Common Cents

To Frack or Not to Frack

Ralph Murphy

(9/2013) Hydraulic Fracking is the process of extracting natural gas and oil from shale rock buried deep underground- through the use of high pressure water, chemicals, and sand. Fracking could provide the U.S. with energy independence within a decade. This was the finding of a recent report by the International Energy Agency (IEA) published by the "MIT Technology Review". The report predicted that this relatively new technique for extracting oil from shale rock could make the U.S. the world's leading oil producer by 2020.

Fracking is not a new technique. It was first developed in 1947 when the commodity was relatively easy to obtain using traditional drilling methods. As oil became scarcer and its price rose… "horizontal drilling" techniques became more cost effective and appealing. Around the turn of the millennium, Texas wildcatter, George Mitchell was credited with making the technique more cost effective. It became popularly known in Central New York as the "Marcellus Shale" formation and in Texas as the " Barnett Shale" gas field- near Fort Worth,Texas.

Massive natural gas reserves exist within the continental United States. Unlike traditional wells, they are easier to locate, with a 95% success rate for new drillings. However, the demand for this hydrocarbon fuel is modest. It will remain so until such time as the technology for its potential market (e.g. trucks, buses and home furnaces) catches up with the industry’s production potential. The same techniques used to extract the gas, can be used to generate vast increases in oil output, and the technology to use it is in place.

Today, two new, major shale- resource finds in the U.S. are attracting much attention and investment. They include the "Bakken Formation" in North Dakota and Montana, and the "Eagle Ford" shale formation in Texas that is rated at 900,000 barrels a day by the IEA. The oil is however, limited, and it is believed the fields will rapidly run dry- perhaps as soon as 2020- leading traditional suppliers such as Saudi Arabia and Russia to regain top production positions. A "tortoise and hare" type scenario.

In 2009 the U.S. House of Representatives asked the EPA to undertake an exhaustive study on the environmental impact of fracking. The EPA agreed to do this and by 9 February, 2011 seemed to side with the miners. The EPA said that, in its optimistic view, "natural gas (massive reserves but relatively light demand) plays a key role in our nation's clean energy future, and the process of fracking is one way to access the resource." The EPA emphasized that the study was not complete, and in a 21 December, 2012 report- claimed additional analysis of "the full lifespan of water in hydraulic fracking, from (its) acquisition, to the mixing of chemicals and actual fracking, to the post-fracking stage", had to be assessed. A final report is due in 2014.

Meanwhile, individual states- to include those with high population centers such as New York, Pennsylvania, and Maryland in the North East- are voicing concern for the potential for environmental problems. Problems such as methane being released from the wells, and water contamination to include radioactivity. Vermont, in keeping with individual states' recent proclivity to address controversial issues while the Fed's seek consensus- has banned fracking within its borders. Perhaps substantiating Vermont's concern, a recent, Penn State study claimed radioactive radium was found in water "flow back" from gas wells used in fracking. The New York Times went on to say that radium is being released into Pennsylvania’s rivers.

Internationally, France is the first country to ban the practice of fracking at the national level. Other nations have regions such as Quebec, Canada, and New South Wales, Australia that have suspended the practice or banned the use of certain chemicals. But most countries, with the resources, appear to discount the negative environmental impacts- that may even include earthquakes!

The United Kingdom suspended fracking in its reserves in June, 2011, but an "expert report" accepted by the government concluded that the practice was safe, and drilling resumed in April 2012.

China is said to have massive natural gas reserves, but according to a Reuters source, reportedly has no technology to access it. This, despite the fact that they have allowed 16 companies to compete for the right to drill if they can acquire the needed mining equipment. Environmental impact does not appear to be a concern to the Chinese.

President Obama’s administration appears to show concern for the environmental impact of fracking, but the EPA seems to accept and favor the practice- for now.

If the 2014 EPA report to Congress… corroborates the radium byproduct concerns, it may be a different story. But, for now- the world appears poised to accept the new drilling technology, as we once accepted atomic power with its potential dangers to the environment.

As always… time and experience will show us who is right !

Ralph Murphy is a former economist with the CIA