Fracking would unleash our very own economic miracle

The opportunity for fracking to transform some of Britain's poorest areas is too good to pass up, says Matthew Lynn.

As anyone who watched the TV series Fargo will know, North Dakota does not have very much going for it.

Right up on the border with Canada, it is cold and flat, made up of small towns and big farms. The fact that it has more churches per person than any other state in America, and the bulk of them are sternly Lutheran, gives a fair idea of how much else there is to do.

And yet here is an odd fact. North Dakota is now surprisingly wealthy. According to a study released by the Federal Reserve this month, it has become the wealthiest state in America, with a per capita GDP of $57,000. It has overtaken the likes of California and New York, which are generally thought of as the American states where all the big money is.

How come? Fracking. North Dakota is the hub of the vast new shale gas industry, and it has brought huge wealth to what used to be a poor region.

The UK has a few North Dakotas of its own regions such as Cumbria and north Wales that are relatively backward economically, but which could be transformed if they developed their energy resources. Europe has even more. They could all use the kind of economic miracle that North Dakota has seen.

It was the development of the vast Bakken oil and gas fields that started the transformation. The energy had been there for a long time, but it took the development of fracking technology to make recovering it a realistic option. It is now a huge industry and it has transformed the local economy.

Work on the oil fields has boomed, creating lots of highly paid jobs. And all those well-paid workers have started to spend their money on something other than putting a few dollars in the collection at the local Lutheran chapel.

The results have been striking. We might think of Silicon Valley with its tech entrepreneurs, or Wall Street with its swaggering traders and hedge fund managers, as the wealthiest regionsin America.

But according to the latest Fed estimates, it is now North Dakota that is the richest state in the Union. Its GDP per capita has risen by 31% since 2008, far more than any other state, and only Washington DC (not a state, of course) is richer.

That is a remarkable transformation. The interesting question, however, is whether the same thing could be achieved in this country, or indeed in other parts of Europe. The answer is that it certainly could. The UK, and Europe even more so, has plenty of potential North Dakotas.

Take Cumbria, for example, a region with a lot of shale gas. The UK does not have great GDP figures per region, but gross value added (GVA) is a rough proxy. In Cumbria, it is running at £22 per hour worked, compared to £27 nationally.

In other words, this is a relatively poor area. But with the same 31% uplift as North Dakota, it would be ahead of the average for the UK at £28 per hour worked, to be precise.

So, instead of being relatively backward compared to the rest of the UK, it would suddenly be richer than most. North Wales may well be sitting on plenty of shale gas, and that too is a relatively poor and under-developed area.

Big reserves have been identified in Northern Ireland, and that too has hardly been a great centre of wealth creation in the last few decades. The Bowland Basin, the most developed in the UK so far, is not far behind.

True, the southeast, where the shale is mostly in already prosperous areas, does not need to boost its wealth quite so dramatically. But even in the Kent and Sussex commuter belt, not everyone is getting the train to the City. A few more well-paid jobs would help there as well.

The impact could be even more dramatic in Europe. There are big potential shale oil fields in France, Poland and the Ukraine. There is an outright ban on developing shale in France, so there has been relatively little detailed exploration of where the energy is located so far after all, there is not much point in spending the money on surveys if you're never going to be allowed to drill any wells.

But much of France is now relatively poor, and its economy is stuck in a grinding recession. Developing its shale energy of which it has far more than Britain does would be one way out of that.

Poland, for all its recent success, still has a long way to go to catch up with the per capita GDP of its western neighbours. And Ukraine is an economic basket case, which has hardly been helped by the conflict with Russia. It always had plenty of coal, but if it could start selling oil and gas to western Europe, then it too could be transformed.

A 30% increase in GDP for some of the poorest regions of the UK and the rest of Europe as well should not be dismissed lightly. There is little else on the horizon that is suddenly going to make Cumbria, north Wales or Northern Ireland as rich and buzzy as Bristol or Cambridge.

People still debate the environmental pros and cons of fracking. True, it is still a relatively new technology, and its long-term impact on the environment still has to be seen. But its ability to create wealth should be undisputed by now. For conclusive evidence, just look at North Dakota.

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