Monday, August 15, 2011

Take Two: Rust Belt Water World

I'll bookend the weekend (spent it up in shale gas country) with posts about water and the Rust Belt energy boom. On Friday, I suggested that industry drilling for natural gas is shipping water across watersheds in order to get around stricter environmental regulations. Today, Eastern Ohio shale oil is making news:

Mr. McClendon said his company could not have found oil in a better place. There is abundant water available — something Chesapeake needs for the hydraulic fracturing methods it uses to extract oil and gas from shale — and the topography of the area is easier to work with than what is found in Pennsylvania or West Virginia.

And, he said, there is a large and willing local work force that his company intends to draw upon.

“We're in a part of Ohio which, frankly, is ground zero for what used to be known as the manufacturing belt of America and unfortunately in the last 30 years has been the Rust Belt,” Mr. McClendon told analysts on July 29. “But we think that our activity can help rejuvenate this area and we're actually quite pleased with the quality of the work force, the size of the work force and we think, of course, there's great transportation alternatives here, and we're pretty close to the Ohio River. So if we need to barge out some oil, we can do that.”

I haven't read anything about water availability limiting fracking in Texas or North Dakota. Does it add to the cost of the product? I buy Chesapeake Energy mentioning the abundance of water as an important consideration. The dirty little secret is that Eastern Ohio is located in a more liberal watershed regime, one that is much more industry friendly.

While recreating in the Laurel Highlands, I meditated on the water issue. My father-in-law has an issue of Pittsburgh Magazine on his coffee table. Inside is a piece about the Marcellus Shale:

Bobby Vagt, president of the Heinz Endowments, views the Marcellus debate from two perspectives. Before joining the $1.4 billion regional foundation in 2008, he spent nearly 20 years as an executive in the oil- and gas-exploration industry. He believes that the sheer size of the resource, along with the widespread use of fracking, makes its impact dramatically different than other energy finds.

“Assuming the shale is developed, people will be drilling here for 25 years,” he notes. “The whole nature of the business has been changed. You’re here for the long term, so your relationship with people and suppliers and governments is important. The question now is not discovering the resource; it’s how cheaply and effectively you can drill a well. That has to be tempered with a focus on the environment.”

In some cases, Vagt says, environmental-protection and cost efficiencies will converge. He cites the example of on-site treatment of wastewater, which can save more than $330,000 per well and millions of gallons of water. But he cautions that negotiations on those solutions must start now.

Vagt's comments sparked an idea about taxes. Taxes can be used to encourage innovation as well as less resource consumption. Heavily tax the water so industry will use less of it. The same goes for waste water. Anyone out there reading this dabble in environmental economics? I don't know how much water usage is already taxed. I anticipate a jurisdictional problem. Watersheds don't mind our silly borders. Just the same, I think shale money could inform a healthier hydrology.

1 comment:

Paul Wittibschlager said...

The coal extraction industry has already done irreparable damage to SE OH, SW PA, WV, Eastern KY. The fracking industry is just the next chapter. So if you want to see what the economic future holds for fracking, just look at the last time these guys came to town. You can read it like a book.