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July 1, 2013

Fracking’s Resilience

With compromise afoot, environmental and political objections to the controversial energy extraction technique are likely to fade.

casual news consumer might believe that fracking, the extraction of oil and gas by injecting wells with chemical-laced water under high pressure, is on the verge of going absolutely nowhere. Fracking, formally known as hydraulic fracturing, is under attack across the country, particularly in regions without long histories of lucrative energy production. 

It’s been caught up in the larger international debate over climate change. Environmental activists have persuaded New York state authorities to impose a statewide moratorium, pending a study that seems to take forever. It will try to assess the impact of fracking on potential ground water and air pollution. Groups with names like “Artists Against Fracking” get a lot of press, as does 80-year-old Yoko Ono with the “Imagine No Fracking” campaign she launched in April. Fracking has even been blamed for causing or aggravating earthquakes, although the evidence on that proposition right now is rather mixed.

But there are plenty of indications that mass political objections to fracking are being worked out. Crucial compromises are being forged; they center on proposed regulations that would establish tight operating standards and close monitoring. There are such efforts afoot in Illinois, Pennsylvania, West Virginia, Ohio and California, among other states.

Another factor in favor of fracking is the status quo. Fracking in one form or another actually has been around for more than a century-and-a-half. As early as the 1860s, a rudimentary version was used to stimulate relatively shallow oil wells in Pennsylvania and some adjoining states. The first commercial use of hydraulic fracturing—fracking with liquids—was conducted in 1949 in Oklahoma and Texas oil wells. The current, much-improved technology for fracking of gas dates back to 1997. 

The overall effect would dissipate one big cloud looming over the country’s drive toward energy independence. That would be terrific news for metals industries. The industry generates estimated annual revenues of $200 billion. Fracking alone could boost that by 10% to 15%, says Eric N. Smith, a Tulane University finance professor and associate director of the Tulane Energy Institute. That’s a heady $20 billion to $30 billion-a-year pop. “There are all kinds of ripple effects” by opening up the fracking market, he says, noting that something like $60 billion in new construction could be needed for facilities just to process natural gas obtained via fracking.

 

Compromise Developing

One indication of developing compromise: A cross-sampling of environmental organizations, foundations and oil-and-gas companies have created the Center for Sustainable Shale Development (CSSD). Funded partly by a grant from the nonprofit Heinz Endowments, whose chairman is Teresa Heinz, the wife of U.S. Secretary of State John Kerry, the Pittsburgh, Pennsylvania-based outfit focuses on the gas-rich Marcellus and Utica shale formations under Pennsylvania, West Virginia and Ohio. 

The CSSD asks drilling companies to submit a review of their operations for compliance with 15 performance standards. The CSSD standards are intended to protect air quality, water resources and the climate. They mandate various good practices and establish limitations on matters such as gas flaring, storage tank emissions and wastewater discharge. Drillers that meet the standards receive what amounts to a “Good Housekeeping seal of good drilling.” 

The CSSD has drawn fire from both environmentalists and energy companies. But that means its middle-of-the-road approach might well be the route of the future. A Washington Post editorial from this past March lauded the standards as “a heartening breakthrough in the war over fracking … striking the right balance.” The rules allow fracking to continue and grow.

Similarly, a report issued in mid-April by researchers at the University of California, Berkeley called for better handling of fracking wastewater and more rigorous regulation. But given California’s penchant for overregulation, the study by the school’s Center for Law, Energy & the Environment stopped far short of calling for a ban. Gov. Jerry Brown has said he generally supports fracking. Bills introduced in the California legislature would do everything from impose a moratorium to allow fracking under stronger regulation.

 

Support From Obama’s Energy Chief

On the national level, Ernest Moniz testified during his confirmation hearings to be President Barack Obama’s energy secretary that fracking must be allowed to continue. He lauded it as the root of the U.S. natural gas revolution.” That doesn’t sound like the brakes are about to be applied anytime soon, at least federally and by the Obama administration.

Indeed, as Moniz’s comment suggested, the sheer force of the economics behind fracking is another powerful indication that its future is rosy. Recent and startling predictions from BP and the International Energy Agency that the United States will be energy self-sufficient within a half-generation are premised in large degree on the continued expansion of fracking to produce copious amounts of oil and gas at lesser cost. 

This is not to minimize the environmental contamination concerns—and there certainly is no shortage of them. Foremost are issues concerning water, a key element of the fracking process. Initially, there is the issue of where all the water will come from. Fracking is estimated to use some 135 billion gallons a year, or about 0.3% of total U.S. consumption. Then there is the issue of the toxicity of the chemicals added to fracking liquids. Finally, there is the issue of wastewater disposal, including the potential for contamination of regular drinking-water sources.

The flaring of natural gas produced by fracking but unable to be harnessed immediately raises the specter of high ozone levels in the air, potentially resulting in headaches, sore throats and breathing difficulties.

 

A Pending EPA Study and Other Headwinds

Reflecting some of the uncertainty concerning fracking’s environmental impact, the U.S. Environmental Protection Agency (EPA) is in the middle of a congressionally mandated study assessing fracking’s potential risks to drinking water. The report is due next year. Obviously, opponents of fracking will make as much out of a negative report as they can. 

Despite favorable indications, California continues to be a major battlefield over the future of fracking. In March, a federal judge ruled that the Federal Bureau of Land Management (BLM) violated a national law when the agency ducked a determination about fracking when approving the sale of oil and gas leases on 4 square miles of federal land parcels near both Monterey, on the coast, and Fresno, more inland in the San Joaquin Valley of northern California. The plaintiffs in that lawsuit are the Sierra Club, which has taken a leading role in fighting fracking, and the Arizona-based Center for Biological Diversity, another environmental activist group, with more than 200,000 members.

Magistrate Judge Paul Grewal ruled that the BLM was required to take the fracking issue into account in its environmental impact study for the leases, rather than ignore it. “This ‘cursory and inconsistent treatment’ was arbitrary and capricious,” he wrote. 

But the BLM is shaping up to be a powerful advocate of fracking. In mid-May, the agency issued a new set of proposed rules that would regulate fracking on public lands and Indian reservations, including provisions that would allow drillers to keep secret some of the compounds in their drilling fluids.

Many environmentalists are unhappy. The BLM reports to the new Secretary of the Interior, Sally Jewell, who once fracked some wells herself in Oklahoma. She told reporters that fracking was a historical reality and “has the potential for developing significant domestic resources and strengthening our economy and will be done for decades to come.”

 

‘Doc Wars’

The battle for the hearts and minds of the public has spread into film, creating a war of the documentaries. In 2010, “Gasland” offered a broad-based attack on fracking. The movie, written and directed by environmental activist Josh Fox, received a 2011 Oscar nomination for best documentary. (It lost to “Inside Job,” Charles Ferguson’s searing condemnation of the financial services industry.)

Still, “Gasland” spawned a response­—“Truthland.” Released last year, it was produced by the Independent Petroleum Association of America, a major oil and gas lobbying organization. “Truthland” purported to set the record straight, claiming “Gasland” was full of hot air.

As if this back-and-forth was not enough, Fox premiered his sequel, “Gasland Part II,” in April at the Tribeca Film Festival in New York, New York. Meanwhile, filmmakers Phelim McAleer and Ann McElhinney, whose previous documentaries tended to attack environmentalism, just released “FrackNation.” Funded by energy industry executives as well as contributors to the crowd-funding Kickstarter website, “FrackNation” argues that Fox left out a lot of relevant material that would have the effect of undercutting his anti-fracking premise.

 

Fracking: The Past and Future

Much of the bitter debate over fracking focuses on who should be doing the regulating—the national government or individual states within their own jurisdictions. Environmentalists opposed to fracking seem to be favoring federal authority, for no other reason than they have more clout in Washington and lobbying one set of government agencies is a lot easier than lobbying 50. 

The energy industry seems to prefer letting each state set its own rules, if for no other reason than it is a lot less likely that every single state with fracking potential will impose prohibitions. And right now, more than half the 50 states have known fracking potential within their borders, according to various publications. 

If financial investment is any indication, the future of fracking looks very solid indeed. “I’m very bullish,” says Kenneth Simonson, the longtime chief economist of the Associated General Contractors of America. His members, the biggest builders in the country, construct everything from plants and other facilities to pipelines. Simonson figures $15 billion was spent just in 2012 building energy infrastructure in the United States, mostly due to fracking in energy extraction.

Simonson calls this economic impact “the shale gale.” It’s a wind likely to keep blowing.


William P. Barrett is a veteran business journalist. He can be reached at wmpb@aol.com.