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The Dirty Secret of Shale Gas

By David Smith - Updated Apr 6, 2017 at 12:49PM

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An award-winning film hammers the shale-gas industry.

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. 

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Stocks Mentioned

BP p.l.c. Stock Quote
BP p.l.c.
BP
$31.78 (1.57%) $0.49
Anadarko Petroleum Corporation Stock Quote
Anadarko Petroleum Corporation
APC
Transocean Ltd. Stock Quote
Transocean Ltd.
RIG
$3.68 (4.84%) $0.17
Baker Hughes Incorporated Stock Quote
Baker Hughes Incorporated
BHI
Chesapeake Energy Corporation Stock Quote
Chesapeake Energy Corporation
CHKA.Q
Coterra Energy Inc. Stock Quote
Coterra Energy Inc.
CTRA
$30.54 (4.04%) $1.19
Halliburton Company Stock Quote
Halliburton Company
HAL
$29.30 (3.90%) $1.10

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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