The Pro-Fracking View

Mon. Feb. 25, 2013:

Worthy readers, here is a pro-fracking view from someone inside the industry.
He says Greenies are way off.
Comments?

The NYT article itself is a perfect example of the information gap that exists about hydraulic fracturing ("fracking").  The article actually defines fracking as "the process of extracting natural gas from shale".  That's not what fracking is at all.  Fracking is only a part of that process. 

Basically, fracking is the injection of 95-98% water and 2-5% chemicals (usually, the chemical components of soap, chlorine, salt, hydrochloric acid) at extremely high pressure into a rock formation.  That process fractures the rock, creating little cracks through which oil and or gas flow more easily to the well.  Those cracks radiate out from the well bore for a distance of feet (not miles).  The soap like chemicals increase viscosity.  The acids keep the minerals from clogging up the fractures and the perforations in the pipe, which inject.  Also, a proppant is used to hold open ("prop") the fractures.  Usually this is sand, but there are other chemicals that will do. 

Once you've got the cracks, then the oil and gas flow to the well, kind of like little rivers.  Fracking and then producing oil wells (as opposed to gas) is a bit more involved because it is harder to move liquids from a physics/chemistry standpoint, but you get the gist.  Fracking has been around for a long time (1860-ish).  We've just gotten much better at it, especially since we can now turn a wellbore horizontal under the ground.  This means we can basically pilot a well through the heart of a formation that holds oil and gas, where we used to have to drill a dozen wells to remove the same amount.

It takes a lot of water to properly frac (no one in the industry uses the "k") a well.  Fracing is dangerous because of the water. 

The major misconception is that the water injected in the ground somehow leaches into the ground water supply.  This doesn't happen.  There are thousands of feet between the formation of oil and gas and the water table.  Literally miles. (Oil and gas are much deeper, where as water is fairly shallow.)   And, the cracks are only feet long.  In short - the wells that get fraced don't "communicate" with water wells or the water table. 

What DOES happen is when the frac water flowback is re-used or disposed, water sources get contaminated.  That is, when we pump the frac water back up, we have to put it somewhere.  Sometimes, this is a lined pond, and sometimes, this is into a disposal well.  Other times, it gets reused on another frac job.  But if the pond isn't lined properly or the disposal well isn't correctly maintained, then we do have a water contamination problem. 

Most places attack this issue with tough regulations on water use and disposal.  I have dealt with this first hand in a number of jurisdictions.  But the drafting and passing of such regulations is tempered by each jurisdiction's desire for tax revenue.  Tougher laws mean no drilling.  No drilling means no tax, and no royalty.  It also means no jobs.  Certainly, oil companies are not out there to kill the farmland (or whatever land) they are drilling on.  But they are out to cut costs and increase profit.  If it costs too much to operate in a certain place, they just won't drill there.  That simple.  If they can make a better margin in another country - paying less tax and clearing more profit while paying far lower royalties - then they will do so.  I have helped companies based in the US and Canada do this in countries around the world.  In the end, a corporation must make profit for its shareholders.  It answers to them.

Which brings us to the shale gas revolution that is going on at present.  I don't like hyperbole, but it truly is a revolution from an energy standpoint.  Simply put, we now know that there is more gas here than anywhere else.  This is huge for a couple of reasons, the most important of which is that energy demand is inelastic.  We as Americans, (and the rest of the world too), cannot simply scale back on energy.  It is not objectively possible.  It is not the same as scaling back our desire for luxury goods, for example.  I would argue that demand for energy (the vast majority of which is produced by oil and gas) is almost perfectly inelastic.

Natural gas is cheap, and we can burn it fairly cleanly (in comparison to oil derivatives [e.g. gasoline, diesel], or to coal).  We mainly use it in the US to generate electricity.  We also know how to make cars run on it.  We also know how to convert it to liquid, so that we can ship it overseas.  In short, we have a product for which no end to demand is in sight, which is plentiful, and which is cleaner than what we have otherwise (coal and oil).  And this product, natural gas, trades for about $3 per unit here in the US.  We can sell it in Asia for about $12 to $16, once liquefied.  That's quite a margin.  And Asia is not a small market - we are talking China, India and Japan here.  That is a massive energy demand.  And, that is likely why supermajor oil companies like ExxonMobil are taking long positions on gas.

I would like to address energy density here.  There are those who would have you believe that electric cars are the way of the future, or that wind and sun can power the earth.  From a scientific standpoint, these suggestions are ludicrous.  And I don't mean "Republican" or "big oil" science, I mean science-science.  Right now, 10% of our power comes from such renewable sources.  And in 25 years, most experts believe that number will be about 15%.  Why?  Because there is enough energy in one gallon of gasoline to power an iPhone for TWENTY YEARS.  That is energy density.  It is science and it is why we derive the vast majority of our energy from hydrocarbons.  Oh, and those people who drive a Nissan Leaf or Chevy Volt plug it in at night don't power their cars with happy thoughts, flowers and rainbows.  The four power plants in LA all burn natural gas to power the grid.  The Los Angeles Department of Water and Power purchases the majority of power  in the city from Utah, Nevada, and Arizona - all of which burn coal.  But that footnote didn't make the cool electric car commercial.

So where does that leave us?  Well, the world is not a simple place, and there are no simple answers.  That said, there is a demand for gas and its development.  And people will keep after it, because we are addicted to energy and therefore there is money to be made.  Simply throwing our hands up and banning fracing won't work (as industry experts like Mark Ruffalo would have you believe as they fly into town in business class), but neither will allowing it to go unchecked.  As I have said before, there is a central, balanced position, where smart and efficient regulation of fracking operations can protect our water and environment.  But it is ludicrous to think that banning it will otherwise solve the problem.  Both sides are correct in some manner. This is a crossroad, and it will affect each of our lives on a daily basis.  It already does.

I had my assistant scan an article from Esquire magazine on fracing (I believe from last month).  I like the piece; it seems to get to the same place.

I just took way too much time writing this, but I think it is important that people understand, mainly because I am not sitting in a front row seat to the debate, but I am smack-dab in the middle of it.  I believe that America is the place that should lead by example - both with scientific innovation and with the law.  This is an opportunity.