Saturday, February 20, 2016

Groundswell: The Case for Fracking

Book Review: Groundswell: The Case for Fracking – by Ezra Levant (McClelland & Stewart, 2014)

This book was fair overall. The most important part is probably the geopolitical analysis although some of that has changed since the book was published a year or so ago. Climate change aside, cheap energy is what grows our economies and that growth is what provides opportunities to an ever-growing global population. Fracking, a predominantly American industrial phenomenon has without a doubt led to cheaper energy for all Americans, at the gas pump, and in electricity and gas bills. It has also BY FAR led to the largest reduction in greenhouse gas emissions among any country ever due to providing the ability to replace coal power plants with gas power plants – and that is with a 20% higher population! Much of this book focuses on fracking and shale gas & oil as a means to reduce dependence on foreign oil & gas, particularly from countries that favor political ideologies and practices with which we disagree. Levant takes on the Russian energy monopoly and manipulative policies and the current oil and gas ‘cartels.’ He also addresses criticisms of fracking. He does not come across as an energy expert or a policy expert so I would rate the book fair overall. He is Canadian and mentions his previous book, Ethical Oil, which posits Canadian tar sands oil as ethical compared to the “conflict” oil of the Middle East. While this is true it is also true that tar sands oil is carbon intensive and should be limited to small production to keep it viable as a possible future source in case of supply problems – though not likely for quite a while. 

The first ‘frac’ job was done in 1947 in Kansas, by J.D. Rockefeller’s Standard Oil Corporation as a means to increase gas production when gelled gasoline was injected under hydraulic pressure to create fractures in the gas-bearing rock. The process was patented by Halliburton in 1949. By 2000 over a million ‘frac jobs’ were done on American wells. Long before that wells were “shot” with explosives to try and increase production with variable results. With fracking, gas and oil production were reliably increased and it became standard for so-called “tight” formation wells. It was in the late 1990s and early 2000s that fracking was combined with horizontal drilling in shale by George Mitchell’s Mitchell Energy in the Barnett Shale that the new fracking revolution began. Frack jobs got bigger – they had to since the horizontal wells were accessing more reservoir. More and more sand and water were pumped into each frac “stage” of the shales at high pressure and production increased. Horizontal wells are far more efficient at accessing hydrocarbons than vertical wells. Shale is a continuous resource compared to traditional conventional reservoirs that require porosity, traps, and seals. Thus the wells are more predictable and costly “dry holes” are avoided. Fracking revitalized the American oil and gas industry to such an extent that it was overdone and now there is oversupply. Many people don’t realize that before that we were importing far more oil and gas - from countries that don’t meet our political, human rights, or environmental standards. Fracking gave us the opportunity to withdraw some financial support for these regimes. Instead of enriching countries like Russia, Saudi Arabia, Qatar, Iraq, Venezuela, Libya, Nigeria, and Iran we were/are enriching our own economy. These days about 90% of wells in North America are fracked. Without fracking, gas and oil prices would be phenomenally high and there would likely be tens of thousands or maybe hundreds of thousands of wells drilling everywhere just to try and keep up with demand. Coal would be far cheaper than gas and so would be keeping our carbon emissions going up rather than dropping as they have. Our air would be dirtier and health problems from that would be much higher than they are now. Renewable energy would probably be further along but at great cost and even then would almost certainly be just a larger blip on the screen than it is currently. Fracking from shale gas has also helped the U.S. manufacturing industry as low-cost gas compared to other countries offers favorable economics here compared to there. The same is true for the chemical and fertilizer industries.

Levant notes that after 9/11 the U.S began increasing its hydrocarbon imports from Canada as it had become overly reliant on imports from the Middle East from countries like Saudi Arabia that are rated among the worst countries in the world in terms of human rights abuses.

He equates the activist backlash against fracking with the backlash against Canadian tar sands but I disagree. In terms of emissions, pollution, and land degradation fracking is much more benign than the oil sands mining. The narrative of a decade ago that we are running out of oil and gas is no longer the case as fracking and horizontal drilling have unlocked massive amounts that can last decades. Even early in the shale plays some anti-drilling pundits were talking about the “shale bubble,” of the impossibility of keeping up supply with growing demand. Now (2016) we only have one third of the rigs running and we are still significantly oversupplied for the near-term. Some had stated emphatically that by now we would be running out and as it happens we have discovered more accessible reserves since then and extended future supply out for decades longer at least. Fracking has allowed the U.S. to achieve some degree of energy security compared to pre-fracking times when natural gas was scarce and expensive. Renewable fuels like wind and solar require direct subsidization, high upfront costs, and significant back-up supply due to their intermittency. Expensive energy has a disproportionate effect on poor and minority people he argues, citing the Congress for Racial Equality (CORE). Cheap gas means cheap heat and cheap electric. While environmentalists often deride natural gas as not being a “bridge fuel” to a lower carbon future, the fact is that it already is and it is also saving people money and significantly improving air quality. There are a few issues like methane leakage, spills, and explosions, but those are really minor overall compared to the benefits even though they should and are being addressed. 

Levant distinguishes between ethical energy and conflict energy, comparing North American gas to Russian Gazprom gas, Iranian ayatollah gas, and Qatari sharia gas. This was also his argument in favor of developing the Canadian oil sands but I think the gas argument is much better. He does have a point though when he says that we should buy from countries that are peaceful, ethical, have good human rights records, treat their workers fairly, and have adequate environmental standards. Many of the countries with the best oil and gas reserves fail in several of those categories. Some of these countries like Saudi Arabia, Russia, and Nigeria have poor environmental records and they have no plans for big improvements. He gives some of these countries ratings in the Environmental Performance Index (EPI). Of note are the rankings out of 163 countries: Saudi Arabia ranked 99th, Russia 121st, and Nigeria 153rd. The U.S., Canada, Australia, the U.K., and Norway – all countries with oil and gas industries and some with fracking, are all in the top 25. Saudi Arabia is known to have covered up some very large oil spills. Thus importing gas and oil from these countries is seriously contributing to pollution and climate change compared to other countries. The Gulf countries are known for ill treatment of workers, especially indentured foreign workers who have little rights and some consider to be slaves. Women, gays, minorities, and minority religions are openly persecuted and in some cases executed in these countries.

Levant is correct to note that oil trading is global compared to gas trading which is mainly localized due to difficulty of transport. Oil tankers outweigh LNG carriers 4300 to 365 and the LNG ships can only carry about 10% of equivalent capacity as the oil tankers, he notes. Gas trading is also landlocked, dependent on available supplies, pipelines, and oceanic LNG terminals. This is why Russia can monopolize its gas and charge high rates. In fact, it charges variable rates, depending on how it views relations with the receiving country. This is Russian cronyism at its finest. Russia, Iran, and Qatar were said to have 60% of gas reserves (before the shale gas additions). One aim they have is to create a gas OPEC, a cartel that can fix prices. Shale gas threatens them as shale oil threatens oil OPEC. There is significant evidence that these countries, particularly Russia, Qatar, and Saudi Arabia have been secretly and not so secretly supporting anti-fracking sentiment. Russia has directly done it in Bulgaria, after then Secretary of State Clinton promoted it. Levant notes the extraordinary coverage Al Jazeera (owned by the emirate of Qatar) has given to the anti-fracking movement. Putin’s Gas Exporting Countries Forum (GECF) is basically the gas OPEC that owns 70% of gas reserves (pre-shale gas) and 85% of LNG exports (less now that Australia has increased its capacity and the U.S. is also beginning to do so). The GECF pledged to keep from overproducing gas to keep prices high (price-fixing a la OPEC). The only threats to this manifesting reality are shale gas development in European countries, which is not likely to occur soon or at any great scale, and increased LNG exports from non-GECF countries which is in the works. Until then, most of Europe and much of Asia is beholden to Russia for gas and Russia has shown that it can and will use gas as a weapon.

Russia’s state-controlled gas producer, Gazprom, quite openly treats former Soviet bloc countries more harshly in terms of gas pricing than European countries. In some cases it sells gas for less to European countries further down the same pipeline that it sells gas for higher prices to former Soviet bloc countries, especially those who do not have their own gas supplies. Such discriminatory pricing would be illegal in any country with free trade policies, says the author. In addition Gazprom prefers long-term contracts that are hard to break, to further its cronyistic monopoly. The European Commission has tried unsuccessfully to investigate Gazprom for unfair business practices but the Russian government prevents any such investigations. Basically, Russia has the ability and exercises it, to blackmail its customers, especially those former Soviet-blocs without their own gas supplies. Ukraine and Belarus were offered trade deals by Russia. Belarus relented but Ukraine chose not to agree. As a result Belarus gets gas at less than half the price that Ukraine got it. Russia also threatened Moldava with the same result if it joined the Western Europe Energy Community. Lithuania and Poland have sought investigation of this energy blackmail. Gazprom has also tried to undermine competitors in Turkmenistan, the country with the 4th largest gas reserves. They have also flexed their muscle against Turkmenistan by shutting off Turkmen gas flowing through Gazprom’s pipelines with not enough notice, dropping pressure causing explosions in the Turkmenistan lines and long-term supply disruption, which resulted in Turkmenistan reluctantly agreeing to get paid far less for its gas. Basically, Gazprom is a rogue monopoly that makes U.S. and European companies like Exxon, Chevron, Shell, and BP angelic by comparison. And yet much of the European Union: Germany, Turkey, the U.K., Bulgaria, and many others buy much of their gas from Gazprom. Russia has every reason to oppose shale gas and Russian media has done just that. All the while Gazprom is not known for its environmental focus. It is known, however, for its leaky pipelines, which contribute significantly to methane emissions.

Levant then goes through the criticisms of fracking: contaminated water, water use, secret chemicals, and seismic activity. Although these are concerns, most are significantly over-hyped. The possibility of water contamination is almost entirely through spills which do tend to increase as activity increases and as more waste water is produced due to the new type of high-volume hydraulic fracturing (fracking). There have been some cases of methane migration when drilling through aquifers but it is usually limited in degree and extent and methane itself bubbles out and is not considered a poison. The fracking process itself has not been implicated in water contamination despite attempts to implicate it. Water use has been shown to be manageable and in the shale gas fields of the northeast over 90% of water is treated and reused. Secret chemicals are mostly benign and used in very small amounts (highly diluted) and most importantly there is no path to exposure besides spills. Companies and states now routinely publish the chemicals and amounts of them used at each well. Seismic activity has become much better understood. It results almost entirely from waste water injection although there have been some cases caused by the fracking process. Areas and formations where this occurs and has further potential to occur have become well known and should slow in the future as disposal in certain formations and areas adjacent to basement faulting is reduced and as injection pressures are reduced.

Next he examines anti-fracking activism, first noting Bill McKibben’s initial embrace of the new shale gas supplies when he was leading protests of coal power plants demanding that they switch to gas. As gas prices have dropped that indeed has been happening but McKibben has since stopped praising gas and now demonizes it. Levant makes the case as many others do that the selling of carbon offsets is akin to the Church selling indulgences to rich sinners!

Next he notes the drastic increases in employment, tax revenue, and land owner royalty income in shale gas and oil states, at least until the bust that began mid to late 2014. The current oil & gas downturn shows that it is possible to overdevelop and become too dependent on such revenue and income. The shale gas boom has helped many farmers from going under even though activists will claim that it has destroyed their land. The U.S. has the advantage that in most cases the landowners own the minerals under their property. The typical production rate was 12.5% but many shale producers made deals with landowners to give them up to 20% in addition to large bonuses of up to $5000 or more per acre. This is not the case in other countries and would be one impediment to European shale gas development.

Levant goes through the prospects for shale development around the world. Unfortunately there are many impediments to that happening: nonexistent landowner royalties, anti-fracking sentiment, lack of infrastructure, lack of regionally available equipment, services, and expertise, and perhaps most importantly, unconfirmed geological potential. China, Argentina, Algeria, the U.S., Canada, Mexico, Australia, South Africa, Russia, and Brazil are said to have the most reserves in that order but that is subject to change. Eastern and Western Europe also have potential and that could lead to gas independence for those countries beholden to Russia. Unfortunately the results of drilling and pre-evaluation in Poland, Denmark, and Romania have not been encouraging. China is trying to develop their shale resources but is still pretty far behind their original estimates. Lack of infrastructure, cost overruns, and the current low gas price environment are perhaps their main problems. Argentina is having some luck as the wells look promising and their government props up internal natural gas prices to encourage development.

The first country he covers is Poland. He notes the unfortunate history of Poland as unfairly getting the short end of many wars and conflicts, most recently the WWII Holocaust, Hitler’s Germanification of Poles, and Soviet brutality to Polish people and churches. Now they are victims of Russian gas and oil monopolies, with gasoline as much as $20 a gallon and natural gas as much as $15 per mcf. The Polish government has to subsidize the cost of gas or the people could not afford it. Poland would love to develop its own shale gas and be free of Russian cronyism. Another possibility for Poland is to receive LNG from the Baltic. For this they would have to build a receiving and gasification terminal and a pipeline to move the gas south. Lack of basic infrastructure such as roads is also an issue. Unfortunately, I read that the latest well tests were not encouraging for Polish shale gas but there will no doubt be more tests. The Ukraine has the same problems with Russian gas as does Poland and several other countries. In fact, this is a big part of what has prompted the conflict between Russia and Ukraine where Russian aggression, propaganda, and dishonesty has been displayed for the world to see. Although one might call it a civil war it was the Russians who fomented dissent and continue to aid rebels. In the past they had shut off gas to Ukraine several times in the middle of winter, demanding more money. Apparently, there is also a Soviet-era past of suppressing Ukrainian culture in what has been called Russification, including the widespread murder of Ukrainian cultural elite: writers, artists, intellectuals, and priests. Energy freedom would certainly benefit Ukraine. Ukraine has long been the victim of Russian cruelty. The starvation of 3-5 million people induced by Stalin in 1932-33 is now known as the Holodomor genocide. There was also the poisoning of opposition leader Victor Yushchenko. Putin’s propaganda arm has succeeded somewhat in recasting the murderous Stalin as a hero. Levant notes the demoralizing effect of Russia cutting off winter gas to the entire country of Ukraine as reminiscent, at least symbolically, in the minds of the people, of that starvation episode.

Germany produces some of its own gas but consumes about seven times as much and most of it comes from Russia. Even with their powerful green lobby and their renewable energy revolution their carbon emissions are rising. This is due to phasing out nuclear and replacing much of it with coal, particularly dirty lignite coal and some lignite-rich wood (also with high carbon and pollution footprints). The renewable transition has been expensive and has led to higher energy prices, although Germans do not have as high per capita energy use as those in the U.S. Germany has some shale potential but demands to ban fracking as France has are pretty loud so it is doubtful the gas will ever be extracted.

France was importing nearly all of its gas from Russia, Algeria, and Libya (keeping Gaddafi paid up). The Paris Basin likely holds significant quantities of shale gas and oil but fracking has been banned due to the perceived environmental effects which have been overblown. Wells were drilled, some fracked, by both French companies like Total S. A. and other companies from Canada and the U.S. when the government pulled the plug. Of course, French companies like Total S.A. do frack in other places and have such investments in the U.S. and Canada as well.

The Bowland Shale in the U.K. is thought to contain massive quantities of natural gas. U.K. wind turbines have been developed to the point where they are ubiquitous and there is significant public backlash against wind power- the noise, the landscape effects, and the bird killing effects. With the early fracking tests near Blackpool there were small earthquakes detected – somewhat higher than the typical microseismic effects of fracking. This led to a huge backlash. It was determined that the well in question was drilled very close to a major fault and that likely was the issue. The Royal Society recommended a “traffic light” style monitoring of seismic activity which has become the norm in areas where it occurs and also in the geothermal industry which is considered “green.” Right now the biggest issue is public acceptance as there has been quite a bit of protest of fracking due to the propaganda of American environmentalists.

Bulgaria is another country wanting to be rid of Soviet (now Russian) influence. Bulgaria gets almost a hundred percent of its gas from Russia and was also cutoff when Ukraine was cutoff. It had some shale gas and exploration was underway with Chevron leading it but was cut off as fracking was banned in Bulgaria due to the influence of pro-Soviet factions of the government as well as some public protest – likely approved by those pro-Soviet forces. Gazprom reacted in various strong ways to Bulgaria’s effort to be free of it – buying up gas stations in one instance. There was one upshot: after Bulgaria banned fracking, Gazprom did renegotiate newly expired gas contracts at a lower rate.

Lithuania is another country long beholden to Soviet and Russian interests – they get a hundred percent of their natural gas from Russia. They were being charged high rates for it as well. When the possibility of drilling for shale gas in Lithuania and perhaps more important, talk of building an LNG receiving terminal on the shore of the Baltic Sea (which is currently being built), Gazprom suddenly decided to decrease its price a little bit. Chevron was active in the country exploring for shale gas, which is significantly shallower in Lithuania than in Poland, and the country’s president Dalia Grybauskaite is pro-fracking. Gazprom has sought to cause problems with Lithuania’s move toward energy independence. Incidentally, the name of the LNG terminal is called “Independence.” 

Shale gas drilling in China has been occurring and has been moderately successful. The issues have been economics since they started to produce when prices were low, cost overruns (typical in early days of a technology), corruption (slowly fading), and lack of infrastructure. China has worked to secure needed oil and gas from many parts of the world – Africa, SE Asia, invests in U.S shale gas, and imports gas and oil from Russia. China doesn’t have an environmental lobby like most of Europe so that is not an impediment. Even so, the ramping up of shale gas production, though significant, has been behind initial estimates.

Israel is another country that would prefer energy independence, especially from Middle Eastern countries that oppose its policies. After the Arab Spring and the pro-Muslim Brotherhood government came to power in Egypt the pipeline bringing gas from Egypt to Israel was bombed 14 times and eventually the government officially cut them off. Lucky for Israel significant new gas supplies have been discovered offshore Israel and in the Mediterranean. The large Leviathan field and the closer Tamar field, which came online in 2013 will save Israel massive amounts of money and lower electricity prices. They may be able to export gas to Turkey, which is also reliant on Russian gas, and Cyprus. The biggest boon for Israel is not economics but energy independence from hostile regimes.

He gives a history of Quebec’s tense relationship with Canada. Separatists almost won the vote in 1980. Quebec imports most of its oil (92%) from overseas, from OPEC members like Saudi Arabia and Algeria. All of its gas is imported as well. While there have been calls for Quebec to produce its own gas and oil through fracking there are moratoriums on offshore (Gulf of St. Lawrence) production. The people lean to the left and take cues from France which recently banned fracking. Since most people speak French as a first language they also get much of their news from France. Almost all Quebecers want energy independence but are also opposed to getting from fracking shale (due to environmental propaganda). Quebec banned fracking for five years in 2013. Apparently, Quebecers are in debt and must rely on handouts from other provinces like oil-and-gas-rich Alberta and British Columbia. One company, Lone Pine Resources, was sold permits to drill by Quebec for $250 million and then the moratorium was enacted. They are seeking redress from NAFTA to get their money back. Similar issues have occurred in New York State when fracking was banned.

New Brunswick is another poor Canadian province reliant on revenue from other provinces. They have a high unemployment rate and few prospects to get out of poverty. They tried an LNG import terminal but bad timing for pricing caused the project to be abandoned after working below par for a while. New Brunswick has shale gas and drilling and producing it could help the local economy as well as lower energy prices. After a tough battle that involved anti-fracking activists paired with First Nations people the province decided to ban fracking for now. As is typical some companies invested in the region were left stranded. Nova Scotia is in a similar situation, with a horrible local economy and with shale resources identified. Since 2011 the government has put a moratorium on shale exploration as it reviews the environmental issues.

Next he explores activism and celebrity activism beginning with Josh Fox’s movie Gasland. Fox knows little to nothing about the oil and gas industry. The movie is overrated, highly inaccurate, and demeaning in my opinion. It did, however, bring up some issues in the oil and gas industry that were problematic. There was a need for better regulation and in most cases better regulations were indeed enacted. It also stirred a lot of people against fracking. At the time the boom was happening too fast. There was too much truck traffic in some areas, too little regulation, not enough training of workers, and poor oversight and organization. Over the next several years most of those problems went away but anti-fracking activism did not and has not. It is still running pretty strong as a well-organized effort. The problem with anti-fracking activists is that they have little to no interest in making the process safer. They are insistent in an all-out ban, period. Such an uncompromising approach is unrealistic and unwarranted. They have been emboldened by the moratoriums in New York, New Brunswick, France, and a few other places. They still benefit as does everyone by paying lower gasoline, oil, natural gas, electricity, and consumer products costs. He notes that Matt Damon’s anti-drilling film that flopped called Promised Land was partially funded by a company owned by what he calls the dictatorship of OPEC country United Arab Emirates. Yoko and Sean Lennon, Susan Sarandon, Mark Ruffalo, Daryl Hannah, and Mahatma Gandhi’s grandson Arun Gandhi have also been celebrity anti-fracking activists. Fox argued that there was a kind of government conspiracy to promote fracking at the expense of the environment, implicating the EPA and especially Dick Cheney and his one-time company Halliburton who developed fracking. The myth of the “Halliburton Loophole” as an exemption to the Clean Water Act was long peddled by the “fractivists.” Particular studies – several thoroughly debunked and shown to be deceptive – are oft relied on by fractivists along with their main scientist-collaborators who often show the same unwillingness to consider that they might be wrong – in light of the many studies that disagree with their early findings. There are some problems with fracking, mainly the higher chance for spills due to more wastewater and more activity, methane migration, and methane leakage. All of these problems are being addressed more and more by the industry, have improved overall, and will likely continue to improve significantly. There are problems with the conventional oil and gas industry, the gas storage industry, and the gas utility industry regarding methane leakage due to aging infrastructure as the recent massive leak in California showed. They will likely be addressed soon as well. Fractivists’ focus on fracking chemicals has also been overblown as there are far less used than depicted and most are benign. Some of the chemicals Fox highlighted are used in many other industries as well. Along with fractivism rose many biased environmental news sources, some supposedly respected, but most follow uncompromising anti-fossil fuel positions: Eco Watch, Food & Water Watch, ProPublica, DeSmog Blog, Climate Progress, Grist, and many others. While some do provide good information, the biases are clear. There are well organized local groups everywhere there is oil and gas development and in liberal university towns near development where the anti-drilling sentiment is most vocal. It should also be pointed at that most issues with spills and water well quality problems due to methane migration were dealt with by oil and gas companies by settling with plaintiffs, sometimes for large sums of money, even if the companies did not think they were at fault or knowing the problem was temporary and non-toxic. There was a rash of anecdotal stories about harmed farm animals and local health problems that oddly never occurred with conventional oil and gas activity that utilized the same processes and potential avenues of exposure. I think this could be attributed to the “nocebo” effect as is possibly much of the so-called “wind turbine syndrome” where the low sound of the turbines is said to make people sick. However, in that case some doctors say that could well be the case. In the oil and gas cases, they have yet to provide any evidence or avenues of exposure to contaminants that could cause the health problems. There could possibly (but this is doubtful) be some very localized issues with volatile organic compounds (VOCs) and increases in ground-level ozone but overall in some fracking areas like Pennsylvania the air quality has improved significantly as coal power plants were replaced by gas power plants. Pennsylvania has long had well water quality problems and since Gasland’s nonsensical attributions of some of the well water problems to oil and gas activity there have been several large-scale studies that showed little to no effect on groundwater with the exception of predominantly temporary increases in methane migration in certain areas where methane just below aquifers had long been a problem. The biggest problems occurred early in the Marcellus play and have become far less common with better drilling and cementing recipes and techniques. The EPA recently declared fracking generally safe in terms of groundwater issues.

In addition to the biased news sources and websites, some of which are funded by foundations these anti-fracking foundations fund several anti-fracking activists and biased studies. People are actually being paid to oppose fracking. There are now activists doing “citizen science” trying to find air emissions from oil and gas facilities. These are ill-trained people not unbiased scientists. There are local county governments using taxpayer money to take water samples in order to try and prove shallow aquifer water contamination from waste water injection wells thousands of feet below the surface, a geologic near-impossibility. There is significant fear-mongering and when people are afraid they get mad.

Levant sees the fractivists as Luddites intent on sabotaging the industry if they can’t shut it down and that can happen. An oil worker was shot (but recovered) in West Virginia recently by a person (still at-large as far as I know) who complained about a leaking oil well before shooting him and running off. Levant also notes that it is no secret that Russia (read RT, the Russian propaganda news), Qatar (read Al Jazeera), Venezuela, and Saudi Arabia all favor fractivist views that emphasize the potential environmental problems of fracking even though their own environmental records are among the poorest in the world. He notes that wealthy countries like France can afford to ban fracking and pay extra for Gazprom gas but countries like Poland, Lithuania, Ukraine, Bulgaria, and others are being maltreated by Putin’s Russia and deserve to develop their own resources if it is possible.  

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