Economic Benefits and Risks of Fracking

Presentation given at the Watershed Summit in Athens, Ohio, on September 7, 2013

 

By Bernhard Debatin

When oil and gas industry, lobbyists, or politicians talk about fracking, they usually show us an economic wonderland. Fracking, we hear, does not only solve our energy problems, it also creates an economic boom of unheard of dimensions. And we hear it is clean, easy to recover, and has almost no negative side effects.

New technologies in oil and natural gas drilling do indeed make possible to extract huge amounts of non-conventional oil and gas from shale formations at a profitable rate, which is why fracking is celebrated as a “game changer” for the U.S. energy supply and the economic revival. Large areas in the U.S. have become the location of an ever-accelerating fracking boom. In addition to the Marcellus Formation, which covers most Appalachian states, such as Ohio, Pennsylvania, West Virginia, and New York, fracking is also taking place at a large scale in Colorado, Utah, New Mexico, North Dakota, Montana, Texas, and recently California.

Shale Plays in the United States, curtesy of NRDC
(Click to see large map)

The New Oil Boom

While the initial focus of fracking was on natural gas extraction, it is increasingly becoming obvious that the real promise of fracking lies in the production of oil, which is more profitable, much easier to transport than natural gas and has a wider, almost universal range of use. Since 2009, deep shale oil drilling has been prioritized over natural gas: Today, less than ¼ of all drilling rigs are gas rigs, whereas in 2008 over 75% were gas rigs (The Oil Drum: Oil Watch – Drill Baby Drill, Jan. 30, 2013).

In particular, the Bakken Shale in North Dakota and the Barnett Shale in Texas have become major oil producers. A recent Bloomberg report states that oil production in North Dakota overtook Ecuador in 2012 and is now almost even with Qatar. Already in 2011, the U.S. had 2010 active drilling rigs, which 55% of the world total (The Oil Drum: Oil Watch – Drill Baby Drill, Jan. 30, 2013). And according to the International Energy Agency (IEA), the U.S. is expected to overtake Saudi Arabia and Russia as the world’s top oil producer by 2017 (Reuters: U.S. to overtake Saudi as top oil producer: IEA.  Nov. 12, 2012), which has obvious implications for foreign politics and energy policy. In particular, it is likely to keep the U.S. from pursuing alternative, renewable energies and from reducing our extremely wasteful consumption of energy.

North_Dakota_Production

North Dakota oil production showing the effect of unconventional oil production from the Bakken formation (Sources: EIA and the North Dakota Department of Mineral Resources; from: The Oil Drum)

It is also common knowledge that the oil boom in North Dakota and Eastern Montana has created a gold rush atmosphere that is characterized by a lack of infrastructure, shortage of proper housing, social conflicts with rowdiness, criminal activities and prostitution, raising costs of living, and a huge environmental impact (The Oil Drum: The Bakken Boom – A Modern-Day Gold Rush, Dec. 12, 2011). Due to the lack of infrastructure, the industry is flaring a third of the natural gas in North Dakota.

Satellite view of US at night showing North Dakota, home to shale gas, is aglow at night

North Dakota gas fields seen from space at night (source: 2ndgreenrevolution.com)

According to a Ceres Report from July 2013, North Dakotan natural gas of a value equaling about $1 billion was flared in 2012, creating additional greenhouse gas emissions of one million cars. The report also states:

“At current market rates, oil is approximately 30 times more valuable than natural gas. As a result, producers have chosen to flare much of the gas they produce, rather than invest in the infrastructure necessary to collect, process and market it.”

 Does Fracking Create Jobs and Economic Benefits?

It should be noted that fracking booms, like most resource extraction booms, are usually short-lived and that they mostly benefits the oil and gas companies, but not the areas where it takes place. While the retail industry benefits, it does not create many local jobs because typically out-of-State work crews are brought in. According to a Cleveland State University study about the fracking boom in Ohio, “retail sales in the 15-county block with lots of shale activity went up 14.2% in the first quarter (of 2012) — while hiring increased only 0.1%.” Though some experts predict that the creation and use of processing and distribution infrastructure for of natural gas, such as pipelines and processing plants, will create more local jobs, the number of those jobs will likely be rather small.

falseJobs

Optimistic predictions about fracking-related economic growth usually resemble more reading the tea leaves than proper scientific calculation. Critics of those enthusiastic projections have pointed out that the expected benefits tend to be vastly overstated. For instance, an economic study about fracking-related job creation in New York predicted 62,620 new jobs directly or indirectly related to fracking by 2018. However, a secondary analysis conducted by Food & Water Watch showed that due to methodological flaws, the data this study relied on actually only supported a claim of 6,656 new jobs by 2018, i.e. only 10.6% of the prediction.

Similarly, in their study The Economic Value of Shale Natural Gas in Ohio, OSU economists Weinstein and Partridge have shown that the widely touted creation of 200,000 jobs in Ohio through fracking is more likely to be in the vicinity of 20,000 jobs, again only about 10% of the industry prediction. They note that a similar number of fracking-related jobs was created in Pennsylvania between 2004 and 2010, while the industry prediction was between 100,000 and 200,000 jobs.

W_PSTUDY

Though 20,000 additional jobs may still be welcome in a shaky economy, the researchers also point out that “like virtually every other economic event, there are winners (e.g., landowners or high-paid rig workers) and losers(e.g., those who can no longer afford the high rents in mining communities and communities dealing with excessive demands on their infrastructure)” [p. 2]. In addition, the authors emphasize that industry-funded studies usually don’t address the fact that most fracking jobs are temporary but “long-term regional economic development requires permanent jobs” [p. 2]. If most of those 20,000 jobs are short-term jobs and are mostly held by out-of-state workers, then the boom is not that much of a benefit to the area.

The Hidden Costs of Fracking

Obviously, some landowners may end up with a considerable amount of money from fracking, but one must seriously question the assumption that there is an overall net positive economic effect of fracking. Ultimately, it all boils down to the question of which costs are considered when calculating the cost/benefit ratio. Like many other industries, the gas and oil industry relies heavily on externalizing costs, i.e. shifting the burden on others, such as the tax payers, future generations, and the environment. In his book The Corporation (Free Press 2004), Joel Bakan showed that corporations are what he calls “externalizing machines” that constantly try to reduce their expenses by transferring them to third parties:corporation

“…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).

The hidden costs of fracking are externalized in a number of ways, most notably through their environmental impact, the use and abuse of existing infrastructure, such as roads and bridges, and through the exploitation of lax safety and health regulations. Research cited in the study by OSU economists Weinstein and Partridge states that “previous industry-funded reports have focused on the benefits while ignoring the costs and risks associatedwith natural gas extraction” and that they “haven’t properly accounted for other impacts, including the costs of environmental degradation,” nor for “the impact on infrastructure, property values, and the ‘displacement impact’ pollution can have on other industries such as tourism and fishing” [p. 5].

A large and often overlooked part of the environmental impact of fracking is the release of methane through leaks into the atmosphere. Though the actual amount is still controversial, it is clear that this poses a huge problem. Methane has a briefer half-life than CO2 but is up to 100 times more potent than carbon dioxide as a greenhouse gas on a 20-year timescale, and its rate in the atmosphere has been steadily growing since 2007 for a number of reasons, including fracking. According to a report in the Christian Science Monitor, leakage rates need to be lower than 3% for methane to be less of a greenhouse gas source than coal power plants. However, current leakage rates appear to be somewhere between 4% and 9%, depending on the location. A recent NOAA & CIRES study from August 2013 found even leakage rates up to 12%, confirming the concerns expressed earlier by Cornell University researchers Ingraffea and Howarth. This defeats the widespread propaganda that natural gas from fracking is a clean energy source. Also, this type of damage to the environment usually does not show up in cost-benefit analyses of the industry.

dalek1

Lax Regulation and Oversight

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 regulation and oversight than other industries. The lack of sufficient regulation basically encourages and rewards cutting costs by disregarding environmental protection measures.

For instance, a study conducted by the National Resource Defense Council (NRDC), comparing disclosure regulations for fracking waste, found that “more than half of the states with hydraulic fracturing activity currently have no disclosure requirements at all. Of the existing state rules, none provide comprehensive disclosure.”

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, Ohio does not consider them hazardous waste. As we know here in Athens County from first hand experience, waste fluids can be injected into underground wells without much oversight and minimal safety precautions. Aquifers are declared safe not because of actual safety assessment but because of a general assumption that injected waste fluids will just stay there forever, although it is known that water can migrate through cracks and interconnected aquifer systems quite far within years. Consequently, the risk of fracking-related pollution of the already limited resources of potable water is rather high and simply a question of time, not of likelihood.

Fracking_Earthquakes

Source: USGS/NBC NEWS (click to enlarge)

Experience in Ohio and elsewhere shows — and recent research confirms — that injection wells significantly increase the occurrence and magnitude of earthquakes. Such earthquakes, in turn make the migration of injected waste fluids even more likely as the geological structure becomes destabilized and allows for the formation of additional crack and faults. And the lubricants contained in fracking fluids actually facilitate seismic activity along cracks and faults.

Rhetoric and Reality of Fracking Waste

The rather unconcerned attitude toward fracking waste fluids by our state government and lawmakers deserves a closer look. The rhetoric of fracking usually refers to the waste fluids as brine, a harmless mix of water and salt. This is why Ohio law allows fracking waste fluids to be disposed as dust or ice control on public roads, if a township decides to do so (ORC 1509.226).

chmicals

Source: Marcellus Drilling News.
Link to complete list (PDF)

However, the reality is that fracking waste is a chemical cocktail of varying strength. The salt concentration is usually ten times as high as in ocean water, this alone makes it a fluid unsuited for any use. Moreover, the liquids usually contain a number of volatile chemicals, including benzene and other flammable hydrocarbons from the BTEX group, as well as varying levels of radioactive substances from the shale formation that come back up with the fracking fluids. Also, depending on how the waste fluids are stored before disposal (open ponds or closed tanks), they may have a much higher concentration of chemicals due to water evaporation. And finally, waste fluids from different stages of the drilling and fracking operation will also have different compositions and concentrations of chemicals.

Sometimes, the fluids can be so concentrated and volatile that they are explosive, as was the case of an explosion at an injection well near Rosharon, Texas, on January 13, 2003. Similarly to the injection wells in Athens County, the site at Rosharon was a Class 2 well. In his article “The Trillion-Gallon Loophole: Lax Rules for Drillers that Inject Pollutants Into the Earth”, Abrahm Lustgarten from the investigative journalism site ProPublica points out, this category is

“subject to looser rules and less scrutiny than others designed for hazardous material. Had the chemicals the workers were disposing of that day come from a factory or a refinery, it would have been illegal to pour them into that well. But regulatory concessions won by the energy industry over the last three decades made it legal to dump similar substances into the Rosharon site – as long as they came from drilling.”

The remains of a tanker truck after an explosion ripped through an injection well site in a pasture outside of Rosharon, Texas, on Jan. 13, 2003, killing three workers. The fire occurred as two tanker trucks, including the one above, were unloading thousands of gallons of drilling wastewater. (Photo courtesy of the Chemical Safety Board)

The remains of a tanker truck after an explosion ripped through an injection well site in a pasture outside of Rosharon, Texas, on Jan. 13, 2003, killing three workers. The fire occurred as two tanker trucks, including the one above, were unloading thousands of gallons of drilling wastewater. (Photo courtesy of the Chemical Safety Board; copy from  the article at Propublica.com )

The bottom line is, contrary to the official rhetoric, fracking waste fluids represent a serious risk to our aquifers and drinkable water resources, as well as to public health. Treating toxic waste from fracking as harmless liquids that can be stored in injection wells without much precautionary measures is simply an irresponsible act of externalizing costs onto the public and the environment.

In the end, the cost may well exceed the benefits, plus we always have to ask who is benefitting and who is carrying the costs.

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2 responses to “Economic Benefits and Risks of Fracking

  1. Pingback: Utah June 2007 | topline2day

  2. This is a fine comprehensive, logically written, well documented article. Great contribution to the discussion on the economic aspects of fracking. I accidentally came across on article (by sponsor) on the National Journal website. I don’t usually go there. The article is written for the Natural Gas Alliance and is titled “Surprise Driver of the Rebirth of U.S. Manufacturing.” The examples, focusing on Louisiana, include a big methane corporation that has made plans to leave Chile and set up shop in Louisiana. From the pro-industry perspective, this is, of course, a big economic benefit for the corporations involved as well as for American workers.

    As you know, I am one of the opponents of fracking. I fear that if the above article is identifying a potential trend, that would be a set back for us.

    Bob

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