Home Rule Authority May Derail U.S. Fracking Plans

A favorable court ruling in upstate New York may have national fracking implications. Let's take a closer look.

Jul 10, 2014 at 2:43PM

Legendary crooner/actor Frank Sinatra famously sang the immortal line "It's up to you, New York, New York." For those who are opposed to fracking, those lyrics are music to their ears on the heels of a favorable court ruling which may further prompt even more people in the state of New York to stand up against the controversial drilling practice.

With the current New York moratorium on fracking due to expire in May of next year, the recent "home rule authority" success to challenge zoning laws and forbid gas drilling within the borders of the upstate New York towns of Middlefield and Dryden, could spill over to other parts of the state and further complicate Gov. Andrew Cuomo's decision to lift the drilling ban. This development could have serious national implications considering Cuomo, who is in favor of more testing to determine the public hazards of fracking, is expected to throw his hat into the 2016 U.S. Presidential race if Hilary Clinton chooses not to run on the Democratic ticket herself.  

Companies like Halliburton (NYSE:HAL) and Schlumberger (NYSE:SLB) are surely sitting on the edge of their seats too waiting for New York's decision on fracking. This means start-ups focused on cleaner methods to extract gas from the ground and purify water may become valued much more richly in the very near future, and fortunes could be made and lost in less than a New York minute. To that end, this concept has me very enthusiastic about GASFRAC Energy Services (TSX:GFS), the only company in North America providing waterless liquefied petroleum gas (LPG) gel fracturing technology.

What could be at stake if home rule authority gains momentum and keeps the door closed on fracking beyond communities in New York?

The notion that U.S. supplies of natural gas could overtake demand by 2016 could be challenged if more and more communities move to stop drilling in their backyards. 

The U.S. may not be able to export as much liquefied natural gas (LNG) to European allies dependent on Russian supplied energy as it previously thought. Thus fast-tracking applications for the U.S. export of LNG could be a mistake. 

Exemptions for hydraulic fracturing in the U.S. including the Clean Air Act, the Clean Water Act, and the Community Right-to-Know Act may finally be overhauled in order to limit loopholes in the oil and gas industry and force them to publicly disclose the chemicals they use in their fracking process. This I believe would be a given if Cuomo did in fact run for President since health and safety concerns are the reasons he has thus far hesitated on lifting the moratorium ban (a decision on this is expected by Cuomo this Fall). 

The energy industry could be forced to more quickly focus on cleaner methods to extract oil and gas. This is not a bad thing at all since innovation could lead to enhanced oil recovery (EOR) methods and technological breakthroughs such as waterless or even laser drilling techniques which respectively improve well recovery yields and lessen pollution fears associated with present extraction methods. 

The U.S. must take a more closer look at developing its offshore wind industry to lessen a new, growing domestic dependence on natural gas to offset demand for foreign oil. I'm a huge fan of solar power, but considering the U.S. doesn't produce any power from offshore wind, catching wind is a big deal especially since the Energy Information Administration (EIA) believes offshore wind can produce 4,000 gigawatts or 2.2 times all the sun produced in the U.S. in all of 2011. 

The U.S. must reconsider closing perfectly good existing nuclear plants which provide clean, 24/7 baseload power generation. Additionally, nuclear power doesn't produce carbon emissions, something more appealing than even natural gas, which according to the EPA emits methane, the second most prevalent greenhouse gas in the U.S. from human activities. 

The country may need to depend more on geothermal energy because of its smaller footprint versus solar or wind farms. Additionally, geothermal is another 24/7 base-load power source that in many cases has generated heat since prehistoric times. So if fracking faces more setbacks thanks to home rule authority catching on, the U.S. should explore other options like geothermal power, which produces just one-sixth of the carbon dioxide that a clean natural-gas-fueled power plant produces and is seen by the EPA as the most efficient, clean, and cost effective for temperature control.

It may be harder for the U.S. to meet 2020 carbon goals if natural gas production, the cleanest among fossil fuels, is below previous estimates, and the country needs to depend more on readily available but dirtier coal for cheap electricity production. 

At the end of the day, as long as legitimate environmental concerns related to fracking remain (namely air pollution, water contamination, and even earthquakes), the future of this drilling technique should be up to the people in the community, not one the deep-pocketed oil and gas industry forces down their throats. Therefore the victory to ban fracking in the small towns of Middlefield and Dryden is awfully big since the power of the people was vindicated in court. That's something that may reverberate around the country. To alter the words of another iconic line from Sinatra's New York, New York, start spreading the news, fracking companies are for now, leaving today. 

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John Licata has no position in any stocks mentioned. The Motley Fool recommends Halliburton. 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.

4 in 5 Americans Are Ignoring Buffett's Warning

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Jun 12, 2015 at 5:01PM

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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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