How Well Do You Really Understand Fracking?

The ins and outs of the process and the polarizing debate sweeping the country.

Feb 22, 2014 at 1:00PM

Many people have heard the term "fracking" and how it is the future of the U.S. economy, but know very little about what it actually entails. The motivations of the various sides in the debate, beyond bad vs. good for the environment, escape many of us. Companies specializing in these new methods, such as Chesapeake Energy (NYSE:CHK), Devon Energy (NYSE:DVN), and Anadarko Petroleum (NYSE:APC), are coming to the forefront of the energy industry. So what exactly is fracking??

The process of hydraulic fracturing, or fracking, is the most effective and efficient way of releasing shale gas from the large number of deposits all over the United States. The process involves blasting a slurry of water, sand, and chemicals at high pressure through a pipe drilled deep in the ground, often a mile or greater within a layer of shale. This pulverized solid within a liquid behaves as a thick fluid and under the high pressure works into the cracks in the porous rock. This unlocks the trapped oil and gas, releasing it to flow back up the well pipe.

The debate
The question under examination is whether this process is dangerous or not. Like every natural resource or energy extraction process, there are a variety of environmental impacts to the operation. The one with the most potential impact and under the most stringent examination is whether or not the process contaminates the drinking water in the area where the fracking is being performed. On the one side are environmentalists and some scientists who insist that the gases and toxic chemicals that escape during the process find their way into the nearby aquifers located above the shale layer that provides the water supply..

The largest current study being done is by the Department of Environmental Protection. The study began in 2010 but will not be completed until 2016. It will likely play a large part in directing future federal policy and regulation toward this procedure. A similar study by the Department of Energy in Pennsylvania, one of the biggest potential gainers of this process, determined that the process had no effect on drinking water. Another study by Duke University found the opposite, that the drinking water near areas of fracking had higher levels of methane and ethane, two lethal pollutants. This suggested that the drilling has definitely affected the drinking water of residents in the area.

Public opinion
The decision of this study by the EPA will have far-reaching consequences, and as you might expect, the public is almost evenly divided, 49% opposed to 44% in favor according to a 2013 Pew Research study. In many instances, the decision about whether to drill or not will drastically enrich some constituents, while damaging others. In many situations, it is a question of "whose oxen will be gored," as leaders in various states, including the aforementioned Pennsylvania, New York, and Maryland, hold off decisions on whether to proceed or not.

It may seem like much of the support is on the side of environmentalism and caution, but this is not the case in practice. In 2013, Illinois and California both passed legislation allowing the drilling, and Pennsylvania, Colorado, and North Dakota are at the beginning of a boom, relieving underperforming economies with the numerous jobs created by the abundant natural resources beneath the surface.

In many cases, the almighty dollar is deciding the answer to the "drill or not drill" question, like in California where a recent USC study suggested that drilling one of their largest shale deposits will bring a windfall of $25 billion in taxes and create 2.8 million jobs by 2020. In New York, a similar situation exists where job-starved upstate residents are pulling hard for fracking to rejuvenate the local economies with the jobs it will bring, while the more liberal and cosmopolitan city dwellers are vehemently opposed due to the lesser impact of the created jobs on their daily lives.

What does this mean for me?
Regardless of the environmental impact, states like North Dakota have already shown that it is exceedingly difficult for residents, especially those in depressed areas and tired of years of underperforming economies, to resist the siren song of a slew of new money and created jobs entering their area. The study by the EPA will certainly have an affect on whether to drill or not. However, it will not be a question of yes or no, but rather how much. Fracking is here to stay -- at least until new technology comes along. Leading drilling companies like Chesapeake, Devon, and Anadarko are looking like strong bets for the near future and beyond.

How you can invest in America's energy boom
Record oil and natural gas production is revolutionizing the United States' energy position. Finding the right plays while historic amounts of capital expenditures are flooding the industry will pad your investment nest egg. For this reason, the Motley Fool is offering a comprehensive look at three energy companies set to soar during this transformation in the energy industry. To find out which three companies are spreading their wings, check out the special free report, "3 Stocks for the American Energy Bonanza." Don’t miss out on this timely opportunity; click here to access your report -- it’s absolutely free. 

 

Karl Avard has no position in any stocks mentioned. The Motley Fool owns shares of Devon Energy. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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