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Page added on March 22, 2015
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
11 Comments on "Fracking: How Does it Work and What Does it Mean for Our Energy Future?"
Rodster on Sun, 22nd Mar 2015 1:34 pm
“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.”
Don’t worry, Sean Hannity says it’s all BUNK. He’s even had representatives from the fracking industry to say they are all made up lies including flames shooting out of your faucet.
/s
rockman on Sun, 22nd Mar 2015 3:11 pm
“…it’s important to note that fracking is still a very inefficient”. Actually it’s important to note that this writer doesn’t even understand the basics of frac’ng. Frac’ng has been proven to extremely efficient because it has allowed (over the last 50+ years)hundreds of thousands of well to produce commercially that would not have without being frac’d. I don’t consider turning a money loser into a commercial producer as “inefficient”.
As far as contamination directly from a frac’d well at the site there have been very few DOCUMENTED case. Improper and illegal disposal of the poisonous frac fluids away from the well site has been DOCUMENTED many times. And until both NY and PA made it illegal a common offender in the early days were municipal water treatment facilities operated by local gov’t.
As far as the new fed rules they apply only to federal leases. I’ve looked at the original draft and it falls far short of the regs that have been in place in La and Texas for many years. In particular the penalties are less then you would get in either state.
coffeeguyzz on Sun, 22nd Mar 2015 4:00 pm
If the oil boys continue to follow in the footsteps of the gas guys – as seems to be the case these past 15/20 years – some interesting developments may appear.
Every single well – of the 6,000+ in Pennsylvania’s Marcellus and – emerging – Utica formations, has their fracturing ‘ingredients’ viewable to all online.
200 barrels of hydrochloric acid, about .05% of the total volume, are utilized in a standard frac. Virtually all the flowback water, as well as an increasing amount of produced water, is being captured, treated, recycled, and used to frac future wells. The amount of truck traffic, amongst other effects, is greatly diminished. This is occurring to an increasing degree in all the shale fields.
Addressing the article’s author’s comments about ‘inefficiency’ … the coming developments regarding so-called Improved Oil Recovery (IOR … gotta love all the acronyms), as well as Enhanced Oil Recovery (EOR … distinctions are blurring continuously), will show vast improvements regarding the remaining 90% of hydrocarbons after current extraction is complete.
We are still in the early innings in this energy game.
mbnewtrain on Sun, 22nd Mar 2015 5:01 pm
Yes, the greatest threat to the environment from “fracturing by hydraulic pressure” is from the fluids that come out with the oil & gas. In most cases this amount is far greater than what was pumped into the well. The reason is that salt water is in the rock layers above and below the oil bearing layer. The cracks formed from the “fracking” radiate out in all directions from the well bore, but travel farther up than horizontal and down, due to the pressure being less toward the surface. Thus, not just pay zone producing oil, but above and below layers producing salt water along with dissolved heavy metals which are sometimes radio active as in areas of North Dakota.
So the cost of disposing of all this extra waste water detracts from the bottom line of the oil producer. Sometimes the highly contaminated waste water is two or three times the volume of the oil production, so a small amount may actually be recycled into more fracking of wells. Balanced must be disposed of by pumping down a disposal well (below oil bearing rock usually), thus another big cost for producers.
coffeeguyzz on Sun, 22nd Mar 2015 6:48 pm
Hey, mbnewtrain, that is one of the few technically oriented comments I believe that I have ever seen on this site. In fact, with the notable exception of Mr. Rockman, there seems to be a lack of current, industry sourced data that – at a minimum – would provide a more wide ranging perspective in these matters.
Re: water intrusion, undesirable vertical fissures being ‘out of zone’ …
The past two years have seen extensively monitored, ‘experimental’ fracs with numerous variables introduced to see/understand what the heck was going on two miles underground. The Dec. and Jan. online issues of American Oil & Gas Reporter – aogr.com – describes in detail one such project by WPX.
Long story short, the vertical fissures were found to have travelled 300’/600′ whereas the targeted payzone was less than 50′ thick.
By manipulating fluid volume as well as pressure, much more precision has been obtained.
A further enhancement has been the introduction of so-called ‘intelligent fracs’ where multiple, short stages are individually frac’d with the newer generation of coil tubing conveyed tools.
These are the tools enabling 60/80/100+ stages to be frac’d in just a few days time. Two closely watched wells in the Bakken from Whiting that have been frac’d this way have produced 200,000boe each in their first four months production.
These innovations, along with several others, will cause a rewriting of shale productive potential going forward.
Northwest Resident on Mon, 23rd Mar 2015 1:27 am
No matter how they do it, it doesn’t mean a damn thing for our energy future.
Fracking has been a losing enterprise from the get-go. Just a Wall Street scam sanctioned by TPTB, a means to keep the wheels of BAU greased a little longer. Now, as the inevitable meltdown of the fracking industry accelerates toward extinction, we’ll see what if any new tricks TPTB can pull out of their sleeves to keep the illusion of “all is well” viable. Most likely, as oil industry unemployment numbers mount and production numbers sink, there will be a rude awakening that produces tremors and shockwaves under the public confidence. Sooner or later, reality will set in — we are on the ride down from an oil and energy intensive based economy, and that promises to be a very rough ride indeed!
“QE and ZIRP were supposed to work through the two channels of the portfolio balance effect. The twin policies would force investors into riskier securities in a reach for yield, allowing lower rated borrowers to gain funding. In this cycle, that was primarily lending to shale oil and gas producers. The rise in the price of risky assets would also produce a wealth effect as those with the means to participate in financial markets go out and spend their new found, Fed induced wealth. Now the energy loans are coming a cropper (going to hell in a hand basket) and the Fed is left with the wealth effect (hyper inflated assets) as the sole remaining prop under a weakening economy.”
http://davidstockmanscontracorner.com/an-avian-metaphor-for-the-fed-not-hawk-not-dove-just-chicken/
Davy on Mon, 23rd Mar 2015 5:19 am
I would have to agree and disagree on different levels NR with your comment. At the level of science, economics, and conservation of resources the shale business is a negative. That means it can only be short term and it has no future per an aggregate of the human ecosystem. It wasted valuable resources for a short term gain. This gain was a wealth transfer from society at large and a large societal investor groups to a much smaller group who profited immensely. Those wealth transfer effects are just now coming due. It was a net benefit to the US as an oil producer and all other oil producers by allowing an economy support high oil prices.
We must not forget the QE’s, Zirps, extend and pretend, and bad debt write-offs at the central banks were part of this shale business. Finance and oil go hand in hand completely and fundamentally. The shale business and the monitarization were a wealth transfer and a negative to the global economy. Yet, this is true longer term. In the shorter term they created activity and the velocity of economic activity generated more activity buying us some short term economic time. It was not all bad in the shorter term but longer term it was a wasted of social fabric and resources.
Liquid fuels being a foundational commodity has a fundamental value for the economy. A short term wealth transfer and resource transfer from the global economy at various levels was instrumental in delaying PO dynamics. The ETP POD that Hills group talks about was not effected much because depletion is a law of nature but the other PO dynamics that could have derailed the global economy were keep at bay.
One must understand that the high value crude in KSA is really not that high value because of above ground PO dynamics of a social system of a population in overshoot being supported by oil. Oil produced that overshoot in KSA and increasingly there is not enough. That is an above ground PO dynamic. An oil market that never would have recovered price and demand from a faux growth after 08 would not have allowed KSA stability. KSA benefited from the 08 wealth transfer policies by a recovering economy and oil market.
NR, I would have to say we have to clarify BAUtopianism as good or bad to validate your statement either way. If you consider BAU good then it is quite obvious shale prevented a BAU descent sooner than later. I have benefited in my doomstead prep. I have lived an exceptional several years since 08 benefiting on the coat tails of a 1%er family. I am lucky many others were triaged out in the wealth transfer since 08. In the respect that the post 08 surge in shale with the corresponding global central bank monitarization and financial repression benefits some and bought the system time it has a value for some.
If you consider BAUtopianism bad even for a short time period then this was definitely a waste. AGW folks and the folks triaged out of the system by wealth transfer fit this category among many others. Reality will agree an adjustment and mitigation of limits of growth and diminishing returns should have started in 08. Poor attitudes and lifestyles should have been ended. Resources should have been conserved for the benefit of society not exploited for the 1’ers. This is fairness and balance which is an accepted human value. Exploitation and theft is not a value and in effect is nothing more than economic decay. BAUtopianism given 7 years more of life was kicking the can down the road with a few benefiting greatly. The many having some more normal at best but being bleed by wealth transfer with social fabric being destroyed. A house of cards with the lower cards moved up top as an analogy.
Taking the pill early on in 08 would never have allowed shale, 1%er wealth growth, and continued government deficit spending. Wealth would have been destroyed and a forced degrowth that must happen eventually would have been initiated. We may well have been into required population reductions or strong population growth reductions. We may well have been into the generational descent with all its pain, suffering and death. Instead we continued the bumpy plateau some more years but we are now likely in the beginnings of the bumpy descent with the whole charade unhinging.
So in conclusion NR it comes down to what local you are in and who you are if this shale effect on oil and the central bank effect on the economy did or did not happen. I personally am thankful it happened for my doom and prep but sad for the time and prep to society at large that was lost. Really in the end it is my community that matters more than my doomstead for survival so I may have had a faux benefit personally with my community having wasted precious time…..
Dredd on Mon, 23rd Mar 2015 9:14 am
First the ice fracks, then it melts, then the ocean rises.
So, (Choose your trances carefully).
Northwest Resident on Mon, 23rd Mar 2015 9:35 am
Davy — We agree, then! Fracking kept the wheels of BAU spinning for a number of years beyond that point where everything would have otherwise just crashed and burned. That is GOOD, because it gave me and you and many others time to become aware, and time to prepare. But I think we both see and believe that the actual energy produced by shale/fracking/unconventional is just a trickle compared to the energy that we need to keep BAU chugging along. Look over on Ron Patterson’s blog today — pretty good evidence that Saudi and other major ME/Russian legacy fields are on the verge of rapid decline, as in, any day now — and that’s the stuff that REALLY powers our economy. Fracking/unconventional gave us a little more “future” than we would otherwise have had, but as far as actually meaning something for our energy future, forget about it!
Davy on Mon, 23rd Mar 2015 9:45 am
NR, Total agreement here. It was just another rabbit trick from a hat of lies by the thieves on WS & DC.
No disrespect for you Rock and your colleagues. You were doing what you are supposed to do and that means making a buck and producing oil.
The oil industry is vital to the lives of 7BIL now good or bad. If TPTB give them the tools and they make a buck I can not criticize that. I will side with Hills Group’s opinion on shale and the POD of ETP. That is science not a hat trick.
BobInget on Mon, 23rd Mar 2015 1:06 pm
Davy, Talk about ‘overshoot’ KSA is doing stressful ‘over-pump’. KSA is currently EXCEEDING 10 Million Bp/d production.
There’s a better then even money bet Core Labs (and other techies) have advised Saudis to slow-up. (or down?)
Saudi frenzy to hold oil prices in ckeck may well (no pun) finish off one or more 45 year old fields. (see ‘water-cut’).
http://en.wikipedia.org/wiki/Ghawar_Field