How an Obama administration environmental initiative could cut gas production, slash jobs, and raise energy prices.
In an economy full of problems there are still a few high points. One of them, as you may have noticed if you pay attention to your utility bills, is that natural gas prices are relatively low. Back in mid-2008, natural gas prices hit record highs. The market reacted as it is supposed to: exploration took off, production increased and now, almost two years later, the cost of natural gas has stabilized at a comfortable level, amid normal seasonal variations. We shouldn’t have to worry about this sector of the economy, but there is a dark cloud looming on the horizon in the form of yet another environmental initiative that the Obama administration is pushing forward, one that has the potential to cut domestic natural gas production, cost us jobs and revenue and force energy prices upward.
There is quite a bit of natural gas and oil trapped in shale and rock formations located thousands of feet underground. The tried and true technique of “hydraulic fracturing” has been used for about sixty years to coax these hydrocarbons to deep wells, where they can be recovered. In simple terms, hydraulic fracturing fluids are pumped down into a deep well under pressure. The fluid consists mostly of water and sand, with a small amount of other chemicals. As the pressurized fluid is distributed along a horizontal plane, it creates micro-fractures in the rock holding the natural gas. The sand particles hold these fractures open, allowing gas to flow along the path of least resistance up into the borehole of the well.
There are more than a million natural gas wells that utilize hydraulic fracturing in the United States. About ninety-five per cent of natural gas wells in the country use this form, or an analogous form, of reservoir enhancement to recover energy. The process is an important – some would say vital – piece of the puzzle if the nation is going to maintain some degree of energy independence. However, the technology caught the attention of Barack Obama’s EPA, which recently confirmed that it is “studying the issue”. When uttered by members of this administration those three words generally sound rather ominous and this is no exception. “Studying the issue,” whatever the issue, typically means more regulations, more restrictions and higher costs. When it comes to a part of our economy as vital as the energy sector, one has to wonder: how many more studies and subsequent “recommendations” can we afford?
Why is the EPA studying hydraulic fracturing? For environmental reasons of course. Scattered, unconfirmed and wholly anecdotal claims that hydraulic fracturing has contaminated drinking water in a few locations across the nation spurred the EPA into action. From a scientific point of view, it’s hard to understand why the EPA would lend any credibility to these tales, much less allocate $1.9 million dollars to take another look at a technology that has been studied to death, not only by the oil and natural gas industries, but by the EPA itself. A 2004 EPA study concluded that hydraulic fracturing didn’t present any threat to human health and the environment, but of course that was George W. Bush’s EPA, so any of its decisions are subject to a Barack Obama do over.
There are a number of reasons why it’s just plain silly to spend almost two million dollars to reconfirm what we already know. Chemically, as noted above, hydraulic fracturing fluid is overwhelmingly water and sand (or ceramic, or some other inert solid used to keep rock pores open). Other chemicals, which are often proprietary, represent a very small fraction of the whole. Geologically, the formations holding the gas and oil are located thousands of feed underground, under layers of different strata, while drinking water aquifers are typically no more than a few hundred feet below ground. The natural gas recovered, like the fracturing fluid, will naturally follow the path of least resistance and flow to the bore hole that’s been drilled for that purpose, rather than try to find a tortuous path through all of the layers of rock and sediment containing it. Plus, consider this: even as the EPA looks at ways to restrict an important means of producing energy, they’re simultaneously developing regulations that encourage another segment of the power industry to inject chemicals deep underground without the kind of relief valve that a bore hole represents. Carbon storage and sequestration is the leading, EPA approved way to reduce carbon dioxide emissions from coal-fired power plants. In this case, carbon dioxide is injected deep underground at high pressures, but because there is no well to relieve the pressure, it’s free to find fractures that will carry it, and any contaminants from the stack gas that remain, into aquifers.
The Environmental Engineering Committee (EEC) of EPA’s Science Advisory Board is in charge of studying hydraulic fracturing. The EEC has sixteen members, fourteen of which are academics and two of which are consultants. Not a single industry expert sits on the committee. The energy industry will be free to comment on the committee’s work of course, but is Obama’s EPA likely to pay serious attention to experts who represent evil corporate interests?
According to a study conducted by IHS Global Insight, a ban on hydraulic fracturing would cost the United States $374 billion in lost Gross Domestic Product by 2014, would result in the loss of about 3 million jobs and would require a sixty per cent increase in imported oil and natural gas to make up the difference. Placing restrictions on the fluids that can be used for hydraulic fracturing would be slightly less painful, but painful enough. In that scenario, IHS’s study foresees a $172 billion reduction in GDP, 1.4 million jobs lost and a thirty per cent increase in energy imports.
It should be noted that hydraulic fracturing is already regulated on the state and federal levels. Studying the practice once again will lead to one of two results. Either the EPA will conclude that existing regulatory protections are sufficient, which doesn’t seem likely given this administration’s record when it comes to environmental issues, or the EPA will deem it necessary to pile another layer of crippling regulations onto an industry that has been one of the few bright spots in a floundering economy.