Hydrofracking Picking Up Steam

Lots of Energy But Will It Leave Cracks in the Environment?

In her magnum opus Atlas Shrugged, Ayn Rand describes Ellis Wyatt, an oil tycoon who had discovered how to produce oil from shale. She writes:

“It was as if somebody had given a shot of adrenalin to the heart of the mountain, the heart had started pumping, the black blood had burst through the rocks… because blood is supposed to feed, to give life, and that is what Wyatt Oil had done.”

It is not a stretch of the imagination to claim that, writing over fifty years ago, Ayn Rand foresaw the eventual rise of hydraulic fracturing, also known as hydraulic fracking or hydrofracking. Although some of the particulars are off – hydraulic fracking primarily extracts natural gas from shale formations, although oil can sometimes be produced as well – Rand captures the excitement of a new energy industry bursting out onto the market.

Natural gas extraction from shale formations is America’s fastest growing source of unconventional natural gas.  Until fairly recently it was considered uneconomical to produce natural gas from shale resources, but hydrofracking and horizontal drilling technologies, combined with rising energy prices, have caused the industry to thrive.  From 2006 to 2009, shale gas production grew by an average of 48% per year, and it now accounts for at least 14 percent of U.S. natural gas supply.  Each year, the amount of recoverable shale estimated to lie below the United States grows.  Two of the biggest shale formations – the Marcellus Shale, stretching from West Virginia to New York, and the Barnett Shale, under north Texas – have acted as economic stimulus, creating millions of barrels of gas, thousands of new jobs, and reviving manufacturing industries.  By 2035, shale gas production is expected to increase almost threefold and provide nearly half of America’s natural gas.  Many see hydrofracking and shale gas as the path to U.S. energy independence, a domestic source of energy with less volatile prices than those of foreign oil.

Yet Rand’s metaphor of black blood is unintentionally instructive in the negative sense.  The energy of the fledgling shale gas industry has been blunted by the concerns of environmentalists: water contamination, radioactivity, and carcinogens, to name a few.  Hydrofracking has become a case study of what happens when economic prosperity and environmental sensibilities clash.

On first glance, hydrofracking seems like a practice that environmentalists would embrace.  After all, natural gas is a relatively clean source of energy, emitting less carbon dioxide than coal or oil, and shale gas is at the forefront of natural gas extraction.  However, the environmental concern with fracking is even more basic, dealing with the age-old worry over water pollution.

The fluid used to hydrofrack 10,000 feet below the ground, after it enters the wells and rises again to the surface, is known as flowback.  Though flowback consists mostly of water and sand, it often contains carcinogens and radioactive elements.  Flowback is usually reused or stored in pits or tanks before it is disposed of, and many environmentalists claim that the harmful chemicals tend to leak from wells, pipelines, and storage areas into the water supply and the surrounding environment.

While many have horror stories to tell of gas companies causing physical illness and water pollution – legal cases have sprung up over Pennsylvania – the empirical evidence remains tenuous.  The EPA is set to complete a study in 2012 regarding “any potential impacts of hydraulic fracking on drinking water and groundwater,” but until then, any scientific conclusion remains uncertain.

Even if the EPA finds sufficient reason for government action, it remains to be seen what type of regulation ought be imposed and who should make the decision – federal, regional, state, or local authorities.  The federal government is currently precluded from effectively regulating the industry.  The Safe Water Drinking Act of 1974 empowers the Environmental Protection Agency to set maximum levels and regulate the use of contaminants that pose a health risk if added to public water systems.  However, the law was amended by the Energy Policy Act of 2005 to exclude hydraulic fracking from being regulated.  This amendment, known as the Halliburton Loophole, was heavily advocated for by Dick Cheney, Vice President at the time, and has not been repealed.  Senator Bob Casey (D-PA) has introduced the Fracturing Responsibility and Awareness of Chemicals Act, or the FRAC Act, to repeal the Halliburton Loophole, but it has not yet been passed.

Even if the federal government possessed the full power to regulate shale gas companies, the burden of regulation would still fall largely on the states, as it does currently.  The EPA often depends on states to carry out federal regulations and adopt standards at least as stringent as national ones.  Every state with significant shale formations has regulatory agencies to oversee fracking, and states have taken markedly different approaches to regulation.  The legislature of New Jersey, a traditionally environmentally conscious state, voted to ban fracking altogether – a symbolic gesture, given that New Jersey has no shale resources – but was vetoed by Governor Chris Christie.  As of the fall of 2011, New York state regulators are considering lifting a longstanding moratorium on hydrofracking, in part due to pressure from the energy industry.

Of particular interest are the regulatory policies of Pennsylvania, a state where hydrofracking is legal but regulated by the Bureau of Oil and Gas Management (BOGM) under the Pennsylvania Oil and Gas Act, as well as other state laws.  BOGM requires all oil and gas well operators to detail water management plans, provide a list of what chemicals are used, draft contingency plans for possible contamination, and follow detailed standards for the storage and disposal of waste and flowback.  It is responsible for investigating all claims of water pollution within 45 days and holding producers responsible for any water contamination within 1,000 feet of a well and up to six months after drilling.  BOFM employs around 200 regulators and conducts around 5,000 inspections every year.

Yet much regulatory power is held by Pennsylvania local governments because of their ability to zone; the state legislature is moving to standardize the rules.

Any set of hydrofracking regulations must fall within the wide expanse between a ban and a free-for-all – but where?  The threat of litigation over damages from hydrofracking may not be enough: corporations do not always respond rationally to the threat of future legal action, pursuing overly risky actions for profit today.  However, additional government regulations decrease the profitability of natural gas companies, raise energy prices, and may kill jobs.  Unfortunately, we do not know enough to conduct a robust cost-benefit analysis, and regulators must take their best guess at the right level of regulation.

The proper authority to regulate hydro-fracking is a much more clear-cut question: there is no justification for treating the practices of the natural gas industry as a federal issue.  The health concerns of hydrofracking are regional, pertaining to the communities close to gas wells.  Based on the experience of Pennsylvania, allowing individual localities to regulate hydrofracking leads to an unstable business climate, but different states – with different geological formations, communal needs, and priorities– ought to devise their own regulations of the industry.  Those states with looser regulations would have to answer to their citizens; those with overly tough regulations would lose out on the opportunity to participate in the great natural gas boom of the 21st century.

 

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