what-the-frack-economics-of-fracking

What the Frack? Environmental Economics of Fracking

By Adriano Pilloni | Energy, Urban Design

What is Fracking and How Does it Work?

Hydraulic fracturing, often called “fracking,” is a commonly used technique to extract hydrocarbons deep beneath the ground, especially from unconventional sources such as shale rocks. Fracking is popular among companies because it allows them to maximize their extractions and to access resources they cannot reach using traditional extraction methods.

In fact, according to the U.S. Environmental Protection Agency (E.P.A.), the wells used for hydraulic fracturing may extend to depths greater than 8000 feet (2.43 kilometers), and their horizontal sections may extend several thousands of feet away from the production pads on the surface.

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Shale gas extraction. Image via BBC.

The fracking process is complex, and it varies across specific fields. However, here is a general overview of how it works:

  1. A well is encased in steel and cement to avoid risks of groundwater leaks and is drilled vertically to the desired depth. Then, the well curves about 90 degrees and is drilled horizontally along the rock layer where the resources are supposed to be trapped within.
  2. After the drilling, the fracking fluid, which contains sand, chemicals, and water (up to 99%), is pumped into the well at high pressures to create fissures and cracks. Then, “propping agents” such as sand or ceramic beads are pumped into the fractures to keep them open.
  3. Through these fractures oil and gas flow up to the surface and can be collected, processed, refined, and sent to the market.
  4. Also a “flowback” fluid, containing water and many contaminants, comes to the surface. This wastewater can be processed and reused or has to be disposed of at wastewater treatment facilities.

Hydraulic fracturing was first used commercially by the American firm Halliburton in 1949, but its proliferation in North America came after President Bush’s “Energy Policy Act of 2005.”  The Act, also called “Halliburton Loophole,” excluded hydraulic fracturing from the “Safe Drinking Water Act” regulations and provided the legislative frameworks needed to boost fracking adoption in the U.S. Today, hydraulic fracturing is the main extraction technique used in North America.

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North American Shale Plays (2011). Image via EIA.

Benefits of Hydraulic Fracturing: The North American Case

In terms of the economics of fracking, it fostered the development of North American shale resources, skyrocketing the oil and gas production of the continent.

The “Shale Revolution,” according to the U.S. Energy Information Administration’s (E.I.A.) “Annual Energy Outlook Report 2014,” will make the U.S. a net exporter of natural gas by 2018, and it will significantly reduce the country’s dependence on energy imports, from 30% in 2005 to the 4% forecasted for 2040. According to I.H.S. vice president Daniel Yergin, fracking saves almost $200 billion in US imports.

In addition, for the U.S. to become one of the world largest oil and gas producers, its new levels of production have important geopolitical implications, which include changing the power relationships on the energy market with benefits for the U.S. but also for European and Asian Countries. In fact, fracking reduces the risks of price volatility from unstable international economies and limits the negotiating power of the O.P.E.C. and the G.E.C.F. (Gas Exporting Countries Forum).

The increased availability of energy commodities, combined with tight policies of exportation, has lowered the cost of energy in the U.S. Fracking has provided a competitive advantage for domestic industries whose electricity costs, according to the global information company, I.H.S., are roughly half of those in Germany and Japan, and it reduced household power expenses. Again, I.H.S. highlighted that shale gas and shale oil, being both fuel and feedstock, provide a disruptive advantage for the U.S. petrochemical industry and stimulate American industrial production growth.

Shale source extraction attracts large capital investments in the U.S. So, the shale industry’s added value contributes to raising the country’s G.D.P. and increases the federal, state, and local tax revenues. Moreover, the economics of fracking support the creation of over two million new jobs (direct, indirect, and induced) in the U.S.

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EU Countries on Fracking. Image via The Economist.

Environmental Risks of Fracking

Despite the economics of fracking, the development of shale sources is still at an early stage outside North America. Currently, some firms and countries, including China, are investing in fracking to improve their energy production. Nevertheless, other countries, such as France, are against its implementation due to the many environmental risks associated with the process.

The hydraulic fracturing production chain requires many facilities like trucks, streets, and drills that consume resources and modify the natural landscape. In addition, the process can be responsible for extraction-related emissions, such as noise, SO2, NOx, COVNM, and CO2. Other emissions like wastewaters, chemicals, and radioactive materials can pollute the environment due unexpected events. All of these emissions negatively affect human health, especially workers’, and biodiversity.

Moreover, fracking affects water sources in many ways, too. Fracking poses groundwater contamination risks. It needs proper wastewater management and recycling systems, and it consumes huge quantities of water – a Harvard study estimates 0.6 to 1.8 gallons of water per MMBtu.

Furthermore, hydraulic fracturing routinely produces microseisms, which are usually are too small to be detected by instruments. Although the U.S. Geological Survey disassociates fracking and earthquakes, there are many cases of increased earthquake activity where fracking has been implemented. As an example, in the Blackpool area after an increase of earthquakes, the U.K. firm Cuadrilla Resources said on Reuters: “It is highly probable that the hydraulic fracturing of Cuadrilla’s Preese Hall-1 well did trigger a number of minor seismic events.”

The environmental risks and impacts described above are highly related with human and technical errors. These errors can be minimized through rigorously applying the best practices and choosing fracking sites far from inhabited areas. To decide whether to implement hydraulic fracturing, it is important to strictly assess its environmental risks and impacts, and then evaluate its value.

Feature Image: Oil Pump, between Seminole and Andrews, West Texas. Image via Paul Lowry, Flickr.

Copyediting by Scott Lindquist

About The Author

Adriano Pilloni
Adriano, 25 years old, is a Master Graduate in Environmental Economics and Development from Rome Three University (Italy). During his education he developed a deep knowledge on Economics and a keen interest on Economic Theory with particular regard to energy markets, sustainability, environmental and agricultural issues. He has been proactive during his university time doing many projects and being elected by the students as Advisor of the Economics Dept. of his University. With two other students he developed a project on Food Sustainability which has been selected in the top 30 of the international Barilla contest "BCFN YES! 2013". He did the 2014 European edition of Extreme Blue, IBM's premier internship program for both graduate and undergraduate students. Now he is working as Junior Power and Gas Analyst at GDF SUEZ Italy.