Hydraulic Fracturing

Political and Economic Thoughts on the Fracking Nation _____________________ SMGT 435 Research Paper Lorie LaPorta May 3, 2013 Political and Economic Thoughts on the Fracking Nation Introduction Hydraulic fracturing, or fracking, is a horizontal drilling method that extracts natural gas from Marcellus shale formations thousands of feet below the surface. A high pressure water mixtures is pushed into a well, and pressure applied so the shale cracks and releases gas. The gases are then captured and refined.

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Since this high technology system has been developed, there has not been enough structured support, such as reports and surveys, to determine the safety of the environment and its inhabitants. Is fracking a sustainable practice that allows enough transparency for government systems to deem it safe? Given the amount of natural gas below the surface of the earth, it is practical to think drilling should continue, but at what costs? More can be done to establish this process viable for all concerned. We must ask- how does the lack of transparency shape society and the economy?

Political Aspects of Hydraulic Fracturing Domestic reserves of natural gas beneath the earth’s surface are massive. Gas drilling booms have popped up in numerous states throughout the country-Wyoming, Colorado, North Dakota, Arkansas, Louisiana, Texas and Pennsylvania, to name a few. Halliburton Corp. developed a way to mine horizontally. In 1990, boring parallel to the horizontal layers of shale exposed gas deposits, from which Halliburton reaped the profits. There is no denying that America needs alternative fuel sources, and this is one way to ease the demand on foreign oil.

Ernest Moniz, director of MIT Energy Initiative, believes natural gas is a bridge to a low-carbon future until alternative sources such as wind, solar and geothermal become more viable. He states natural gas “could enable very substantial reductions in carbon emissions—as much as 50 percent by 2050” (Linda, May 2011). However, debate continues over the violations of methods used by the oil companies. The Halliburton Loophole, or so it is termed, is another name for the 2005 Bush-Cheney Energy Policy Act which exempted gas and oil companies, or hydraulic fracturing, from the Safe Drinking Water Act.

Basically, underground injection of fluids or propping agents was permitted in 2005 as long as it did not contain diesel fuel. This stipulation seemed to go amiss. A congressional investigation found that numerous oil and gas service companies were using tens of millions of gallons of diesel fuel in their water and chemical mixtures between the years 2005 and 2009. The committee found 32. 2 million gallons were dumped into wells in 19 states. That’s nearly half the country exposed to the possibility of contaminated drinking water.

Not only did these companies not pull permits to injection diesel fuel into the ground, they also failed to perform environmental reviews which are required by law. Furthermore, because environmental reviews were surreptitious, companies could not or would not provide information on whether diesel fuel was used in fracturing processes in or around underground drinking water sources, making it difficult to place responsibility on specific parties of interest where damages were incurred.

Damages to organic farms, health, waterways, residential drinking water supplies, loss of animal herds are only a few examples of losses from fracturing (Fox, 2010) more evidence and research can be proven, fracturing continues. But the negative externalities brought on by fracking have a voice. Environmentalists, agricultural groups and citizens impacted by fracking have been, at minimum, heard. The EPA initiated an ongoing study on fracturing with a final report due in 2014.

Its research addresses five stages of the hydraulic fracturing water cycle. “Water acquisition: What are the possible impacts of large volume water withdrawals from round and surface waters on drinking water sources? Chemical mixing: What are the possible impacts of hydraulic fracturing surface spills on or near well pads on drinking water resources? Well injection: What are the possible impacts of the injection and fracturing process on drinking water resources?

Flowback and produced water: What are the possible impacts of flowback and produced water (collectively referred to as “hydraulic fracturing wastewater”) surface spills on or near well pads on drinking water sources? Wastewater treatment and waste disposal: What are the possible impacts of inadequate treatment of hydraulic fracturing wastewater on drinking water sources (Epa. gov, Dec 2012)? ” During the Bush administration, oil and gas companies safeguarded their chemical mixtures so access to the toxic concoctions was protected or overlooked.

No transparency exists in the oil and gas industry. Each oil company has their own cocktail mixes and claims to have proprietary rights. An EPA employee sent a letter to Congress stating toxins such as hydraulic acid, diesel fuel (contains benzene, xylene and toluene) as well as formaldehyde and arsenic, to name a few, existed in the chemical cocktail solutions to be mixed with water and sand, stating that the previous report was inconclusive of the evidence submitted (Sourcewatch. com, 2013). How can this happen?

Under the Bush Administration the EPA concluded the hydraulic fracturing should not be included in the Clean Water Drinking Act because their scientific studies showed drinking water was safe. How can it be safe with toxins and hazards in the mixtures pushed underground near water sources? The Obama administration offers little help in protecting our water. The EPA now requires oil and gas companies to submit their chemical mixtures after the fracking process is complete, not before, and this is only required for land under the Bureau of Land Management (BLM).

What is the value of submitting a report after the chemicals have been dumped? What is the value of only semi-regulating BLM land? The EPA permits diesel fuel oil and hydraulic fracturing without regulation until the 2014 final report is established that fracking is unsafe for drinking water (Sourcewatch. com, April 2013). Lack of transparency jeopardizes the environment and society. One could hypothesize that political structures can be swayed by strong corporate cultures in the name of increasing gross domestic product.

It would seem the American people are in jeopardy of environmental and health hazards and are not protected by their government as of yet. Is the political structure serving its purpose? Economic Advantages There are some that believe the economic advantages of fracking for natural gas far outweigh the disadvantages. By 2015, America will produce more oil from unconventional means than from any other source, according to IHS Global Insights in a report from economic forecasting in 2012 (Sourcewatch. org).

A similar study by the same organization in 2010 indicated a 1% increase in gas supplies in 2000 and by 2010, the increase in gas supplies was 20% with projections for 50% by the year 2035 (Davis, 2102). Job creation is a welcome boom in America. Directly and indirectly, it is responsible for hundreds of thousands of jobs, including the small mining operations in the Midwest that involve harvesting silica sand from the bluffs and lands around the Mississippi river. Geology and engineering college students are recruited from the Midwest for unconventional gas and il mining in North Dakota and a beginning salary of 85,000 to start. Creation of jobs has been established in transportation industries, mining industries, water and waste providers, chemical or pharmaceutical companies, labor, research, engineering and technology industries, trade associations and industry officials. This does not include the labor involved on the political and environmental side of the fracking movement. With the abundance and increase in supply, prices for natural gas have the possibility of decreasing. Nearly ten years ago, the price of natural gas per cubic feet was $10-$11 a cubic foot.

Now the price is $3. 77 a cubic foot (tufts. edu, 2011). In addition, there are other uses besides the typical energy use. Other gases extracted from the natural gas supply resources for fertilizers, food processing, fueling industrial boilers, chemicals and pharmaceuticals, waste treatments and much more. This draws economic advantages as well as economic growth. Royal Dutch Shell announced plans to build a plant in Pennsylvania due to its location near natural gas production. This will create 10,000 construction jobs and thousands of permanent jobs for county residents.

The availability of low-cost energy allows manufacturers to remain competitive in the global market, giving them an edge they have not before (Loris, Aug 2012). Other markets are making comebacks and reviving economic growth due to affordable, reliable energy. A frequent complaint about hydraulic fracking is that although it may be a cleaner energy than fossil fuels, and reduce American’s reliance on foreign energy sources, it uses as much if not more precious natural resources. This includes fresh water and silica sand. However, innovation by corporations is often the result of scarce resources or policies.

How can we make fracking more efficient and less toxic? GasFrac, a company in Texas has been experimenting with liquefied petroleum gas gel in a number of natural gas wells. Basically it is propane gas compressed into a thick fluid that breaks up the rock. Of the many advantages one of them is that the petroleum gel converts back into gas and can be extracted at near 100%, whereas wastewater from traditional methods is less than 50% extraction (Marsa, 2011). Liquefied petroleum gas gel reduces the use of water and silica sand and eliminates the waste and disposal processes of wastewater and flowback reatments. Lack of transparency has financial gains; however, this also indicates market failure. The economy may be better off in the short term, but not at the cost of its people and the environment in the short term and the long term. There is also debate if funds used to support fracking are also inhibiting the growth of alternative energy sources, but this is not addressed in this paper. From a triple bottom line business model, this industry only hits one of the three legs (economics) of sustainability and its efforts are jaded. Are the gains worth it?

Negative Externalities The affects on society from dirty drilling are numerous and cases are easy to find with a small search on the Internet. The documentary Gasland lists numerous cases where people’s health suffers immensely; land has been destroyed and cannot return to its previous state due to flowback and accidently spillage, animals have died or suffer poor health from drinking contaminated water, households no longer use their wells or drinking water sources because water has been contaminated or contains benzene or other toxins.

Gas exists in the water and people can light their water on fire (Fox, 2010). In addition, Gasland goes on to state the CO2 costs as the trucks haul millions of gallons of water per well to the drilling site through small communities, plus the removal of the flowback water from the site, and then the hauling of the natural gas to plants for processing, and the life cycle goes on from there. The carbon footprint from transportation of truck loads alone is vast. These trucks cause wear and tear on roads, adding additional repairs and ambient air quality is reduced to the community.

Unlawful toxins due to a lack of transparency increase health care costs to society and place an increase in long term financial burdens on the health care system. However, due to the political aspects spoken up previously, none of this can be proven, and therefore no responsibility for damages is placed upon oil and gas industries. We, the people harvest the negative externalities while corporations benefit financially. Are the fracking industry using water resources sensibly for economic and social gains or is this industry more concerned about corporate gains?

Certainly, the next seven generation’s need for fresh water is being overlooked. The aquifers are running at a deficit due to over extraction of water and ongoing areas of drought (Brown, et al. , 2002) This is a national and global threat. With the amount of fresh water being used for agriculture (Brown, et al. , 2002) in addition to the millions of gallons used for fracking as well as other industry’s use of water to create energy, the negative externalities to market failure are becoming apparent.

Not only would the lack of water affect the USA, and its food and energy source for the economy and society, it would also affect the world, as exported goods and services, such as corn, wheat and soybeans, depend on the supply of fresh water. Even though fracking solutions contain 99% water, the toxic chemical mixture is cause for concern. As noted earlier hydraulic acid and diesel fuel are used in the chemical mixtures. Only 50% of the waste water is retrieved when drilling is complete, leaving the other 50% somewhere in the earth.

This water is then termed flowback because it needs treatment and release somewhere. The oil and gas industries claim their wells are cemented and sealed, thus avoiding any leakages into water wells or aquifers. Many parties affected by nearby wells claim damages to drinking water. The EPA report due in 2014 will show more evidence as to the affects of hydraulic fracking on the environment and those who inhabit it. There are numerous cases throughout the country where agricultural establishments, residents, businesses and families have been affected negatively by fracking (Fox, 2011).

As the rock formations are cracked open, radium is mixed in with the wastewater. The wastewater is treated through the treatment facilities, but the facilities are equipped to treat pathogens and contaminants, not radionuclides. In Pennsylvania, the flowback water is treated and then discharged in local waterways causing environmental hazards (Bennear, 2011). This flowback can be addressed through other means than regulation, meaning it is possible to address the negative externalities with economic theories. The Coase Theorem is one way to address this.

Bennear argues in Fracking Externalities and the Coase Theorem that radioactive materials such as radionuclides like radium enter the drinking water system. If property rights were developed, then negotiation between the treatment facility and the drilling company could take place. If the drilling company owned the rights to wastewater, the burden of clean water is on the utility company. Then the utility company could negotiate with the drilling company to reduce the radium discharged. The drilling company could pay extra for recycling the water or added treatments.

If the property rights to wastewater fell on the utility company, the drilling company could negotiate with the water utility to accept higher levels of radium in exchange for compensation to cover the costs of treatment (Bennear, 2011). With mathematical formulas and graphs, it can be established which way is the most cost effective for the property rights owner. The negative externalities outweigh the positive externalities. The future holds more development, reports and studies on this technology and its benefits and costs to society and the environment.

Given the right dynamics, the Coase Theorem has potential resolutions. Summary The more research done on this subject, the more it could be developed and argued that diversity is needed within the government, perhaps environmental groups, as well as oil and gas groups. Research opportunities exist for economic, political and social factors to shape the fracking industry toward a more sustainable solution. Economically speaking, this industry does support growth, yet it could be inhibiting a more sustained growth in alternative energies, what I believe the way to the future.

It makes little sense to me to use so many natural resources to produce natural gas. The externalities caused to society are not worth the efforts when other solutions are possible. However, after review of the petroleum gel, I do have reservations about NOT continuing to drill if precautions and studies were proven to do no harm. Transparency is a start to a broader solution. References Bennear, Lori. (Sep 5, 2011). Duke University. Fracking Externalities and the Coase Theorem. Retrieved from http://sites. nicholas. duke. edu/loribennear/2011/09/05/fracking-externalities-and-the-coase-theorem.

Brown, Lester, Larsen, Janet, Fischlowitz-Roberts. (2002) Earth Policy Institute. Part 1 Assessing the Food Prospect: The Fast-Growing Water Deficit. Retrieved from http://www. earth-policy. org/index. php? /books/epr/Epr1_ss9 Davis, Charles. (2012) Review of Policy Research. The Politics of “Fracking”: regulating naturalgas drilling practices in Colorado and Texas. Retrieved from http://papers. ssrn. com/sol3/papers. cfm? abstract_id=1766675. Environmental Protection Agency. (Dec. 2102). EPA’s Study of Hydraulic Fracking and Its Potential Impact on Drinking Water.

Retrieved from http://www2. epa. gov/hfstudy. Fox, J. (2010). International WOW Company. Gasland. Seen on Netflix. Loris, Nicolas. (August 28, 2012). The Heritage Foundation. Hydraulic Fracturing: critical for energy production, jobs and economic growth. Retrieved from http://www. heritage. org/research/reports/2012/08/hydraulic-fracturing-critical-for-energy-production-jobs-and-economic-growth. Marsa, Linda. (May, 2011). Discover Magazine. Fracking Nation. Retrieved from http://discovermagazine. com/2011/may/16-fracking-nation. Sourcewatch. (April 29, 2013). Fracking. Retrieved from


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