It used to be that carnival sideshows toured rural areas with freak shows and snake oil salesmen, creating excitement with outlandish claims, only to confuse and disappoint, then beat it out of town. Nowadays, it’s landmen looking to sign rural landowners on to fracking leases, and if it weren’t for expensive PR campaigns, their calls might sound something like this, “Come one, come all! Come to the Freak Frack Show! See unbelievable production rates! Watch as the jobs grow right before your eyes! Don’t wait - sign your fracking leases today before the profits are all gone!”
For those who would sign, it may be too late already! In case you haven’t heard, natural gas prices are falling without a safety net and the drilling circus is pulling up stakes in many towns. Hydraulic fracturing, or fracking, has opened up new sources of natural gas and produced so much supply that gas prices have plummeted and drilling companies are abandoning wells. The Wall Street Journal says this could be the time to invest. If you're masochistic enough and have deep enough pockets to ride it out, investing in natural gas could pay off in the long run.
Or will it? What if, like most circus side show promises, the claims have been vastly overstated and the promises of high production rates, jobs and taxes are all smoke and mirrors, designed to make energy corporations, bankers and a handful of landowners rich at the expense of everyone who lives near (or downriver from) a drill site?
The industry’s claims of high reserves, intense job growth and economic prosperity for fracking communities in New York State (NYS) were addressed recently at Frackonomics: Debunking Economic Myths About Natural Gas by Energy Policy Forum founder Deborah Rogers, economist Jannette Barth, Ph.D. and international environmental and infrastructure consultant Al Appleton. Appleton is also the former New York City Department of Environmental Protection (DEP) Commissioner and former director of the city’s Water and Sewer System.
Rogers and Barth revealed some of the tricks behind industry claims. As it turns out, the reality of fracking as the bridge fuel to the future might not be as rosy as New Yorkers have been led to believe. Appleton presented some big picture concerns about the gas industry — things that should be considered before natural gas drillers are invited to pitch their tents in New York State.
Here are some highlights of the presentation; you can watch it in its entirety on United for Action’s website.
According to Rogers, all industry arguments for fracking rest on the matter of natural gas reserves. “If you can convince people that natural gas is super abundant, then the other economic arguments fall into place: …there will be long-term benefits for a region; there will be good jobs creation and tax revenues; and there will be royalties paid out over long periods of time and then spent in the local economy thereby providing induced and ancillary benefits.'” Rogers went on to illustrate how reality is proving these arguments to be false.
- Industry vastly overstates reserves – Industry claims that 100 years of gas is available, which is misleading. While the resource may exist underground, it may not be readily extractable because it is not technologically possible or economically viable in present-day terms. In reality, reserves – gas that can be extracted right now and valued in the market –are more like 11 years' worth. Right now, policy and access to capital are based on possible future resources, not actual reserves. Sounds like the same thing, but it’s not, and the difference is crucial.
- Industry overstates production – For example, in Texas' Barnett Shale, Chesapeake Energy reported production rates of 3.0 billion cubic feet. Independent analyses of historical production in the same play showed production values that were actually closer to 1.0 to 1.5 billion cubic feet. Rogers explained that the same practice has taken place in shale plays across the country, and since “all shale wells are the same,” Rogers believes these to be fair models for the Marcellus. Between these and other misleading measures, it seems like industry is painting a rosier picture than what’s realistically possible.
- Industry chases capital through aggressive P.R. campaigns – Many wells are overproduced initially to meet the production values that generate buzz and bring increased capital, so more money is made by the shareholders, but those production rates can’t be sustained. The SEC has called some of the production rates reported by the industry “mathematically impossible.”
- Industry has glutted the market – In 2011, production exceeded demand by fourfold. Industry promised production cuts to stabilize the market, but this hasn’t happened because the companies need to overproduce to meet their debt service. Many wells are considered uneconomic, don’t get completed and are essentially abandoned.
- Industry exaggerates claims of big job growth – Between 2003 and 2011, jobs in the oil & gas industry as a whole (and not just within the natural gas industry alone) increased by about 68,000, representing only about 1/20 of 1 percent of the overall labor market.
According to Barth, “Conclusions from unbiased research are vastly different from the conclusions made by the industry-funded studies.” Barth read the economic assessment done by Ecology & Environment– the firm hired by the NYS Department of Environmental Conservation (DEC) to do the economic analysis of its environmental review (called the Revised Draft Supplemental Generic Environmental Impact Statement or “SGEIS”) – and said that she was hoping the study would be a comprehensive, unbiased, transparent, economic assessment, but instead found that the SGEIS report does not factor in negative externalities (damage done to the environment by the industry) or the quality of jobs that are created.
Barth reviewed unbiased data and found that the realities of the impacts of drilling for natural gas differ from industry claims:
- Natural gas is not safe and clean .
- More and more, problems are arising from fracking including water quality issues, air quality issues, earthquakes and negative economic impacts
- Increased natural gas investments postpone investments in clean, renewable fuels.
- Natural gas will not provide energy independence .
- Gas companies make more profits by exporting gas as Liquefied Natural Gas to other countries because, unlike in the United States, the price of natural gas is tied to the price of oil and is therefore much higher outside this country.
- The claims about job creation and economic benefits are not proving out .
- For every million dollars spent producing oil and gas, 3.7 jobs are created. For every million dollars spent in the solar, wind and biomass industries, anywhere from 9.5 – 12.4 jobs are created
- Natural gas is inexpensive now (one of the arguments used to promote increased development), however, increasing demand will drive up prices.
- Regions with oil and gas drilling are economically worse off in the long run .
- Extractive industries create short-term booms, followed by long-term busts. Many of the jobs created are not long-term and often the transient work force sends their paychecks home.
- Regions that used to have extractive industries show very high levels of long-term poverty and high unemployment rates
The SGEIS shares similar flaws as the industry-funded studies in terms of what information is and is not included. As of now, Barth argues that no one has conducted an adequate independent economic study of gas drilling in the Marcellus Shale. The review ignores many of the impacts and real costs of fracking, such as:
- Industrialization of the landscape;
- Loss of industries vital to the region, such as tourism, agriculture, organic farming, winemaking, beer making, hunting fishing, and river and lake recreation, among others;
- Increased costs for police, firefighters, first responders, jails and local hospitals;
- Increased truck traffic, accidents and wear and tear on roads;
- Increased health costs;
- Declining property values; and
- Residential mortgage issues.
The only parties likely to benefit in the long run from gas drilling in the Marcellus Shale are the gas companies and their shareholders and a few lucky, and large, landowners. The rest of us will be stuck with many of the costs.
According to Appleton, “This country has had a love affair with fossil fuels. We grew up in a culture where discovering oil was good, and we all love to drive, but we need to accept some realities. The world we grew up in is over and we are in the process of birthing a new world.”
Appleton says fracking in New York should be opposed for several reasons:
- There is no way we can avoid the environmental consequences. Appleton argues that even if strong regulations were enacted, based on his experience, between a lack of adequate staffing and a likely unwillingness to enforce regulations on a resistant industry, there’s no way to do gas fracking “right”—to responsibly manage the process and engineering. It would be too enormously expensive.
- Shale gas fracking is an “un-development plan” for the state. Appleton disagrees slightly with Barth on the economics. The industry has $450 million of insurance in case something should go wrong in New York. That’s not a lot of money and the people of New York could end up paying the full price for damages. “Gas fracking relies on the public picking up costs that the industry can’t afford to pay,” Appleton says.
- Gas fracking will not enable us to end our love affair with fossil fuels. Appleton says. “If you believe the future of the planet is tied to green fuel, then shale gas fracking is not the way to go.” He believes we have not been creative by taking the money earned through gas and investing in future energy sources.
- Since the people have spoken passionately in upstate New York State against gas drilling, Appleton believes that there could be serious conflict in communities as landscapes are affected.
It’s easy to get taken in by the industry barkers who make promises that seem so great, but when the potential costs are as great as they are in this instance, taking time to look behind the curtain is essential. And let’s face it; natural gas is probably not the magical elixir of the future it’s been touted to be. After all, if it seems too good to be true…