There are two key environmental issues that have the most likelihood of slowing the natural gas boom or, perhaps, redirecting its trajectory: fracking chemicals and fracking water usage.
Fracking chemicals: what the frack?
Inflamed by dramatic scenes like tap water catching on fire, worries over the effect of fracking on the quality of groundwater have been the hottest point of contention and examination. Years of research has shown that these concerns are overblown. Consider, for example, the most exhaustive study of the claims versus the facts published in February by the Energy Institute at the University of Texas at Austin: “Fact-Based Regulation for Environmental Protection in Shale Gas Development.” The study included a thorough review of adverse health effects associated with the chemicals most commonly cited as potential pollutants due to fracking, and found no direct evidence of health impacts associated with fracking chemicals in gas and oil workers or people living near fracking activity.
You don’t hear about that on the evening news.
Likewise, a 2011 study by Duke University concluded “We found no evidence for contamination of drinking-water samples with deep saline brines or fracturing fluids.”
Even an environmental organization, The Pacific Institute, could not find clear evidence of contamination from fracking. The nonprofit organization, whose stated purpose is to “create a healthier planet and sustainable communities,” tackled the question of fracking’s impact on water resources in its June 2012 report. Noting that there are numerous anecdotal accounts of various water sources polluted by fracking and/or adverse health effects caused by fracking pollutants, the report states, “Most significantly, a lack of credible and comprehensive data and information is a major impediment to identify or clearly assess the key water-related risks associated with hydraulic fracturing and to develop sound policies to minimize those risks…the discourse around the issue is largely driven by opinion.”
Despite the lack of any clear evidence of fracking chemicals contaminating well water, the controversy over fracking has escalated in the last several years as new technologies have opened new opportunities for extracting higher volumes of the precious commodity. Though the EPA concluded in 2004 that there was no credible evidence of environmental impacts from fracking operations and Congress exempted fracking from federal drinking water regulations in 2005, the issue was re-ignited in the media 2010 by Josh Fox’s sensational and inaccurate “Gasland” documentary and the figurative torch was recently passed to Matt Damon’s Hollywood production “Promised Land.” Scenes of tap water catching fire, borrowed from “Gasland,” have become the media’s go-to images for stories with a decidedly negative stance toward fracking. (You won’t see the mainstream media borrowing images from “FrackNation,” the oil and gas industry’s answer to the unbalanced and unsubstantiated claims of the other films.)
Thus, the EPA is again in the midst of yet another study of the effects of fracking, which began in late 2011, and there’s no telling how long we’ll have to wait for the results of that effort. Some states are getting in on the anti-fracking action, as well. New York enacted a moratorium on fracking in 2010. Though New York Governor Andrew Cuomo is currently considering lifting the moratorium, the state awaits yet another study, this one by the New York Department of Environmental Conservation.
Other states have opposed further federal regulation, however, and local municipalities have moved to regulate the practice within their own jurisdictions. Attempts to ban the practice have already been met with constitutional challenges.
Fracking water usage: an increasingly difficult dilemma
Plain old water is another potential problem for increased natural gas production. Most fracking operations require from 2 million to 4 million gallons per drill operation. The EPA estimates that the 35,000 wells fracked in 2006 used from 70 billion to 140 billion gallons of water. The water is obtained from municipal water systems, rivers and streams, most often delivered by tanker trucks making between 1,000 and 3,500 trips.
As last summer’s extensive drought illustrated, water can become a key market driver in a real hurry. Some of the hardest-hit states issued moratoriums on permits for drilling companies during the drought, and in others drill operators had to pay top dollar to buy water from farms and ranches that faced their own tough choices. With climatologists predicting worsening drought conditions, water will continue to be an issue that could limit natural gas production.
Is fracking, and therefore the NatGas market, fracked?
Though the environmental concerns have caused delays and seemingly never-ending layers of regulation, the natural gas market is and will continue to be strong. It’s simply got too many good things going for it: 1. A cleaner source of energy, 2. Vast domestic reserves, 3. Ever-improving technologies for accessing it, 4. Huge profit potential for not only drilling and production companies, but ancillary operations as well as suppliers and local, state, and national coffers, to name a few.
Responsible oil and gas companies have not turned a deaf ear to the environmental concerns. On the contrary, the industry has worked with legislators to develop regulations designed to ensure the highest level of safety and environmental protection, as well as best practices for well operators. New rules developed in cooperation with the federal government require drilling companies to list the chemicals they use for fracking, as well as set standards for building and ensuring the safety of well casings. Many states already have such requirements in place and are free to impose even tougher regulations. For reputable operators, these new regulations are simply business as usual.
Some companies (Halliburton Corp. (NYSE: HAL), Schlumberger Ltd (NYSE: SLB), ThermoEnergy Corp [TMEN], ECOtality, Inc. [ECTY], Noble Energy Inc (NYSE: NBL), Encana (NYSE: ECA), Chesapeake (NYSE: CHK) already recycle the wastewater produced by fracking, developing their own systems or using the recycling services of companies like Eureka Resources (EUK) in Williamsport, PA, Ecologix in Atlanta, GA, and Fountain Quail Water Management (AQE) in Roanoke, VA.
Regardless of the company or the treatment method, recycling produces residual waste materials that must be handled and disposed of carefully. Most of the waste is stored in holding ponds and steel tanks, and then sent to landfills or disposed of via deep well injection, but some innovative companies have used the highly concentrated brine wastes as de-icing agents, where permitted by state governments. Fountain Quail has developed a new technology, dubbed “Nomad,” that produces distilled water from the briny water.
Eschewing the high-volume water fracking used for most drilling operations today, some companies are using a carbon dioxide foam process that employs only about one-tenth of the water typically required for fracking. In search of better fracking techniques that use less water, others have tried nitrogen, as well.
Inaccurate and provocative documentaries like “Gasland” and “Promised Land” notwithstanding, the concerns over the environmental impacts of fracking have been fully addressed and current regulations are more than sufficient to ensure safe drilling practices. The future of the natural gas market is bright, and investors would be wise to consider the above-mentioned companies that are making strategic decisions today to keep it that way.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
This piece is cross-posted from Oil Price.com with permission.