(John Kemp is a Reuters market analyst. The opinions expressed are his own.)
By John Kemp
LONDON, Aug 27 (Reuters) - Should oil and gas producers be allowed to hydraulically fracture wells even if there is a small but hard-to-quantify risk to the environment, property and human life?
That is the question politicians, environmentalists, local residents and the media are all grappling with across large parts of the United States, Britain and other countries.
For some environmental campaigners and local residents, the answer is No. Fracking should not be allowed unless and until it can be shown to pose no threat to the environment and human health.
Citing the precautionary principle, they oppose a technique that could contaminate groundwater, trigger earth tremors, and release methane, a potent greenhouse gas, into the atmosphere, as well as disrupt local communities with construction traffic and industrialise the rural landscape.
For their part, oil and gas producers insist all energy production is associated with some level of risk but fracturing has a good safety record and fears about it are exaggerated.
Who is right? How should politicians, regulators, the media and voters weigh up the costs and benefits associated with fracking for oil and gas production?
Should they even try to do this calculation, or should fracking simply be banned as unacceptably dangerous?
Unfortunately, it is hard to come to an informed and sensible conclusion. The debate over fracking seems to have brought out the worst impulses in politicians, lobbyists, campaign groups and journalists. It has become oversimplified and polarised - fuelling controversy rather than dispelling confusion among readers and voters.
Some commentators have blamed politicians for not doing enough to educate voters about the realistic benefits and potential pitfalls associated with this particular technique of petroleum production. In truth, though, attempts to hold a sensible discussion have been drowned out by the vociferous intransigence of the ultras on both sides.
Nearly all the most interesting debates in economics and politics boil down to differences in attitudes toward risk and uncertainty. Global warming, portfolio investment, foreign policy, energy strategy; all boil down to questions about the risks and benefits associated with different courses of action, including the risk of doing nothing at all.
In most cases, voters, investors and policymakers have to make decisions with incomplete information and amid considerable uncertainty about the probability and consequences of various outcomes, dealing with famous economist Frank Knight’s concept of “uncertainty” as well as more conventional measures of “risk”.
Decision-making in this context is far from rational. It was one of the central insights behind the work of John Maynard Keynes in the 1930s, with his focus on the “animal spirits” of investors, and has recently been studied more formally by behavioural economists in the laboratory.
When commentators call for a more “rational” debate about fracking, or suggest the debate could be settled by collecting more evidence and doing more studies, they misunderstand how policy preferences are formed and policy choices are made.
Fracking is risky. Somewhere fracturing operations will contaminate someone’s groundwater. Somewhere they will release methane, which is more than 20 times more potent as a greenhouse gas, into the atmosphere. And somewhere they will spark earth tremors big enough to cause damage to buildings and possibly even kill.
Supporters of fracking tend to point to a lack of evidence that fracking has done any of these things so far to claim the technique is safe. But absence of evidence is not evidence of absence.
Sometime, somewhere all of these bad things will befall someone. However, the fact that the risk is non-zero should not lead to a ban. Society accepts all sorts of non-zero risks all the time for the sake of nothing more than convenience.
Take earthquakes. It has been well-known for decades that large-scale extraction or injection of water into underground rock formations to fracture the rock and dispose of waste fluids can induce small-scale seismic tremors. The most famous case of induced-seismicity dates back to the 1960s near Denver, Colorado.
Like wastewater disposal, mining and hydroelectric power dams, fracking causes earthquakes and subsidence.
The science is well understood. The magnitude of the tremor depends, among things, on the area of rock ruptured and how far it slips. Tremors tend to be proportional to the volume of fluid injected or withdrawn. Massive fracks are associated with higher earthquake risk than smaller ones. Fracking close to an existing fault line, sometimes unknown, significantly increases the risk.
The science and associated risks were carefully reviewed by the U.S. National Research Council, the operational agency of the National Academy of Sciences, in a 262-page report on “Induced Seismicity and Energy Technologies” published earlier this year. In Britain, the government commissioned its own expert report into how fracking caused tremors in Lancashire in 2011.
However, as the experts demonstrated, geothermal energy, conventional oil and gas production, mining and hydroelectric dams are all associated with higher levels of risk and bigger tremors than fracturing.
In future, carbon capture and storage programmes will pose substantially greater seismic risks because the volumes of liquid carbon dioxide injected deep underground will be much larger than the volume of water currently used in fracking operations.
Risks involved in energy production are very real. In the last six years, operators of The Geysers, a geothermal power plant in northern California, which can produce over 2,000 megawatts of power from 420 thermal injection wells, paid out a total of $81,000 to local homeowners.
In 1997/98, nearly 1,600 seismic tremors measuring more than magnitude 0.6 were recorded nearby. Even today “minor damage is occasionally caused by induced seismicity at The Geysers, generally as cracks to windows, drywalls or tile walls or flooring in these communities,” according to the National Research Council.
Tremors associated with hydraulic fracturing have mostly been very small, typically less than magnitude 2.0, which is about the limit at which they can be felt by residents. The very small number of tremors larger than this, at magnitude 3.0 or even 4.0, are not typical.
Mining operations also cause tremors, and can carry on producing subsidence long after mines have been closed. Britain’s Coal Authority, an agency in the Department of Energy and Climate Change, received 470 compensation claims for subsidence caused by mostly disused workings and spent 9 million pounds in 2012/13.
Subsidence poses lethal risks. Several sink holes have recently appeared in the United States. In Britain, a catastrophic shaft collapse under the rear extensions of two row houses in the village of Fence Houses in northeast England in 2011 revealed a 90 metre-deep shaft. Both properties had to be evacuated and demolished.
In October 2010, the sudden appearance of an unknown mine shaft led to the evacuation of four row houses in Glasgow, Scotland. The Coal Authority’s annual reports document dozens of similar cases over the years.
However, risk is not confined to energy production. In 2012, nearly 4,400 Americans were killed at work, 40 percent of them in vehicle accidents. Driving a truck was particularly dangerous, killing 456 employees. Farming and logging were also highly risky professions.
Both at work and on their own time, more than 32,000 Americans were killed on the nation’s roads in 2011. Aviation killed 485 and the railways killed another 570.
Should geothermal energy production, cars, trains and planes, as well as carbon capture and storage all be banned? It would be hard to find a serious politician, campaigner or voter who would support these propositions. Yet they all likely pose greater risks than hydraulic fracturing.
Fracking is inherently dangerous. But drillers and pressure pumping staff are at even greater risk than the public from overpressured reservoirs, blowouts and regular industrial accidents.
Fracking is on hold in France and some U.S. states including New York. But a better response is to regulate the industry carefully, restrict large-scale fracturing, and limit it prospectively and retrospectively in areas with heavy faulting, insisting on strict safety standards, which is exactly what regulators across the United States, Britain and elsewhere have done in response to the emerging risks.
Few environmentalists and politicians have called for a ban on geothermal, hydropower or the development of carbon capture and storage. These are all seen as “good” forms of energy.
Calls for a moratorium on fracking until the risks have been studied more, or an outright ban, reveal more about the anti-frackers’ attitudes towards different types of energy than they do about the risks inherent in them. (Editing by Jason Neely)