparts, who have yet to tap the fracking potential. Businesses are also cropping up around the sectors facilitating fracking – pipeline, storage, export, leasing and finance, transportation, etc.

ConocoPhillips (COP ), Chevron (CVX ), Exxon Mobil (XOM ), etc. are the major and direct beneficiaries of improved fracking technology. For these companies, fracking has directly resulted in efficient oil exploration and increased production capacities.

Other big businesses are also successfully gunning for other related by-products of oil and gas — like natural gas liquids (NGL s), commodities and products — and related business functions around fuel, e.g. storage and transportation.

A few more examples are as follows:

Anadarko Petroleum Corp (APC ) has proven that reserves at the global level are operating in multiple segments — Oil and gas exploration and production, midstream (the middleman stage), and marketing.

Companies like Occidental Petroleum Corp (OXY) , Encana Corp (ECA ) and EOG Resources (EOG ) are operating in midstream, marketing and other segments as they gather, process, transport, store, purchase and market oil, condensate, NGLs, natural gas, carbon dioxide (CO2) and power.

An associated business function also exists in the form of trading the assets, which includes transportation and storage capacity, beyond the trade of oil, NGLs, gas and other commodities.

Direct or indirect investment in business entities that conduct similar activities is also another key area to consider – Occidental is a big player in this segment. It acquired Eagle Ford Shale in 2012.

Another fracking-related business model is for providing administrative, financial, legal and management support to subsidiary fracking business firms. Pioneer Natural Resources (PXD ) follows this model for its United States and South Africa subsidiaries that in turn explore for, develop and produce proved reserves.

All the above-mentioned streams and functions of oil and natural gas business have benefited from the fracking business, which in turn has resulted in companies seeing increased production and hence better profitability.

Beyond the core oil and gas businesses:

The fluid used for fracking consists of 90% water, 9.5% sand (proppant) and 0.5% other chemicals. Millions of gallons of this fracturing fluid is needed for the fracking process. Companies like U.S. Silica Holdings (SLCA ) are in the business of selling fracking sand and chemicals to the oil and gas industry. If stock price performance is an indicator, then this company has returned 170% during the last year (September 2013 to September 2014), apart from the four regular quarterly dividends of $0.13 each it paid to the shareholders. Further enhancements and innovations are being explored by companies like Carbo Ceramics (CRR ), which are in the business of manufacturing “ceramic proppant” to use in place of sand.

The alternate “ceramic proppant” is developed by Carbo Ceramics and is aimed at further enhancing fracking process efficiency. Similar to SLCA, Carbo too has enjoyed a significant rise in its share price, owing to the improved profits from the fracking businesses and processes.

As per other reports, oil-rich countries like Saudi Arabia are importing sand from US states like Wisconsin, for use in fracking, thereby enabling business opportunities at the international level. Wisconsin does not have an iota of oil or gas reserves, but is nonetheless benefiting tremendously from the related business opportunity.

Wastewater processing & management.

With fracking fluid containing 90% water, opportunities are opening up for companies in water management and the environment solutions sector. Companies like Clean Harbors (CLH ) and Nuverra Environmental Solutions (NES ) – which offer a variety of services for shale drillers, including the hauling and treatment of water used for fracking process – are benefiting from these new business arenas. The Wisconsin-based AquaMost uses an advanced oxidation technology to clean and recycle water used in the fracking exploration process. Additionally, it is in the business of installing systems at frac-exploring and mining sites in Colorado and Utah, aimed at reducing water contamination as well as pollution.

Further innovations continue with companies like GasFrac Energy Services (GFS.TO ), innovating and offering waterless fracking solutions, thereby offering new improved technology and cost reduction by preventing expenses towards water wastage and cleaning activities. Fracking requires drilling gas wells thousands of feet deep, which generates large piles of waste in the forms of rocks, shavings and dirt coated with oily chemicals. Regulations in states like Ohio require that such extractions be disposed of in the right manner.

Companies like Ohio Soil Recycling sensed the right opportunity and introduced the proprietary bioremediation process, which primarily removes the oil and chemicals from the rocks and drill cuttings, thereby making them suitable to be used as ground cover, meeting the required standards even for residential use.

Other fracking-related businesses that benefit are for mining equipment, transmission equipment, pipelines, storage containers, chemicals, coatings, pipes, pumps and valves, and the like.

Fracking has given rise to concerns of groundwater contamination in the surrounding areas. Leaving aside the ground reality and looking at only the business aspect, this in turn has been a blessing for businesses involved in drinking water purifiers.

Fracking has also allowed a hero’s welcome for the chemicals and manufacturing sector in the US. Past decades saw a considerable loss of US manufacturing, as low-cost Asian counterparts had the edge. But fracking has partially allowed a lot of chemical companies to return back to the US as developments and ground-work are happening domestically, thereby opening up business potential as well as employment opportunities for locals.

Benefits to local businesses :

Property owners in many oil and gas-rich regions (like those from Texas or North Dakota) are benefiting from significant price increases in commercial real estate. However, concerns remain for local residents who report negative impact in terms of water contamination and non-related businesses (like tourism) getting hit.

Employment opportunities continue to blossom for geologists, surveyors, skilled technicians, rig men and drillers. Pennsylvania, a state which has abundant natural gas, witnessed a mass influx of workers in those fields. The transportation requirements of fracking — lugging water, chemicals, sand, oil and related products — has benefited trucking companies.

Ohio has benefited financially from becoming the go-to state for fracking wastewater from other states (like Pennsylvania, which is the biggest contributor). Some Ohio business owners, who previously transported dairy farm products like milk, have since found better profitable opportunities in fracking logistics, thereby improving their profitability.

The Bottom Line

Although concerns continue to be raised with regards to the ill-effects of the fracking process, overall it has led to improvement not just for local businesses, but also for the national economy, which has been rendered energy-efficient and has reduced the demand and supply gap in fuel prices. With the energy demand expected to rise continuously and steadily in coming times, such innovations in fracking processes will be the need of the hour. A well-structured approach to standardizing the rules and regulations that rightly and practically address the concerns of local residents and environmentalists will enable a win-win situation for all.