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Page added on April 21, 2014
Those Fracking Lies
Snake Oil: How Fracking’s False Promise of Plenty Imperils Our Future by Richard Heinberg (Post Carbon Institute, 2013) is about the economics of fracking. Also known as hydraulic fracturing, fracking refers to using pressurized water and chemicals to release oil or natural gas trapped in underground rock formations. Heinberg’s new book describes the behind-the-scenes role of Goldman Sachs and other investment banks in driving the present fracking boom.
Technology to extract oil and gas deposits trapped in rock formations was first developed in 1866. Because the process is extremely capital intensive, fracking for oil only became economically sustainable in when the price of oil tripled a decade ago. In the case of natural gas, it took the elimination of price controls and federal tax credits to make fracking financially feasible.
How Fracking Loses Money
According to Heinberg, fossil fuel companies are losing money on fracking. The recent boom has led to a surplus of natural gas. This, in turn, has driven the price down, forcing the oil/gas industry to sell it for less than they spend to get it out of the ground. Because only a small fraction of shale gas can be extracted cost effectively, production declines by an average of 80-90% over the first 36 months. Industry data indicates it costs between $10-20 million to operate a fracking rig that will produce $6-15 million worth of natural gas in the well’s lifetime.
Obviously you can’t tell investors that fracking for natural gas is a money-losing proposition. Investors only want to hear that fracking is the miracle solution to America’s dependence on dirty coal and foreign oil. Thus oil/gas companies, the banks that finance them, the federal agencies that regulate them and Obama himself all parrot the hype that fracking will supply cheap natural gas to fuel US power plants for the next 100 years. According to Heinberg, this wildly optimistic prediction was calculated by extrapolating the best production rates of the best fracking sites over the 20,000 or so existing rigs. The problem with this methodology is that it fails to allow for rapid depletion rates or the fact that the best wells are already tapped out.
This pressure to meet financial targets forces the companies to sink more and more wells. Thirty-five to fifty percent of existing wells (7,200 wells) must be replaced every year “just to pay off the bankers.”
Fracking Based Derivatives
The only way companies can stay in business is by selling assets and financial products. This includes unused oil and gas leases1 they acquired cheaply in the 1990s, company shares, derivatives and credit default swaps. The investment banks themselves have created their own fracking-based derivative called volumetric production payments (VPPS). The banks bundle them and sell them to gullible pension fund managers, just like they did toxic mortgages before the 2008 crash.
The billions they’re losing explains why the industry is so keen to start exporting fracked gas as Liquified Natural Gas (LNG) to China, Japan and India. These countries are happy to pay $15 per million BTUs, nearly four times the domestic price of $4. A growing export market will quickly drive up US prices.
Environmental Consequences of Fracking
Meanwhile the explosion of fracking rigs across the landscape is causing massive environmental damage and eating up scarce dollars we should be investing in renewable energy. Owing to strong public opposition, fracking is banned or strictly regulated in most of Europe. As a result, Europeans are far more likely to invest energy dollars in renewables. In 2012, Germany obtained 23% of their electricity from renewable sources, Denmark 41% and Portugal 45%
Snake Oil debunks the widely promoted myth is that that burning natural gas to produce electricity creates less greenhouse gasses than burning coal. If you count all the methane (a greenhouse gas 20-100 times more potent than CO2) released during fracking, using fracked natural gas to fuel power plants produces 20-100% more greenhouse gas emissions than coal.
The massive amount of freshwater consumed by tens of thousands of fracking wells is also a major concern, especially in drought-stricken regions. The water take for a single well pad cluster can exceed 60 million gallons. The Halliburton Loophole, championed by Dick Cheney, amended the clean Water Act in 2005 to remove the requirement that oil and gas companies disclose the toxic chemicals they use in fracking. This is especially concerning given recent studies documenting serious health problems in people and livestock adjacent to fracking sites.
In 2011, the EPA made the determination that fracking waste is too radioactive (from exposure to underground cesium and uranium) to be processed in municipal waste facilities. Thus most of it held in large evaporation pools or re-injected into old wells. A recent US Geological Service study has linked deep well re-injection to a rash of earthquakes in regions that rarely experience them. In 2011 central Oklahoma experienced a fracking-related 5.7 earthquake that destroyed 14 homes and a highway and injured two people.
Other Unconventional Production Methods
Snake Oil also debunks the flimsy economic hype used to promote other methods of unconventional oil and gas production (e.g. oil fracking, deep sea oil drilling, tar sands, etc), as well as examining what the inevitable transition to renewable energy will look like. Because renewable energy will never be as cheap as fossil fuels, some modification will be necessary in our current energy intensive lifestyle.
1. An oil or gas lease is a contract by which a landowner authorizes exploration for and production of oil and on his land, usually in return for royalties from the sale of the oil or gas.
3 Comments on "Those Fracking Lies"
rockman on Mon, 21st Apr 2014 12:05 pm
In 2011 central Oklahoma experienced a fracking-related 5.7 earthquake…”. Not true. See what the National Geographic scientists have to say. The deception is they say “fracing-related” (which it wasn’t, actually) instead of saying it was caused by frac’ng. And the injuries: “The Oklahoma health department reported two minor injuries, neither requiring hospitalization.
“The magnitude 5.7 earthquake…is the largest and most recent of a number of quakes scientists have tied to wastewater injection from oil and natural gas production. {injection wells…not wells being frac’d}
Advanced methods of oil and gas drilling create massive amounts of toxic wastewater. {Another deception: the vast majority of fluid sent down injection wells is salt water produced with oil in old fields.}
Although the controversial practice of fracking has been directly linked to at least two…small tremors in Garvin County, Oklahoma and Lancashire, England {tremors…not earth quakes}, the wastewater injection…is much more likely to set the earth shaking. That’s because injection wells receive far more water than fracking sites, said Katie Keranen, lead author of the Geology study. And unlike at fracking sites, the water is not removed. As pressure builds in these disposal wells, it pushes up against geological faults, sometimes causing them to rupture, setting off an earthquake.
This is what most likely triggered the 2011 Oklahoma quake, according to the study. At the time of the earthquake, which damaged 14 homes and was felt as far away as Texas, there were three active wastewater injection wells—abandoned oil wells used for storage after oil drilling operations—within 1 mile (1.5 kilometers) of the site.”
{But if you’re in the business of selling ads and using the term “frac’ng” helps to sell, even if it has no relationship to the story, why not use it…sheep tend to follow where they are led}
Boat on Mon, 21st Apr 2014 5:54 pm
Owing to strong public opposition, fracking is banned or strictly regulated in most of Europe. As a result, Europeans are far more likely to invest energy dollars in renewables. In 2012, Germany obtained 23% of their electricity from renewable sources, Denmark 41% and Portugal 45%
You can regulate how you get your energy but if you let the market decide it is an apparent winner for NG in the US.
Where are the links to this massive selling off of fracking equipment. What I read is the development of production line type drilling to get more efficiency out of entire fields instead of a pad here and there. Plenty of profit and money for those on the cutting edge or at least the dream of profit.
rockman on Mon, 21st Apr 2014 6:15 pm
And apparently coal is becoming more of a winner in Germany as they expand its use as they wean themselves off nuclear.
And who’s selling frac’ng equipment? The only company that would have any use for such equipment is the companies that frac. If there excess frac equipment what frac company would buy more? What happens in such situations is that the equipment sits in the yards gathering dust until demand picks up.