Hydraulic Fracturing for Shale Gas Extraction

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Hydraulic fracturing is a relatively new technique that has revolutionized the extraction of natural gas or oil. Ten years ago, the demand for crude oil was continually increasing and heading towards 150 USD per barrel. However, oil production did not match the growth in demand, and the majority of oil also came primarily from OPEC (Rapier, 2018). At the time it seemed that OPEC would maintain a strong hold of the world’s oil supply, and therefore would initiate a massive transfer of wealth from countries that needed the oil, to OPEC. However, a new technology emerged which combined horizontal drilling and highly pressurized fluids- fracking.

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Hydraulic fracturing is a methodology in which fractures are created within rock formations that cause the flow of oil and natural out of their deposits. This technology has completely changed the oil industry, as it has allowed oil companies to unlock resources in areas that were once too costly or difficult to extract from. Previously, the alternative solution for scattered oil and gas deposits were to simply drill more wells in a single area, but of course this proves to be far more geographically and financially restricting. Due to fracking technology’s method of drilling horizontally, these areas no longer present themselves as a challenge. The OIOFCC projects that fracking has now contributed to about nine tenths of the domestic oil extraction in wells, as its efficiency is far greater than conventional oil development.

Once a qualified drilling location has been determined, drilling begins with a drill pipe that flushes out rock cuttings from the hole onto the surface using pressurized air. Generally, if the hole is created within a fresh water aquifer, a surface casing (using cement) is inserted into the hole to seal off the freshwater from the drilling. This is necessary to prevent any contamination of the fresh water source. Once the drilling has reached a depth of approximately 1,500 to 3,000 meters below the surface, the horizontal drilling begins (Barillaro, 2014).

The horizontal drilling distance can span over several thousand meters within one well zone. This stage of the process generally requires thousands of gallons of fluid that are pumped into an oil well at extremely high pressures to break open the rock adjacent to the drill. Fracturing fluid are comprised mainly of water, but other chemical substances and propping agents such as sand, are used to force the fractures open continually so they don’t close back up. Once the fracture has been created, a fairway for the gas or oil to flow to the well and up onto the surface has been created. 15-20% of the fracturing fluid used is recovered as flowback at the head of the well. Much of the water also rises back to the surface, part of it as fracturing fluid, part of it originating from deep underground (Ernstoff, 2013).

Although hydraulic fracturing is a large scale operation that necessitates a substantial amount of upfront capital and investment, it still remains highly profitable. The private costs of such technologies do not run a long list, but involve a few important components. Firstly, transportation remains as one of fracking’s most fixed and indispensable costs. This includes the shipping of materials, machinery, people, and the extracted oil or gas. The upfront capital required to purchase the machinery, technology, and chemical additives (fracturing fluids, chemical substances, water, etc.) necessary for hydraulic fracturing is also another fixed cost. Major parts of the equipment needed include the drill pipe, surface casing, blowout preventer, and drilling motor (Barillaro, 2014). Lastly, labor comes in as a highly variable private costs. 

As the scale of operations grows or the more mines are created, the more manpower is needed. Labor will be required for transportation, the utilization of the machinery, management, data analytics, on-site engineering, and other miscellaneous tasks. There are other numerous costs that contribute to the overall private costs of fracking, but generally transportation, machinery and chemicals, and labor remain as the three largest pieces of the pie. According to an analysis from Reuters, the total private costs of hydraulic fracturing can range from as high as fifty dollars per barrel, to as low as thirty dollars per barrel (Rosenberg, 2018). This makes the breakeven point for oil and gas producers extremely low, which is why there has been a major industry boom in the past decade

In addition to the internally facing private costs of the fracking industry, the true costs of fracking extend far beyond what has been stated. The negative effects of the fracking practice have made significant impacts on the environment and general health that has come with heavy economic burdens.

The contamination of drinking water has long been a continual concern for residents living near zones of hydraulic fracturing. With the use of fracking comes a large risk of blowouts, well failures, and oil spills that can easily contaminate fresh water aquifers underground. The problem with such accidents is that the cost of cleaning up the contamination of drinking water is so expensive that attempts to do so are rarely executed. According to reports from Cabot Oil & Gas, over $100,000 has been spent on recovery systems to remove methane that has leaked into local well water that has affected 14 households in Dimock, Pennsylvania (Osborn, 2011). 

Furthermore, a reported cleanup of a gas seep underground in Colorado has been continually going on for over 8 years, with increasing costs in the range of hundreds of thousands of dollars. Moreover, not only is cleanup extremely costly, the cost of temporary water supply replacement service is also expensive. The provision of drinking water for the aforementioned leakage in Pennsylvania has been reported to cost up to 200,00 dollars for affected homes. These negative repercussions occurred in fairly rural areas with sparsely populated households. The potential for widespread contamination disasters can be many magnitudes higher if fracking operations were to pollute water sources of major municipalities such as New York City, which could raise costs up to the billions (even without considering the huge inconvenience it would cause).

Another major negative externality that is negatively affecting local residents of fracking zones and oil production workers are the health problems caused by the pollution created by fracking. As previously stated, fracking fluid does not just contain water, but also includes other chemical additives that are highly toxic. Wastewater from fracking operations, fracking fluids, air pollution from transportation, machinery, and wells have been clearly linked to a diverse range of harmful health effects. The National Institute of Occupational Safety and Health recently put out a statement that informed those who work in fracking jobs may have a higher risk of having lung disease from 

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