During Domestic Drilling Boom, Why Are Gas Prices Still High?

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Note from Christi:

Many of you have asked.. Here are the reasons why:


By: Holly Heinrich, StateImpact

The drilling processes of hydraulic fracturing – or “fracking” — and horizontal drilling have made it possible to access previously unreachable deposits of fossil fuels, creating a surge in domestic oil and natural gas production. So why are prices at the gas pump still relatively high? (Last week, the average national gas price was $3.68 per gallon.)

We sat down with Dr. Ted Patzek, Chairman of the Department of Petroleum and Geosystems Engineering at the University of Texas at Austin, to find some answers.

He said there are multiple reasons why gas prices are still up, even though the country is producing more than it has in some time:

  1. The crude oil reserves that are currently being produced by hydraulic fracturing are fairly expensive to access. Today, American oil reserves tend to lie in shale formations or in deposits under the ocean floor. The higher production costs become part of higher gasoline prices.
  2. Crude oil, not natural gas, is the main substance in gasoline, which powers our cars, airplanes, and many other forms of transportation—so increased natural gas production does not drive gasoline prices down.
  3. Financial institutions, such as major banks, speculate on raw materials like oil and natural gas. Companies such as J.P. Morgan and Goldman Sachs provide financing for the development of oil and natural gas projects—but they also exert influence over the prices of these resources, and thus can keep them relatively high.

Continue to read the full article here.