The Economic Impacts within the Oil and Natural Gas Industries - Research Paper Example

it has employed numerous Americans to participate in the exploration of new oil fields, production, processing, supply, and marketing of the oil and natural gas. It also buys the intermediate raw materials from the U.S. producers. This has led to industrial development, thus, leading to creation of more jobs. America is in the middle of an oil and natural gas revolution, which has the potential of significantly affecting the environment, national security and most importantly the economy. It is now able to tap into enormous stores of oil and natural gas locked in shale deposits around the country, thanks to technology breakthroughs.

These include horizontal drilling, hydraulic fracturing also referred to as fracking and seismic imaging. These new possibilities will enable the country to replace coal as a source of energy with cleaner and environmental friendly natural gas (Friedman, 2012). The shale oil and natural gas boom however has been a mixed blessing for the independent oil and gas firms. While technology breakthroughs have helped to open up new vast areas for exploration and production, the natural gas prices have been on the lower side creating challenges for the production companies.

This is because, these companies are trying to justify the cost of production but the lower gas prices are making it harder for them. Current gas prices only provide these companies with marginal profit possibility at best considering the high production costs. While crude oil prices keep rising, standing currently at $93 per barrel, prices for natural gas remain stuck at $2.96 per a thousand cubic feet (Contagion oil & gas, 2010). Economists hope that natural gas will substitute crude oil considering gas is cheaper relative to energy produced.

This however, is not likely to happen with production companies seeking to shift from production of natural gas to crude oil to correct the financial imbalance (Contagion oil & gas, 2010). According to an article published in financial times, companies may be looking to shift from natural gas to production of oil. Many production companies are looking to sell off their natural gas assets for a chance to participate in the booming shale oil market. While much attention has been paid to large quantities of natural gas shale, companies have realized that with newer technology, they can extract oil too.

The article states that by 2010, the number of companies drilling oil in the country had increased from 180 in 2009 to 720 (Contagion oil & gas, 2010). Chesapeake, the second largest gas producer in the country, stated that it was reducing its gas production by 7 percent by the year 2013. This would bring down the company’s record of 23 years in which it has managed to increase to its production every year. The company officials commented that gas production would continue to decline if the prices kept on going down.

This is because current prices will not allow companies to make an attractive return on their investments particularly in light of the investment costs incurred in developing the new unconventional gas fields that are likely to increase gas production for the next five years (Ridder, 2012). While a reduction in gas production would be considered a negative thing, today it is not. In fact, investors and analysts consider an increase in gas production as negative. Oil and gas companies are looking forward to generate attractive returns from natural gas production. Moreover,