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These 2 States May Have Solved the Biggest Problems With Fracking

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Whenever "government" and "oil and gas industry" are mentioned in the same sentence, it normally relates to having the two at loggerheads over regulations or taxes. This week, though, both Colorado and Wyoming enacted legislation to address the environmental impact of fracking, and it was greeted with acceptance from both sides of the argument. Let's look at both of these regulations and why both proponents and opponents should be happy with -- or at least accepting of -- these decisions.

Better than a ban
There are lots of issues that need to be addressed when it comes to fracking, but the ones that garner the most attention have been the potential for fracking to contaminate groundwater and methane leakage associated with the process. The most pertinent argument for using natural gas has been that it is a less damaging fossil fuel than oil or coal. These two issues have essentially made that argument a moot point, though, because the damage done by methane is much greater than that of CO2 on the atmosphere and the threat to freshwater sources. This is what makes the recent legislation from Colorado and Wyoming so important. Not only does it impose strong regulations, but it also increases the transparency and accountability of the process.

To address the issue of groundwater contamination, Wyoming has developed a system in which drillers need to do baseline tests of all water sources within a half-mile radius of a prospective well site before drilling. Also, throughout the process of bringing the well online, companies will need to constantly monitor these water sources to ensure no change to the baseline conditions. 

Colorado, on the other hand, has tackled the other side of the environmental issue. The release of methane and other volatile organic compounds has not only been a concern in terms of greenhouse gas emissions, but it has also created a public health issue because increased levels of smog and ozone. The new rules enacted by the state legislature are quite comprehensive and cover aspects of the process such as using high-efficiency burners, employing better drilling equipment that prevents leakage, and establishing a monitoring program that frequently checks in with new and existing wells to check for and repair leaks. 

The benefits of these of regulations are threefold:

  • It puts adequate restrictions on the industry without bringing it to a screeching halt, which has had environmental groups and the oil and gas industry applauding the implementation.
  • It develops an unprecedented level of transparency to the entire industry, which could be to drillers' benefit if it can prove to complete an entire well without tarnishing water quality in the region.
  • It provides a level of accountability to the process. So if an oil services contractor is the party responsible for the leak or contamination, it is the one responsible rather than the lease owner.

The one unfortunate point is that these rules were enacted in separate states. But the reception that they had from both sides of the argument could potentially lead all oil and gas producing states to adopting similar regulations, which would be very helpful for drillers that have operations in multiple states. 

Could these regulations lead to consolidation?
One reason these regulations have been a success where so many others have failed is that they were formed by bringing both environmental groups and oil and gas drillers to the table. Many of the best practices that were enacted in Colorado are a result of what companies such as Anadarko Petroleum (NYSE: APC  ) and WPX Energy (NYSE: WPX  ) have done so far. Of course, when regulations like these get enacted, there are some winners and losers. Although many of the larger producers like Anadarko and WPX will be shouldered with larger costs because they will need to go back and retrofit many of their existing wells, these companies have used these industry best practices for quite some time and have checkbooks large enough to make the fixes.

Smaller drillers that may be running on a budget, though, may find these new regulations much more cost-prohibitive. If these players can't comply with these rules without breaking the bank, then it's likely they'll get gobbled up by some of the larger players that can afford it. 

What a Fool believes
As much as many people may turn their nose at the idea of consuming fossil fuels to meet our energy demands, it is a reality that we will have to live with for some time as new technology and consumer habits change. But it doesn't mean the oil and gas industry should have carte blanche when it comes to extracting natural resources. The two regulations set forth by Wyoming and Colorado are exactly what the industry needs -- an opportunity to grow while being held to a higher level of scrutiny. If regulations like this could be enacted in tandem across the U.S., it would help us to realize the potential of the American energy boom while mitigating its environmental impact. It is in the best interest of the industry to embrace these efforts, because continuing to fight regulation will only make things more difficult for all parties involved. 

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Read/Post Comments (8) | Recommend This Article (7)

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 November 23, 2013, at 8:49 PM, Geodude999 wrote:

    As a geologist, I have been thinking that the best way to resolve fracking issues was a sensible symbiotic relationship of enviromental, engineering and exploration entities. Looks like the regulators are starting to get it.

  • Report this Comment On November 23, 2013, at 11:24 PM, TaylorB1 wrote:

    These regulations might be steps in the right direction, but they ignore the elephant in the room: the oil & gas and drilling services industries' insistence that the complete, detailed makeup of the chemicals they inject into the subsurface remain proprietary secrets. Their claim that these chemicals must remain secret to maintain their competitive advantage is a complete red herring. Without complete disclosure, baseline water testing is of limited value, because by the time any contamination is detected (which could take decades or more, depending on the aquifer permeability, local and regional gradients, variability in pumping rates, recharge, and well seal integrity, among many factors), these companies will be long gone. It's all about avoiding liability. They want carte blanche to inject whatever they want into the ground and make a profit without protecting the public's resources or taking any long-term responsibility.

    There are many other gaps in these regulations, such as what will be the required distribution and frequency of baseline and follow-up sampling; which chemical constituents will be tested and by what methods; what investigations will be required to determine which water sources must be sampled; and who will monitor compliance. What about treatment and disposal of the drilling and fracking fluids and protection of surface water bodies?

    These band-aid regulations won't be of much help after a water source is found to be contaminated, when it will cost untold millions to clean up a water source or it will simply need to be written off for any beneficial uses.

    There's also a short-sightedness in the business model of the fracking industry, with respect to the long-term goal of limiting climate change. Those who see domestic natural gas and oil production as a bridge to cleaner, renewable sources of energy don't seem at all interested in developing renewables; they're simply making a profit while kicking the can down the road. Cheap oil and gas prices are an impediment to conservation (our cheapest source of energy) and development of more sustainable sources. As long as they remain the cheapest source of energy, they'll remain as our primary source of energy. We actually need much higher prices for all carbon-based sources of energy (such as a carbon tax on producers, elimination of subsidies, and making the private companies bear the full burden of costs for their impacts on the environment).

    Also, a slight correction: although methane is a more potent greenhouse gas than CO2, it has a shorter residence time in the atmosphere. So although methane leaks are a serious concern, it's CO2 that's the biggest problem for the longer term.

    --Hydrogeologist with 22 years of experience in groundwater investigation and cleanup.

  • Report this Comment On November 24, 2013, at 8:15 AM, Weitzhuis wrote:

    I believe that about a third offracking drillers do disclose their chemical usage. I also wonder wha they mean by no baseline change. If said ground water shows some methane, etc already in it and, during extraction, these components go down, rather than up, would they be in violation?

  • Report this Comment On November 24, 2013, at 9:23 AM, nhoj wrote:


  • Report this Comment On November 24, 2013, at 11:01 AM, annabannannna wrote:

    Yes its a step in the right direction, but also a HUGE misstep. 1. Testing water sources. This is Wyoming and the next water source could be miles away because that is how far away the ranch buildings are, or livestock tank. So they can pollute at will if no one happens to be using the water currently. Wyoming needs to look into the future, when more people might be trying to move here, or a rancher wants to put in a new stock tank for watering. In the arid west, it is a known fact that land without water is about worthless. 2. Part of the problem is no one knows WHAT to test for. Who know what chemicals they are putting in their 'patented' fracking cocktail, since they don't disclose what they are pumping into the ground. The companies can 'forget' to test for the chemicals that they KNOW are in their fracking cocktail. 3. The problem is most likely shoddy casings, not the actual mechanics of the fracking. Find a better way to cement the casing and the majority of the contamination issues will be solved.

  • Report this Comment On November 24, 2013, at 9:36 PM, vet212 wrote:

    methane is definitely going to be released when you start fracturing the rock your gas is in natural gas IS methane

  • Report this Comment On November 25, 2013, at 10:02 AM, cwesleyq wrote:

    Those two requirements have already been adopted into many drilling leases and municipalities across the US, along with many more, and tighter regulations which gas companies have willingly accepted, if they want to drill there bad enough. I find it interesting how Taylor starts off saying the regs are a right step, and ends with wanting to raise oil and gas prices and tax everyone in the world with a carbon tax. He is obviously an environmental lobbyist, and by the way, a hydrologist is not a real scientist, like a geologist, its just a guy who goes around testing water for environmental activist groups. I have a well right next to my property in a very wealthy section of Texas, and though I do not trust gas companies to always do the right thing (they wont), I do know that they are not interested in contaminating ground water and killing all life on the planet. The earth is already filled with all kinds of toxins, from sulfur and alkaloids to benzene and petroleum pockets. They leak out of the ground in some places, causing gas seepage and tar pits, and have done so for millions of years. On top of that, oil companies have already been drilling in places like Texas and Pennsylvania for a hundred years, without anything near the regulations there are are on fracking, Most of the shale plays are already filled with holes from the oil industry. Where is all the ground water contamination? We get more contamination from dairys and residential pest spraying than we ever will from gas fracking, as long as there is significant independent monitoring and testing from state and municipal agencies, perhaps guided by a few federal guidelines. And by the way, I don't think Exxon mobile is going to be gone in a few years. We will still be able to make them accountable should they screw something up, but let's not turn environmental activist groups into millionaires by allowing them to profit off carbon taxes and things like that from the taxpayer, mmkay?

  • Report this Comment On November 25, 2013, at 3:50 PM, TaylorB1 wrote:

    Cwesleyq, argument by anecdote and from ignorance isn't going to convince anyone. For your information, I'm not a lobbyist or environmental "activist," and have never been employed by any environmental organization. You demonstrate your ignorance when you claim that a hydrogeologist isn't a scientist. I have a degree in geology, two professional certifications as a geologist and hydrogeologist, and over 22 years of experience in private consulting, mostly for commercial clients. And your claim that carbon taxes will turn "activist" groups into millionaires is pure fantasy.

    My statement that the regulations might be steps in the right direction is not at all inconsistent with the statement that carbon-based fuels should be priced much higher than they currently are. The fact that Exxon is a large and profitable corporation that will be around for "a few years" is no guarantee that they'll take responsibility for, and pay for cleaning up a contaminated aquifer, if it can be cleaned up at all. The historical drilling practices you mentioned as having been practiced for a hundred years are not the same as injecting large volumes of unknown chemicals into the subsurface, so it's perfectly reasonable that these drilling practices should be regulated differently. Absence of evidence is not evidence of the absence of contamination, and if we don't know what chemicals are being used, not only can't they be adequately tested for, those who inject them can't be held responsible. Why should private corporations retain the privilege of injecting proprietary chemical mixtures into public water supplies for profit while avoiding liability for the consequences? The history of the carbon fuel industry is one of private profit and socialized risk. Without adequate regulations, the taxpayers will end up paying for the cleanup of any contamination, and only the fossil fuel industries and their lawyers will profit from it.

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