Hydrofracturing Can Fix State Budgets

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WASHINGTON-To find a remedy for New York State's persistent fiscal problems, New Yorkers need only look down-far down.

Miles below the Empire State's mosaic of cities, suburbs, villages, lakes, farms, and highways lie vast reserves of natural gas, currently off-limits to producers. IF Albany were to permit development of these clean energy resources, it would spawn new jobs, a surge of economic activity--and more tax revenues.

How much more? A new study released Tuesday by the Manhattan Institute, a think tank where I am an adjunct fellow, estimates that in 2015 New York State could enjoy $1.7 billion in additional economic activity, 16,000 more jobs and $214 million in extra tax revenue if its natural gas reserves were developed.

Over the period 2011 to 2020, New York State could gain $11.4 billion in economic output, 90,000 to 108,000 new jobs, and $1.4 billion in tax revenues.

The study was authored by Professors Timothy Considine of the University of Wyoming and Robert Watson of Pennsylvania State University, and Nicholas Considine of Natural Resources Economics, a consulting firm. Nicholas Considine is the son of Professor Considine.

Neighboring Pennsylvania produces over 80 billion cubic feet of natural gas a year. It has 296 wells in the Marcellus Shale, a geologic formation that stretches into New York and West Virginia. Those wells have given the Keystone State an added $1.7 billion in economic activity a year and 18,000 jobs.

Whereas Pennsylvania , Texas, Arkansas, among others, are tapping into their natural gas reserves using a new method called hydraulic fracturing, New York has effectively banned the process, at least for the present, on the grounds that it might cause environmental damage, especially contamination of underground water.

In 2010, then-Governor David Paterson issued Executive Order 41, which bans new drilling permits until the New York Department of Environmental Conservation issues a new Supplemental Generic Environmental Impact Statement. It was due to be published this month, but has been delayed until early September, according to a spokesman for the Department, to allow incorporation of the many comments received.

What is hydraulic fracturing, and why is it so controversial? Also known as hydrofracturing, or fracking, it is a method of extracting natural gas and oil from shale formations and packed sand. Wells are drilled 4,000 to 5,000 feet below the surface, and then sometimes curve to drill horizontally. Fluids are then pushed into the well to separate the gas from the shale and sand and so make it extractable.

Due to the irregular distribution of natural gas underground (small pockets are spread unevenly within the tight rock, like bubble wrap) the only way to remove the gas from the shale is through hydrofracturing and horizontal drilling, say industry experts.

Hydrofracturing techniques have been known since the 1940s, but have recently become more widespread, and therefore controversial, as the long, upward trend of oil prices has made shale formations of natural gas look more profitable.

Hydraulic fracturing has made trillions of cubic feet potentially available, and has driven the price of natural gas down to its current level of $4.69 per million Btu from $7 or $8 per million Btu between 2004 and 2009. As a result of all this, estimates of recoverable U.S. natural gas have climbed dramatically, from 1,100 trillion cubic feet in 1990 to 2,587 trillion cubic feet today.

Natural gas is a cleaner burning fossil fuel with a quarter of the carbon emissions of coal. Emissions from natural gas burning automobiles are 25 percent cleaner than from gasoline or diesel engines. So, one would think that natural gas would be popular with environmentalists.

But environmentalists do not like hydrofracturing, because they are concerned about water contamination. Because wells pass through clean water aquifers, many enviros fear that the chemicals used in a hydrofracturing job will be released into the earth and contaminate the aquifer.

Another concern is the disposal of water used in the drilling process. Typically 25 percent of the water is recycled back up to the surface. Many skeptics worry that the water brought to the surface is dumped directly into rivers and streams, that the lined pits used to hold recycled water contaminate the soil, or that accidents involving the trucks carrying the recycled water could cause irrevocable environmental damage.

Further, the 75 percent of hydrofracked water that remains underground worries people because of possible contamination of the aquifer.

Lastly, water usage itself is a point of contention. The critics point out that hydrofracturing jobs deplete large amounts of water, with large jobs using four to five million gallons.

Some of these worries, while conscientious, are misguided, the Manhattan Institute study explains.

Natural gas deposits, at 4,000 to 5,000 feet below ground, are well below the 500 to 700 feet depth of the water tables. Dense shale rock lies in between the two strata. The rare but well-published cases of water table contamination occurred due to poor casing jobs or improper drilling techniques and were immediately prosecuted by the governmental authorities.

Wastewater from the hydrofracturing process is trucked away or piped to Environmental Protection Agency-certified treatment facilities. Until then, companies store it in steel or earthen-lined pits. Steel pits provide more protection and New York could require steel pits to be used.

Some water is recycled and used again for other drilling operations. Flowback from hydrofracturing fluids has never contaminated an underground aquifer or above ground water source.

A large hydrofracturing project may require four to five million gallons of water. This seems large, but it is small in comparison to total household consumption. Pennsylvania residents use more than 300 billion gallons (62,800 gallons per household) a year. Tax revenues from natural gas exploration can be used to improve state parks and rivers, rendering the environment cleaner than it would have been otherwise.

Professor Considine and his team report that Pennsylvania Department of Environmental Protection data show that between 2008 and 2010, 7.9 percent of wells had serious violations of the stringent regulations placed upon them by the state. These violations occurred not because of the process of hydrofracturing itself, but rather because of improper drilling or poor casing jobs.

In other words, hydrofracturing itself is not the villain. Sloppy drilling and casing are problems-but they are neither inevitable nor pervasive.

Professor Considine calculates that the economic damage resulting from the environmental effects of a typical shale well came to $14,000, low compared with the benefits per well of $4 million. It is impossible to have costless manufacturing of any product or human activity, and the benefits far outweigh the costs.

New York had to close a budget deficit of $8.5 billion in fiscal year 2011, and it faces continued budget deficits in future years. For fiscal health, New York should copy Pennsylvania and develop its natural gas reserves.

Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is senior fellow and director of Economics21 at the Manhattan Institute. Follow her on Twitter: @FurchtgottRoth.   

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