The Shale Gas Myth — Part 1: Unquestioned Assumptions

A Response to Robert W. Chase’s article “Five Myths About ‘Fracking'” in the Akron Beacon Journal, Jan 26, 2012

Part 1: Unquestioned assumptions about Shale Gas Extraction

By Bernhard Debatin

In his recent article, Robert W.  Chase claims that those who oppose fracking have presented “at least five fallacies … to the public as truths.” He then goes on to state that these “untruths” could be used as an “excuse for foot dragging” on extracting what he praises as “more than 100 years’ worth inexpensive, environmentally attractive energy.”

Before examining his attempts to demonstrate these “untruths,” it is noteworthy that Chase himself employs three popular, yet unfounded myths in this opening statement. These myths have become widely accepted ideological assumptions in the discussion about fracking. Therefore, it is necessary to take a closer look at them:

1. The myth of a century’s worth of gas resources

There is good evidence that the “100 years'” of shale gas, that have been ritually conjured up by the industry and many politicians including President Obama, are vastly overstated.

A recent report in the Slate magazine, What the Frack? Is there really 100 years’ worth of natural gas beneath the United States?, comes to a much more sober result: The magic number of a 100 years’ worth of gas resources is based on highly speculative assumptions. As author Chris Nelder puts it, “between the demonstrable gas reserves, and the potential resources blared in the headlines, lies an enormous gulf of uncertainty.” The truth is that only about 11% of the assumed gas resources are proven, while “the other 89 years’ worth has not yet been shown to exist or to be recoverable.” But even if we add the “provable” resources, we’re only looking at 21 years of shale gas supply. The rest is pie in the sky, or, as Nelder comments, “by the same logic, you can claim to be a multibillionaire, including all your ‘probable, possible, and speculative resources.'”

From: Slate, Thursday, Dec. 29, 2011

Not reality, but simple wishful thinking and a subsidies-hungry political agenda of the industry seem to be the driving force of the myth of a century’s worth of gas resources.

An industry insider source, The Oil Drum, has criticized these overstated assumptions at several occasions, too, and warned that “reserves and economics depend on estimated ultimate recoveries based on hyperbolic, or increasingly flattening, decline profiles that predict decades of commercial production. With only a few years of production history in most of these plays, this model has not been shown to be correct, and may be overly optimistic.” (Arthur E. Berman and Lynn F. Pittinger: U.S. Shale Gas: Less Abundance, Higher Cost, The Oil Drum, August 5, 2011; see also Shale Gas—Abundance or Mirage? Why The Marcellus Shale Will Disappoint Expectations, The Oil Drum, Oct. 28, 2010)

2. The myth of Shale Gas as inexpensive energy

Directly related to the myth of a century’s worth of shale gas is the myth of inexpensive energy. Although horizontal hydraulic fracturing continues to be praised as an inexpensive energy source by the industry, politicians, and the media, there’s little evidence for this optimistic claim. There are two separate issues that need to be taken into account:

  • First, what is the point of comparison when claiming that shale gas extraction is inexpensive?
  • Second, what are the invisible (externalized) costs and what would the real costs be if those externalized costs were internalized?

First, “inexpensive” is a relative term. It is a rather recent development that unconventional oil and gas resources — such as tar sands, shale gas, and deep water fields — can be recovered at somewhat profitable rates. This is partly due to new technologies and partly due to the risen costs of conventional energy sources, particularly oil, the engine of modern industrial societies. As we are approaching or may have already crossed PEAK OIL, the point at which half of the world oil reserves have been extracted and oil production slowly decreases, oil becomes slowly but increasingly scarce and expensive. This is intensified by  growing demand from developing economic powers, such as the BRICS countries (Brazil, Russia, India, China, and South Africa).

Gas and oil extraction through horizontal fracturing has thus been hailed as a comparatively inexpensive bridge fuel in the transition from fossil fuels to renewable energies. However, a closer look at the ratio between drilling costs and revenue shows that fracking is much more costly than usually assumed and acknowledged:

“Between 1960 and 2003, oil and gas drilling costs ranged from 12% to 32% of oil and gas revenue, averaging about 21% of revenue. For 2007 through 2009, drilling costs are in excess of 85% of oil and gas revenue. A likely explanation would seem to be the large amount of horizontal drilling and fracking being done now.” ( More evidence related to the high cost of horizontal drilling and fracking, The Oil Drum, Nov. 4. 2010)

Differentiated by oil and gas, the ratio between drilling costs and revenue over the past 50 years looks like this:

From: The Oil Drum, Nov. 4, 2010

There are a number of other factors that influence the current ratio, including the fact that the fracking boom has resulted in a temporary overproduction of gas, which brings down prices on the market — and so did the recession, all of which reduce the revenue per unit. However, even with higher prices, the ratio would still be considerably worse than before the fracking boom. As everybody knows, fracking is a very capital-intensive way of resource extraction.

The artificially created fracking boom itself might be what made it possible that this industry keeps attracting money from investors, even though, as an analyst from PNC Wealth Management quoted in the New York Times said, shale gas is “inherently unprofitable.” In the same article, another analyst from the energy research company IHS Drilling Data is quoted saying that the fracking activities are “just giant Ponzi schemes and the economics just do not work” (Insiders Sound an Alarm Amid a Natural Gas Rush, The New York Times, June 25, 2011).

Consequently, experts are concerned that after the dot.com bubble and the housing bubble, the fracking bubble could be the next one to burst: “When the flood of investment currently pouring into natural gas drilling operations dries up, the inevitable bust will be as scary as the boom was exciting,” wrote Jonathan Callahan in his recent article “Gas Boom Goes Bust” (The Oil Drum, Febr. 6, 2012).

Second, the fracking industry relies heavily on externalizing much of its costs. Corporations are, as Joel Bakan showed in his book “The Corporation” (Free Press 2004), externalizing machines that try to reduce their expenses by transferring them to third parties: “…it is no exaggeration to say that the corporation’s built-in compulsion to externalize its costs is at the root of many of the world’s social and environmental ills. That makes the corporation a profoundly dangerous institution…” (p. 61).

This starts with the already mentioned Ponzi Scheme, a rather poor strategy to externalize costs onto the future. Externalizing of costs also happens through lax safety and health regulations: The fracking industry enjoys a remarkable lack of federal regulatory oversight and accountability mechanisms, also known as the “Halliburton Loophole,” which exempts them “from seven of the 15 major laws designed to protect air and water from contamination from harmful substances, including the Clean Air Act, Clean Water Act, and the Superfund Act.” (The New York Times, March 3, 2011). State regulations are often insufficient, too, which allows this particular industry to operate under much less oversight and regulation than other industries and cutting costs by disregarding environmental protection measures.

For instance, regulations in Ohio currently do not include pre-drilling disclosure of fracking liquids, nor do they mandate baseline testing of groundwater, and  liability and bonding requirements are rather weak. Moreover, although fracking fluids contain highly toxic and carcinogenic chemicals, they are not considered hazardous waste and can thus be injected into underground wells or — worse — disposed as dust or ice control on public roads by way of the surface application loophole (see also ORC 1509.226). Cases of water and air pollution due to the activities of this industry thus turn into merely fateful collateral damage at the risk and expense of local residents, rather than a liability for the responsible polluter.

Costs are also externalized through wear and tear on local infrastructure, such as roads and bridges, due to heavily increased truck traffic. Severance taxes on natural gas extraction are ridiculously low in Ohio (about 0.37%), while many other states have rates between 4% and 7.5% (see also Concerned About Fracking – Part 3). According to news reports, Ohio’s Governor John Kasich is considering a revision of the severance tax and also the introduction of an impact fee, but details and a time line for a bill are not known so far.

Other externalizations include traffic noise and air pollution through increased truck traffic, air pollution from wells and compressor stations, soil and water pollution from spills, and also the loss of quality of life and well-being for local residents and the devaluation of their property value.

All in all, natural gas extraction through horizontal drilling and hydraulic fracturing can only be considered an “inexpensive” alternative as long as the real costs of this energy are ignored. As Ian Urbina of the New York Times said, “There is undoubtedly a vast amount of gas in the formations. The question remains how affordably it can be extracted.” (Insiders Sound an Alarm Amid a Natural Gas Rush, The New York Times, June 25, 2011).

3. The myth of Shale Gas As environmentally attractive energy

Extractive industries are hardly ever environmentally friendly. And, interestingly enough, whenever fossil fuels are praised as “environmentally attractive,” the focus is on the use of the energy, not on its extraction. “Clean Coal” refers to cleaner burning and less CO2 emission though carbon capture and sequestration. Yet, even if coal were to become “clean” in this respect, which seems rather unlikely, we’d still have coal extraction that is inherently dirty and that has actually become even more problematic with large-scale technologies such as mountaintop removal mining.

Nuclear power was touted as the energy of the future in capitalist and socialist countries likewise. Yet, the 1979 nuclear meltdown at Three Miles Island, the devastating catastrophe in Chernobyl in 1996, and the similarly devastating catastrophe at the Fukushima nuclear plants in 2011 showed the untamable risks of this technology. Moreover, the often advertised small carbon footprint of this energy is only true for the processes in the nuclear power plant. All the other steps, before and after, are carbon-intensive: “Nuclear plants have to be constructed, uranium has to be mined, processed and transported, waste has to be stored, and eventually the plant has to be decommissioned. All these actions produce carbon emissions.” (Kurt Kleiner, “Nuclear energy: assessing the emissions,” Nature Reports, 24 September 2008). Indeed, nuclear energy can only be used somewhat profitable if the state subsidizes or completely assumes responsibility for waste management.

Unfortunately, shale gas is no better than coal or nuclear when it comes to its environmental impact. While it does burn cleaner than any other fossil fuel, the  methane emissions during the extraction process are so high that the overall greenhouse gas footprint of shale gas is as bad or worse than that of coal, depending on the time frame. As Howarth, Santoro and Ingraffea (2011) have shown, shale gas emissions throughout the lifetime of a gas well are somewhere between 3.6% and 7.9%. This includes the relatively high rates of methane gas emissions during the flowback period of the fracking fluids, which happens within the first few days to weeks after injection.

Another recent study, conducted by the National Oceanic and Atmospheric Administration (NOAA) and the University of Colorado Boulder, found that gas wells leak twice as much methane as previously assumed: “These measurements suggested that about 4 percent of the methane in the gas wells was leaking. Previous studies by the Environmental Protection Agency and by industry groups pegged this loss at between 1 and 2 percent. But the earlier estimates were done by measuring leakages from individual pieces of equipment.” This study did not distinguish between conventional gas wells and shale gas wells.

Without going into other environmental issues of fracking, such as fracking fluid spills and the risk of contaminating aquifers in the fracking process, it is obvious that shale gas is not an “environmentally attractive” energy, even if no accidents or unintended side effects are assumed.

To be continued.

Part 2: How to Create Myths by Claiming to Debunk Myths is coming soon.

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