The Path to Energy Independence is More Rocky Than It Seems

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You might have seen yesterday’s headline in the Wall Street Journal: “U.S. Redraws World Oil Map.”

By Dr. Kent Moors, Global Energy Strategist, Money Morning

As the article explains, U.S. oil production is now on pace to surpass Saudi Arabia by 2020. This would make the United States world’s largest oil producer. We’re already the second-largest natural gas producer, according to 2010 EIA estimates.

It’s all thanks to the U.S. shale boom that has unlocked billions of barrels of oil and trillions of feet of natural gas from the Appalachian Mountains to the Pacific Coast, from the Bakken in North Dakota to the shale fields of southern Texas.

But all of this fracking has caused some serious economic and environmental problems.

And while I greatly advocate increased drilling and domestic production, we still must address a wide-range of problems now plaguing the shale oil and gas sectors.

After all – with apologies to Voltaire and Spiderman – with such great fortune comes greater responsibility.

That’s why I am in the third day of what has become a very interesting conference here in Pittsburgh. It was convened to set the agenda moving forward to deal with the almost invisible aspects of shale oil and gas drilling.

In fact, for the first time, the conference’s primary focus will be on the negatives caused by the drilling.

We also have questions surrounding the amount of water required to frack these formations (the process needs a lot of water to break open rock and release hydrocarbons), as well as the ongoing public health fears from the chemicals used.

Now, we are seeing parallel economic problems as well.

In the Marcellus basin, researchers are now recording some of these shortcomings and placing them in four basic categories.

The real concern is that these four problems – in infrastructure, labor, local inflation, and the environment – will remain well after the drilling (and the revenue) has moved on.

So before you decide to declare “energy independence”, take a look at some of the downside that may come along with it.

The constant movement in water trucks and equipment has caused widespread destruction to roads, bridges, and access routes. In Pennsylvania, localities have responded by introducing “impact fees,” which are paid by operating companies to offset the damage.

Yet, the payments have to be divided among locations where drilling takes place, those affected but receiving no direct largess from the gas extraction, townships, counties, with a portion left over for statewide conservation, environmental, and state land maintenance issues.

It is too early to determine the result. The low volume of wells due to poor natural gas market prices (until recently) has depressed the anticipated drilling, making estimates difficult. Nonetheless, we do know from earlier experience in the Barnett basin of Texas that, once the drilling picks up, such fee payments are likely to trail behind the destruction.

The damage, in other words, occurs quicker than the funding to fix it.

2. Labor Dislocation Has Become Visible

As the emphasis is placed upon drilling, employment gravitates to the job openings.This is perfectly natural, in an economy were so many are unemployed or underemployed.

But the short-term emphasis on gas production in each locality throws training and educational programs into imbalance, as well. With the average well producing most of its gas in the first 18 months, and only a finite number of pads (each housing several wells) possible before a company moves on, the emphasis to make new jobs available in these communities only makes the aftermath of drilling that much more difficult to face.

3. Local Inflation Punishes Residents

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