Fracking: Economic Friend or Foe?

Fracking: Economic Friend or Foe?

It inspires vitriolic debate between environmentalists, businessmen and politicians. It's a stunning scientific advance, economic savior or a looming menace, depending on who you ask. And it sounds like a curse word.

It's fracking, a new method for extracting natural gas that has residents from New York to Colorado up in arms.

"Fracking" is the nickname for "hydraulic fracturing." It's a process where millions of gallons of water, sand and chemicals are pumped as much as 10,000 feet underground at high pressure to break up the shale rock surrounding natural gas deposits, and allow the natural gas to flow up a well to the surface.

Proponents say natural gas could be the solution to America's energy worries, and revitalize economically depressed towns across the country. Detractors say it is poisoning groundwater and could even be the reason for a surge in earthquakes in Ohio. Even celebrities like Alec Baldwin and Mark Ruffalo have publicly opposed it.


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It's a classic case of economy versus environment. Or is it? Today we look at the facts behind the fighting and tell you what you need to know about this new and contentious technology.

A Short History of Natural Gas

It used to be that we could only get to large pockets of gas deposits underground, but there was much, much more trapped in tiny bubbles within rock far below the surface that we couldn't reach. So expensive natural gas remained a niche product, while we turned to oil and coal for our energy needs.

Only recently--in the past 15 years--has a technique emerged that could get at these enormous reserves affordably. Once energy companies cracked the code of efficiently extracting natural gas, the fracking boom that followed dropped the price of natural gas from $15 per million British thermal units (Btu, or a way of measuring energy) at the end of 2005, to around $3.43 this week. And natural gas has been eating into coal's territory: In 2005, half of all electricity in the U.S. was generated by coal and 17% by natural gas. Now coal accounts for only 34% of electricity generation in the U.S., and natural gas 30%.

Most of this natural gas comes from the Marcellus Shale, a giant layer of natural gas-rich rock that lies under Ohio, West Virginia, Pennsylvania and New York. Though there are other, smaller deposits elsewhere--like in Texas and Colorado--the gas rush is most keenly felt in these northeastern states.

As a sign of things to come, Senator Rockefeller from West Virginia gave a game-changing speech this summer, revoking his support for the state's coal industry and telling West Virginians they had to "face reality." He has now thrown his support behind natural gas.

Meanwhile, New York City mayor, businessman and billionaire Michael Bloomberg has come out in support of natural gas, saying coal is too expensive and wind and solar energy aren't viable options. What's the big deal?

The Benefits of the Fracking Boom

It's no wonder energy wonks are excited about fracking. It could prove to completely transform both local economies and the U.S. economy at large, plus solve some of the most pressing problems facing the U.S.

Jobs Get Created

In December 2010, the research and consulting company IHS Global Insight predicted that natural gas extraction would support 870,000 U.S. jobs and add $118 billion to the country's economic growth through 2016. A study released in February of this year, commissioned by an Ohio business group and conducted by an academic team, says that fracking could add more than 65,000 jobs and provide an almost $4.9 billion investment just in Ohio's economy by 2014. And these jobs are usually centered in rural areas that desperately need them.

Prices Drop

Having more natural gas available is a boon in itself to the economy. The rapidly falling price of natural gas could keep inflation low, since high energy prices are often a key factor in inflation.

(On the other hand, the Federal Reserve's recent action could raise inflation.)

Emissions Drop

With increasing concern about greenhouse gas emissions, natural gas has piqued the interest of environmentalists. Burning it emits much lower carbon emissions per energy unit than coal or oil. In fact, this is one reason--the mild winter being another--why first-quarter carbon emissions in the U.S. dropped to a shocking 20-year low last winter.

RELATED: Is Global Warming Hurting the Economy?

Energy Independence

If the upward swing in natural gas production continues, the U.S. could get closer to energy independence. Within the next decade, we could start exporting more energy than we import.

Property Owners Get Paid

Gas companies have rushed to obtain the rights to extract gas on private property. This entails offering small property owners--often struggling farmers and ranchers--thousands of dollars upfront with the promise of continuing royalties that could go into the tens of thousands. In 2010, for example, gas companies paid out $1.6 billion in lease payments and bonuses just to Pennsylvania property owners.

So What's the Problem?

It sounds like a perfect solution to everything that ails us: high energy prices, a weak economy, climate change and energy dependence on the Middle East. Apply natural gas and, bam! It all gets fixed.

But (you saw this coming) there are drawbacks--serious ones. And these drawbacks have only been revealed as energy companies move aggressively to start drilling, most notably in Pennsylvania.

As observers watched what was going on in Pennsylvania, they've started to raise the alarms across the country. New York Governor Andrew Cuomo looked poised to approve fracking, but bowed to pressure to continue studying it before letting it loose on upstate New York. And while New York decides, small towns and municipalities--about 100 of them--have enacted moratoriums on fracking or have banned it altogether. Here's why:

Something in the Water

Energy companies have consistently maintained that the fracking process is environmentally safe, as the water and chemicals are injected into shale far below the water table, and can't make their way into the water supply. But there is mounting evidence that this isn't always the case.

The 2010 movie Gasland depicted residents living near natural gas wells lighting their taps on fire because it had such high levels of methane, which can leak out of the wells as a byproduct of drilling. Residents have sued energy extraction companies for poisoned wells, but documents related to the settlements have been sealed by the courts. The EPA has waffled on whether fracking poses a threat to drinking water sources, testing and retesting wells and revising their assessments under pressure from business and political groups.

Fracking also produces enormous amounts of wastewater that is brought up to the surface, which needs to be effectively treated or safely stored, and companies haven't always been good about doing either. According to several private E.P.A. documents obtained by The New York Times, the treatment plants to which the wastewater is hauled are not equipped to handle removing all the contaminants and radioactivity, and dumping the wastewater into the rivers is not enough to dilute it. This is especially alarming since some of those rivers feed into our water supply.

An Economic Bust

Studies on the economic effects of the natural gas boom have revealed a more nuanced situation than simple job numbers would paint.

Drilling for non-renewable energy sources like oil and natural gas are usually done in boom and bust cycles. During extraction, people move to the region and there is modest growth in jobs, many of which go to outsiders who move in, instead of people native to the area. Prices for everything from goods to rent go up, impacting the cost of living for locals and forcing them out of affordable housing. (Like in this small town in North Dakota, where landlords are evicting tenants to rent to higher-paid natural gas workers.)

Local governments and infrastructure are unprepared for the influx of population and heavy trucks that damage roads and congest traffic. And then when the extraction stops, people and jobs leave the region again. Unfortunately, natural gas wells tap out faster than expected, but there's not enough data yet on this new industry to know how long each drilling boom lasts.

Landowners Lose

While landowners were only too happy to receive windfalls for allowing companies to set up shop on their land, many found out too late that they were getting the raw end of the deal. According to The New York Times, many drilling companies have designed leases so that they can:

  • Leave waste ponds full of toxic drilling sludge on the property
  • Avoid compensating owners for livestock or crop damage
  • Operate generators and floodlights near their homes through the night
  • Extend said lease without permission from the landowners
  • And according to some property owners, subtract the cost of shipping in drilling water and shipping out gas from the royalties they pay to owners so that they get paid less than expected

Even if a landowner decides not to lease, there's no guarantee a neighbor won't, devaluing their property by up to 25%. All of this has led to some sticky real estate situations. In the Catskills of upstate New York, real estate prices for once-coveted properties nestled in the wilderness are depressed, as skittish buyers wait for New York State to decide if and where fracking could proceed.

Mortgage lenders are also taking a second look at gas leasing, refusing to give mortgages to those who are buying property leased for drilling, requiring land buyers to agree not to lease the land to gas companies or requiring gas companies to pay for any damage to the property. This makes it even more difficult for property owners who leased to gas companies, but are now trying to sell or refinance their mortgage.

RELATED: Know These Mortgage Fees Before You Sign

So What's the Solution?

The fight over fracking has often been framed as an either/or proposition: Either allow fracking and its purported economic benefits, or ban it and protect our water supply. But it might just be a matter of careful and well-enforced rules. Those calling for better regulation (which includes supporter Bloomberg) of this nascent technology are asking for:

  • Disclosure of the chemicals used in fracking (which aren't fully disclosed right now because they are considered business secrets), but contain several known carcinogens
  • Tighter oversight of drillers to make sure they are using best practices to prevent contamination of groundwater
  • Clear and enforced guidelines for disposal of wastewater
  • Reducing the release of methane, which can leak out of wells and contribute to global warming
  • Protecting local ecosystems, roads and communities from the negative impacts of drilling

Whether these tighter regulations will happen remains to be seen. But if the epic battle over fracking happening in New York right now is any indication, regulators and governors seem to be proceeding a little more carefully than before.

What Do You Think?

Do you think fracking can be safely done and benefit the economy? Or do you think the risks are too great? Let us know in the comments!

Image Credit: Flickr/Credo.Fracking


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