pinion Fracking: How Does it Work and What Does it Mean for Our Energy Future?

On Friday, the Obama administration announced the first major federal regulations on the practice of hydraulic fracturing, a controversial method of extracting oil and gas that has dramatically increased American energy output. While the term has become a political hot potato, many Americans remain unclear in terms of how the process works and the advantages/risks involved.

What is it?

Hydro-Fracking, as it is often called, is a process in which water is forced into a well to create pressure which can separate gas or oil  from rock. It has allowed many deposits that were once considered cost-prohibitive to be extracted profitably, provided prices are high enough.

The Interior Department began drafting rules and regulations during President Obama's first term, when breakthroughs in the technology led to an almost overnight boom in the domestic production of oil and gas, which has put the U.S. on track to become the largest oil and gas producer in the world.

Let's begin with a more detailed explanation of how the technology works. Some geologic formations like coal beds, shale and sand can contain vast amounts of oil and gas, but lack the permeability to be effectively drilled by traditional methods. The oil and gas can't flow effectively, but by injecting water and chemicals into the well, enough pressure can be created to change that.

During the peak oil prices of the mid 2000's, companies invested heavily in developing new technologies. The sheer price of oil, which peaked at more than $140 per barrel in 2008, meant that certain techniques were quickly moved closer to being "cost-effective," even without advances, and as fracking techniques continued to be refined, the X finally crossed the horizon.

However, it's important to note that fracking is still a very inefficient (read: expensive) way to extract oil. One thing unique about the oil market is the enormous difference in cost of bringing a barrel to market, depending on where and how extract it.

Economics

Like any business, oil producers go for the lowest hanging fruit first. If demand outpaces supply once all of the most efficient wells are online, obviously, price will go up. It will do so until enough more expensive sources are online to meet demand.

Absent relative blips on the radar that are almost always tied to economic collapses, energy demand always rises steadily as population increases and more of the world moves into developed status (more cars, roads, buildings, etc.). When prices were nearing their peak, massive investments in fracking were made, because it was one of the few new frontiers in terms of getting oil and gas. However, most fracking operations require barrel prices of $70-$100 to become profitable.

When it comes to oil, price shifts, unfortunately, happen much more quickly than supply can be shifted through investment. The fracking boom caused a glut in the market, partly because so much supply was being added during periods of economic collapse and recovery, while demand was depressed.

That is mostly why the bottom fell out of the energy market, and we were recently paying $1.90 a gallon in gas. As I explained in a previous column, the resulting price was artificially low, partly because many fracking operations had been financed by bonds, and the companies needed to stay online, even while losing money, in order to service the debt.
 
There's also other factors involved, like the economic dependence on oil and gas in many foreign countries that also cannot afford to stop selling their oil just because per barrel prices drop. So, falling demand does not have the effect on output that we would see in most markets, which facilitates collapses in price.

At the end of the day, you can quickly see that unless fracking costs can be severely reduced to compete with conventional drilling, the idea that the boom in fracking wells are a path to cheap gasoline at the pumps is a myth. We're simply not talking apples to apples. Once you produce so much oil or gas, the price reductions achieved stop supporting the viability of the more expensive operations, and they will come off line -- or worse, in terms of supply, lose money and ultimately go away.

Risks and concerns

The most obvious problem with fracking is its reliance on water. A single shale oil well can take as much as 10 million gallons of water to fracture. For shale oil to become a major component of our gasoline supply, it would have to compete with our already tight supplies of drinking water.

Then there are the chemicals, which account for about 200 tons of every million gallons of water. Many of them are known to be toxic, including carcinogens. These can end up in drinking water and the air around the sites. Then there's the matter of ensuring that contaminated water is properly disposed of.

There's also the matter of the sand injected with the water to keep an induced well propped open. These "propants," as they are called, mean an additional footprint. "Frac sand" mines created to feed the fracking demand consume large amounts of additional water and produce considerable air emissions.

Fracking may or may not be a necessary technology in our energy platform, even if only as a bridge toward a cleaner energy future, as other technologies are being refined. However, the idea that it is some sort of free lunch that makes efforts for sustainability and efficiency unnecessary seems dangerously misplaced.

Dennis Maley's column appears every Thursday and Sunday in The Bradenton Times. He can be reached at dennis.maley@thebradentontimes.com. Click here to visit his column archive. Click here to go to his bio page. You can also follow Dennis on Facebook.