EPA Exonerates Fracking – What Now?

Random Thoughts from the High Desert

Written by Sig Silber

The EPA has spoken (Draft Report). Fracking, although potentially dangerous, has not been found to be a widespread systemic threat to the drinking water resources of the United States.

What are the implications of this fairly dramatic finding?

We have already reported on the issuance of the EPA draft report and that news story can be found here.

And immediately some pounced on this to teach the enviros a lesson and one such article can be found here. This is one brief quote from that article.

“In other words, Mr. Cuomo’s sleuths couldn’t find conclusive evidence that fracking harms drinking water, so he banned it until they can. Even as formerly depressed and deindustrialized Pennsylvania regions benefit from drilling, over the border the unlucky saps must bow to the green superstitions of New York City elites.”

Although that “comeuppance” might have been justly deserved, I prefer to avoid the short-term political fall-out to take a longer-term perspective on the implications.

First of all, we should remember that that EPA did not say that fracking is not prone to accidents. What they said was that the number of reported accidents was not high as a percentage of wells drilled and more specifically that potable drinking water was not often significantly impacted and the groundwater component of our water supply even less so. But they did report a fair number of surface spills.

This tells us that a disaster has not happened very often but it is not an “all clear”. If monitoring going forward is ignored, Prof. Murphy’s Laws tell us the probability of disaster increases. If monitoring is pursued, the likelihood that a future potential disaster will be contained increases.

The low number, perhaps zero, of incidents where fracking itself created a path from the oil and gas reservoir rock or source rock up to an aquifer or further up to surface water is attributable to the generally wide separation between the area being fracked and a potable water resource. The low number of incidents, perhaps four, where well integrity was compromised and the well itself provided a pathway for potable water to be compromised points to the responsible engineering practices of most oil and gas companies. It was good to learn that the industry generally approaches things responsibly. But there were a small number of reported incidents and not every driller and every employee of every driller is responsible or capable. There were however a lot more reports of surface spills involving chemicals stored above ground and also liquids extracted from wells. Incidents involving transportation of liquids were either not discussed or I did not notice that part of the discussion.

At any rate, surface spills appear to be the larger problem at least in terms of numbers of reported incidents. Thus this Draft Report is by no means an indication that sensible regulation of surface storage and transport of chemicals associated with oil and gas operations is not needed and I believe that in addition to State and Federal regulation there is an important role for local regulation with respect to the surface operations of the oil and gas industry.

I do not have the data, but I suspect that fracking fluids, both those injected and flowback fluids, are a very small part of the overall problem in the U.S. of storing and transporting chemicals. The U.S. is in essence a giant chemical factory. This from the U.S. Chemical Safety Board is interesting:

“The CSB does not maintain comprehensive accident databases or compile national statistics on chemical accidents. At the present time, no such comprehensive databases or statistics exist within the federal government. However the Environmental Protection Agency (EPA), the Occupational Safety and Health Administration (OSHA), the National Response Center (NRC), the Agency for Toxic Substances and Disease Registry (ATSDR), and other agencies do maintain certain accident databases that vary in scope, completeness, and level of detail.”

It would be a shame if the conclusions from a report about one industry that involves storage and transport of a small number of categories of chemicals not yet being a major problem encouraged complacency with respect to the larger question of the storage and transport of chemicals.

Back to the EPA Draft Report, it is useful to understand what issues the EPA was asked to address and what issues they were not asked to address. To me, the oil and gas question has three major parts:

A. Should we be using as much oil and gas as we are using? That is a complicated policy issue involving Global Warming, pollution, and sustainability among other factors.

B. Is there a need to address the issues related to the split estate? When people own both the surface rights and the subsurface rights, there is usually less conflict. If you do not like oil and gas but own both the surface and subsurface rights, in general you are not forced to allow a rig on your property. You may not be able to prevent oil and gas from being sucked out from under your property. However, you will get paid for any oil and gas recovered from your share of the subsurface but only at statutory rates if you have not negotiated an agreement with the driller. So you may have conflict with drilling in your neighborhood but it will not be next to your house or on your property. It is when someone else owns the subsurface that there is the real conflict as the surface owner only receives aggravation without compensation unless they get a job with the oil and gas company or own a restaurant or motel that benefits from the activity. But they do not normally share in the royalties, although there is, I believe, nothing to prevent the owner of subsurface rights from voluntarily agreeing to share the royalties with the surface owner. The community however usually benefits from increased tax revenues as long as the drillers are paying appropriate impact fees.

C. Should fracking be prohibited because it is a significant threat to the drinking water resources of the United States?

The recently released EPA Draft Report mainly addresses “C”. It does not in any direct way address “A” and “B” other than that fracking makes “A” more economic and that rolls over to “B”, because with more drilling there is more potential conflict between those who have surface and those who have subsurface rights in the parts of the U.S. where there is a split estate. Those with only surface rights are not able to prevent someone with subsurface rights from having reasonable access to their subsurface estate i.e. drill a hole to access it and create roads to access their well.

So individuals, states and communities may continue to favor or not favor oil and gas drilling because of A and B. It is not because of fracking but for other reasons. Keeping the issues straight is difficult but useful. It seems to me that politicians and the media have a hard time keeping the issues straight regarding oil and gas (and many other things as well).

I think the most interesting and ironic outcome is lower oil prices and profits. The best way to make money is to have government regulating supply. If government fails to do its duty in that regard, that is bad news for Capitalists. The result of a qualified go ahead for fracking will definitely result over time in lower oil and natural gas prices. That may not be good for those in the oil and gas industry but good for both retail and wholesale consumers of oil and natural gas.

One wonders if this EPA Report, when finalized, will have an impact on the Keystone Pipeline decision. Will we look back in twenty years and conclude that this Report stimulated the use of natural gas in transportation because it lowered the price of natural gas? There are still environmental issues which I discuss here but they are manageable. Will this in turn slow the development of the market for electric vehicles?

Thus I conclude that if this Draft Report, when finalized, still draws the same conclusion, will have far reaching impacts on the U.S. economy. Oil and gas companies might not be the ultimate winners as compared to consumers of oil and natural gas and associated liquids.

This seems to be a victory for reason and science. Let’s hope it is not just a temporary victory but the start of a trend towards objectivity in the making of public policy.