The Dirty Secret of Shale Gas

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It's now been more than two months since Transocean's (NYSE: RIG  ) Deepwater Horizon, operated by BP (NYSE: BP  ) , exploded, burned, and sank a mile down in the Gulf of Mexico, where its damaged well still gushes untold amounts of oil.

For that reason, I paid attention when HBO recently aired GasLand, a film by rookie Pennsylvania documentarian Josh Fox. The flick, which is still showing on the network, aims to demonstrate the danger that lurks in drilling for natural gas in shale formations.

As you know, shale gas is a relatively new phenomenon, found in a number of locations including the huge Marcellus Shale, which lies beneath several Northeastern states. Shale gas has radically altered our notion about the amount of the hydrocarbon available to us. It's extracted by companies like Chesapeake (NYSE: CHK  ) or Anadarko (NYSE: APC  ) through new technology combining horizontal drilling and hydraulic fracturing.

The fracturing -- or fracking, as it's commonly called -- involves blasting the rock with millions of gallons of water containing sand and chemicals. Once the rock is shattered, the gas is free to migrate. Therein lies the problem. Critics maintain that the water table can be poisoned in the process. Indeed, a House committee recently reported that BJ Services -- now part of Baker Hughes (NYSE: BHI  ) -- and Halliburton (NYSE: HAL  ) had included diesel in their fracking fluids for two years.

Fox's film, which captured a prize at the Sundance Film Festival, shows purported victims of production by Cabot Oil & Gas (NYSE: COG  ) in Dimock, Pa. He then heads west as far as Wyoming, stopping along the way to visit with victims of drilling-induced illnesses, or people able to light the water from their faucets aflame because of the gas contamination.

I'm a proponent of the notion that natural gas has a tremendous future in our country and worldwide, not to mention in your portfolio, so I wore my "skeptical hat" while watching GasLand. The film did a good job highlighting potential issues with the extraction process. However, my sentiments about shale gas's prominent future in our energy mix remain unchanged.

I'd quickly point to Rice University's Amy Myers Jaffe, who published a superb article in a May Wall Street Journal entitled "Shale Gas Will Rock the World." As she noted, however: "When it comes to environmental risks, critics do have a point: ...If a well casing fails, they argue, drilling fluids can seep into aquifers." But she also says, "They're overplaying the danger of such a failure."

I agree with her. I'm not going to pretend that there aren't problems with the process, and I recognize that energy companies have a responsibility not to cut corners on safety for profit. Hopefully the spill in the Gulf has reinforced drillers' commitments to responsible exploration and production. It would be a shame if the shale industry got derailed by some poor-quality operators.

Fool contributor David Lee Smith doesn't own shares in any of the companies mentioned in this article. He welcomes your questions or comments. Chesapeake Energy is a Motley Fool Inside Value pick. The Fool owns shares of Chesapeake Energy. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy. 

Read/Post Comments (12) | Recommend This Article (11)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 02, 2010, at 4:43 PM, millsbob wrote:

    if we took a Tiny fraction of the money poured into this grasping for every desperate last ounce of gas and oil and coal and put it into wind and solar, we'd have 45% efficiency solar panels on our roofs in 5 years, and distributed wind energy and smart grid to boot.

    how long is it going to take before we -- and Europe -- stop subsidizing bad technology to the tune of 10's of Billions of dollars a year, and start putting that money to constructive use?

    it's all about entrenched interests keeping things as they are. nothing more, nothing less.

  • Report this Comment On July 02, 2010, at 6:06 PM, TheDumbMoney wrote:

    millsbob, nobody subsidized fracking with billions of dollars; it's cheap, and companies developed and exploited the technology on their own. This contrasts with solar, where oodles of government money, particularly in places like Germany, have been propping up the profits of companies like FSLR. I'm a fan of solar and wind, but I'm also a fan of facts.

    The shale play is another reason, by the way, to love XOM, which bought XTO as soon as gas prices dropped, though I think the deal has not yet actually closed. XOM is cheap right now, imho...; combination of BP...spillover (puts pinky finger to lips), fear of deflation/low economy/low oil prices in the near term. If you think, as I do, that after a period of deflation and low oil prices, we will again within five or so years see some hefty inflation and/or oil price gains, then XOM may even be ridiculously cheap right now.

    That said, and even as an XOM investor, I would like to see legislation forcing companies to disclose WHAT they put in those chemical solutions. Companies argue it's proprietary. Nonsense, say I. The company's moat is their lease to drill in a particular area. By contrast, their right to protect some marginal advantage that comes from secretly using diesel instead of love potion #9 is lost on me. The public has a right to know what is being pumped down there, and the government will eventually make companies tell us.

  • Report this Comment On July 02, 2010, at 6:40 PM, NOTvuffett wrote:

    The point that is lost on most people arguing against the fracking process is that most of the gas deposits are WAY below the water table. Natural gas is clean, plentiful and inexpensive.

    The chemicals that they use is no great mystery even if it is proprietary. They aren't putting plutonium in there, just stuff to facilitate the flow of gas through the formation, most of it like detergent.

  • Report this Comment On July 04, 2010, at 1:56 PM, JoCor wrote:

    While gas deposits are generally located well below aquifers, the vertical drilling intersects and contamination can occur in the vertical casing, as well as through fractures and migration, depending upon the underlying rock structure. The larger danger to ground water with hydrofracking is through surface contamination. Up to 50% of the millions of gallons used per well pad flows back up out of the well. This flowback water is briny and contaminated with not only VOCs and other fracking chemicals but also radioactivity from the rock (at least in my geography.) Most sewage treatments plants cannot successfully mitigate this water and spills from storage ponds on sites or from trucks hauling it away to distant treatment facilities have caused numerous ground and surface water contamination problems. Hydrofracking is going on within 20 miles of my home. I live on the NY side of the NY-PA border, so I have been paying a lot of attention to the facts on this issue. The gas companies are nowhere near as truthful or as safe as they claim to be and more safety and environmental impact study and more regulation are essential.

  • Report this Comment On July 04, 2010, at 1:59 PM, rtichy wrote:

    I think asserting that nobody has subsidized fracking is a little misleading... as Gasland points out, the companies don't have to reveal what they are pushing into the ground to the EPA. That would be an expense to them to get approval for their methods and to insure their activities against tainting water supplies and damaging the environment. As it is, IF something happens (and I'm not saying it happens all the time) then the companies are able to avoid liability because no one knows what they put in, so it is hard to prove they are at fault for the outcome. Benzene is not a detergent, by the way.

  • Report this Comment On July 05, 2010, at 12:15 AM, predfern wrote:

    Here are some quotes from a recent Investors Business Daily artcle entitled "The Saudi Arabia Of Shale"

    Roger Willis, owner of a hydraulic fracturing company in the Pennsylvania town of Meadville, says thousands of frack jobs have been done on rock formations above and below the Marcellus shale in New York state with no aquifer damage.

    Extracting oil and gas from shale requires less water than is used in the production of ethanol, where increased agricultural runoff has resulted in dead zones in rivers, lakes and offshore waters. Solar panel arrays of the size that might be competitive require huge amounts of water to clean. Water is a rare commodity in areas where the sun shines most — the arid land of the West and Southwest.

    In hydraulic fracturing's 60-year-history, there has not been a single documented case of contamination.

  • Report this Comment On July 06, 2010, at 1:39 PM, JoCor wrote:

    As I'm sure Mr. Willis is aware, the fracturing that has previously occurred in New York state has been vertical, which involves much lower water volumes and much lower pressures than horizontal hydrofracking. In vertical fracturing, there is also very little flowback and this wastewater is the source of most of the problems with toxicity in wells and groundwater.

    The industry keeps saying there are no documented cases of contamination, but a couple of recent examples:

    The list could go on and on.....

    Increasingly, gas companies will be held liable for the damage they do and the most likely route for aquifer contamination is through problems at or close to the surface where numerous documented accidents have already occurred.

  • Report this Comment On July 07, 2010, at 10:32 AM, jaredberg wrote:

    I live in the Dallas/Ft. Worth area (right above the very large Barnett Shale area) where thousands of frac jobs have been successfully completed with no published effects on groundwater/aquifers. I am also working for an oil and gas exploration company researching data from frac jobs in the area and in the Spraberry trend out in West Texas.

    Something to be noted, these producing formations are literally thousands of feet below any underground aquifers. The fractures in the rock span hundreds of feet, not thousands, and certainly not far enough to reach any groundwater.

    In addition, one of the first steps of drilling a well involves cementing the well after the aquifer depth is reached before deeper drilling continues. Another user commented on the upflow from these frac jobs permeating through cracks in the casing and contaminating water. Just to clarify, cracks in well casing effect the productivity rates of a well, therefore an operator works to fill any cracks that develop during the frac process using a method called "squeezing". Do some more research on this subject if you are unfamiliar with the process.

    Essentially the process of fracing a well is well practiced and generally very safe/not harmful to the environment. More importantly, increased reliance on nat gas allows the country to free itself from the grips of dependence on foreign oil considering we have the largest nat gas deposits in the world.

  • Report this Comment On July 11, 2010, at 9:47 AM, JoCor wrote:

    Cementing a well is not a fool-proof process. I live about 20 miles from Dimock PA, where (documented) cementing failure ruined many private wells.

    And again, most water contamination occurs from surface spills and leaks. There is a higher volume of flowback with Marcellus shale formation than with Barnett and deep injection wells cannot be used for wastewater disposal in many parts of our geography.

  • Report this Comment On April 21, 2011, at 9:48 PM, trin6810 wrote:

    After the new dimwit Pa governor let gas drillers dump wherever - the only reason these criminal companies voluntarily stopped dumping their wastewater directly into the rivers and lakes in Pensylvania was because if they continued - there wouldn't have been a fish living between the Susquanna and the Delaware water gap - as it now stands Pa is asking the companies to voluntarily stop sending their waste water to local municipal sewerage plants that were never meant to handle the brine and heavy metals in flowback water. What do they think they are going to do with it? -The drinking water of Pittsburgh is in trouble - can't put in big evaporation pits like they did in the west - which by the way will probably become superfund sites - but oops they are not subject to the law!! Darn Thank Dick Chaney - maybe he's out shooting 70 birds in one day like the old days(NEVER COULD PUT MY HEAD AROUND THAT ONE) - or hiding in the basement or selling his wifes books at National Historic Sites - or maybe he shot somebody 5 weeks ago and hasn't told us yet - only someone like him could think this up if they actually had to clean the 44 trillion gallons of water they destroyed this whole scheme - their debt would be worse that the nation's.

  • Report this Comment On April 21, 2011, at 11:03 PM, trin6810 wrote:

    When you put up a state of the art 6 well gas drilling pad(common in PA )- it takes 6,000 tractor trailer trips to build and fract all wells one time - they build them one half mile apart - they frack each well 6 more times in its awful life(with lots more tractor trailers)the first frack gets an average of 4,000,000 gallons of water per well - and 300,000 lbs of chemicals that nobody has a complete right to know about (only reason people know as much as they do - tree huggers chased down MSDS hospital reports(required by federal government) after well accidents out west and through the south Google Theo Colborn - Each successive frack uses at least 2,000,000 to 3,000,000 more gallons of water and at least 200,000 thousand lbs of chemicals - you get the idea why us new yorkers are not all happy supplying china austraila and norway with gas As bad as fluid with those chemicals is going down - what comes back up is worse - radioactive(read about radon in marcellus shale), extreme brine and heavy toxic metal - The waste water is extremely difficult to treat - if these people had to properly treat the water they polluted this process wouln't work - too expensive!!! There are no heavy metal waste treatment plants in New York PA is being swamped - I feel sorry for her people - go to youtube type in farm/pond ruined - this is a flawed process - how can anyone justify destroying 44 trillon gallons of water and being over half way to whatever hell there going to - these figures are from SGEIS reort from NYS DEC average amounts - here are some numbers for you to think about DEC thinks average 72,000 wells in new york (12,000 pads - 6,000 tractor trailer trips per pad)) 72,000 single wells 3,500,000 gallons ave.per frack - 6 fracks to a well - 71,000 wells 250,000 lbs chemicals 6 fracks numbers are insane - who are these people - People in my community have property on the finger lakes - they have lake side homes - they have parties to celebrate leasing their 12 acres up from the lake to gas companies - do you think you would want your children to live anywhere near the petro chemical 2-5 acre site left when the gas comes in and big compressors and generators sent the gas on its way after heating and cooling and giving off vast amount of some chemical I can't spell - all gas pads will be hooked into one another by pipelline strtching to the PA border - We have a newly thriving wine industry - think they will be affected. I will fight this with all I have - Please write a postcard a day for the month of may to Andrew Cuomo - no fracking!!! thanks

  • Report this Comment On April 21, 2011, at 11:54 PM, buffalonate wrote:

    Gasland was a hit piece. Colorado and Pennsylvania state governments have both publicly acknowledged that most of the reports in the movie were false. People drilling water wells sometimes hit shallow gas basins. They know this because they are two different types of gas and they can test them to determine the difference.

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