Fracking…a Tale of Two Continents

You’re familiar with fracking…the technique of extracting natural gas from shales by using high-pressure fluids injected (typically, at great depths) underground to fracture the rock and release the gas.

I’m a little behind on my reading of The Economist, but their November 26, 2011 edition contained a nice tutorial comparing the status of and outlook for fracking in Europe versus America.

The differences are dramatic.

Worth reading the original article, but I’ve included some of the substance here because it shows so clearly the ways that science, technology and policy intersect in natural-resource- and environmental issues.

The article starts by noting that in a single decade natural gas production from fracking in the United States has shown a tenfold increase, and now amounts to 25% of the total.

What’s interesting is that Europe has essentially comparable reserves, but they’re not being exploited anywhere nearly so quickly, nor are their future prospects so bright.

Why not?

In part this is because America has a long history of oil and natural gas extraction, with the result that a vibrant, robust industry has emerged. We have technology and know-how. We also have more pipeline-infrastructure for moving that natural gas about the country. With that capability has come competition. As a result, costs are lower here…and that’s before we get to the part about how Europe’s geology is such that the natural-gas shales lie at greater depths.  

The companion bit is policy/regulatory. One of the biggest historical differences is that here, mineral rights tend to belong to the landowner. Got a well on your property? Chances are good you’re participating in the profit. By contrast, in Europe, the mineral rights tend to belong to the government. Over there, if you have a well on your property…well…you have a well on your property. Any associated blight is entirely yours. Any benefit belongs to others. Add to the American incentives a number of fracking-friendly regulations introduced by Dick Cheney when he was vice president, and you have an American framework that fosters natural gas exploitation.

[Which came first in America, the technologies or the policies? The typical chicken-egg problem; they came in tandem.]

In closing, The Economist article notes two drivers that may change the future of natural gas shales in Europe. First is the higher cost of natural gas there. The second is their current dependence upon natural gas and oil from Russia, which has a history of using its near-monopoly as an opportunity to bully.

Anyone see a hint of sub-optimization here? So does The Economist. The article details some of the environmental concerns associated with fracking to date (largely the potential risk of polluting groundwater, and to some extent the the potential for triggering earthquakes). A briefer article at the beginning of the same issue notes that while natural gas produces fewer greenhouse gas emissions than burning coal or oil, it nonetheless contributes to global warming. Thus, they note, we still face the policy challenge of internalizing this global environmental threat in natural-gas pricing. Time to end those implicit subsidies.

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