All fracked up: Manufacturers, energy companies shift gears

[Editor's note: The Environmental Protection Agency on Wednesday unveiled the first rules regulating pollution from hydraulic fracking for natural-gas wells. Read more about this issue in "Leading gas companies already meet EPA's 'fracking' air pollution standards" and "Storify: The collective wisdom on fracking."]

Last week, Joe Nocera reminded me of how disconnected and angry the debate over fracking -- the process of injecting fluids into deep, dense rock formations to fracture them and release natural gas -- has grown. At The New York Times Energy for Tomorrow conference, Nocera moderated a series of panels that were focused on a broad variety of energy issues, but repeatedly returned to the hot button issue of fracking.

In a rhetorical question, he asked if the tradeoff in environmental harm and public health one we just have to accept. The answer is no, of course. But, as Nocera added, the fact is that fracking is already happening in a very big way. For those not following this issue, he’s an op-ed columnist for the Times who supports fracking as an innovation that, done responsibly, can lead to game-changing new supplies of energy, job growth and economic expansion.

Nocera’s position crystalizes much of the debate around this energy technology. His writing has drawn ire, especially in greater New York City and its hinterlands, where proposals to drill for natural gas in the city’s upstate watershed have sparked enough protest to turn the Hudson Valley into the epicenter of national anti-fracking efforts.

There’s good reason for alarm. ProPublica, a nonprofit investigative journalism entity has -- in my opinion -- amassed the best work documenting the environmental harm done by fracking. Here are just a few of the key environmental harms associated with the practice:

These issues make a strong case against the practice, and explain why Nocera’s “develop responsibly” position is controversial. The mixed reactions to his endorsement of the practice highlight the schisms dividing interest groups, coming between neighbors who are fighting over whether to frack or not and between national environmental groups who disagree about the environmental pluses and minuses of the practice.

For example, Nocera draws some of his analysis from work done by the Environmental Defense Fund, which is also pushing for tightly regulated fracking. Nocera’s approach has drawn heavy fire from climate activists such as Bill McKibben, a writer and scholar who backs a moratorium, arguing the risks of fracking are simply too high, as well as from Joseph Romm, a former Clinton-era energy official and now an influential climate commentator at Climate Progress.

Putting aside the fight over whether fracking should extend into new areas, Nocera’s talk drew my attention to a facet of fracking that gets less attention. Away from the main boxing ring where the issue is being fought out, large-scale industrial investment is rapidly reorganizing based on the long-term promise of low-cost gas. In short, industry is betting that fracking is here to say. Here’s where fracking already is impacting industry:

Power generation

The fracking binge has already altered the outlook for the U.S. power and manufacturing sectors. More than the rise of renewables, cheap natural gas has paved the way for the retirement of more than 100 coal-fired powered plants, too aged to meet federal clean air rules.

Efforts to build new coal plants are constrained too. Because natural gas power plants are cheaper to build and fuel, the natural gas boom has radically lowered the count of new coal-fired plants being proposed. According to data tracked by the National Energy Technology Lab and Sierra Club, plans for more than 160 coal plants have been shelved in recent years, partly due to natural gas’ cost advantage, as well as soft growth of demand for power.

“Natural gas has done more than other legislative initiative to push coal out of the equation,” said panelist Michael Levi, a senior fellow for energy and the environment at the center for foreign aaffairs, and by my reckoning, one the smartest observers out there on this issue.

Manufacturing

Cheap natural gas is rewriting the rules for other manufacturers too. Less than a decade ago, natural-gas-reliant manufacturers were decamping from the U.S., transplanting operations to the Arabian Gulf, Latin America and other gas-rich regions.

Now many are returning. Makers of chemicals, fertilizer and pharmaceuticals, all of which use natural gas as both an energy source and a raw material are returning stateside, lured by natural gas for under $2.50 per thousand cubic feet, less than fifth of the price in Europe or East Asia.

As Jim Motavalli reports in The New York Times, Nucor, which uses natural gas to make steel, is building a $750-million facility in Louisiana, just eight years after shutting down a similar plant in the same state and shipping it to Trinidad, to tap the island’s recently-developed natural gas supplies.

The cost advantage provided by cheap natural gas is even sharper for companies that use methane as a raw material -- to make plastics, for example. Kevin Swift, chief economist at the American Chemistry Council, tells the Times that because European chemicals companies use oil-based raw materials derived to make plastics, the U.S. has a 50-to-1 advantage. “‘Shale gas’ is really driving this,” he says. “A million [British thermal units] of natural gas that might cost $11 in Europe and $14 in South Korea is $2.25 in the U.S. Partly because of that, chemical producers have plans to expand ethylene capacity in the U.S. by more than 25 percent between now and 2017.”

Add up the impact of investments like these and high rates of shale gas recovery could result in a million new manufacturing jobs by 2025, according to a 2011 PricewaterhouseCoopers study cited by Motavalli.

Transportation

Compared to current petroleum prices, natural gas costs $1.50 per gallon equivalent, nearly two-thirds less than current pump prices for gasoline or diesel. Large fleets of heavy-duty vehicles -- from buses to garbage trucks to delivery vehicles -- have been among the earliest converts. One-quarter to a half of Navistar’s new vehicle sales in these markets opt for natural gas.

Long-distance highway trucking may be the next to switch. Speaking with the Times, Navistar chief executive Dan Ustian, predicts that natural gas could capture up to a fifth of sales of highway tractor-trailers within a year.

The need for on-road refueling infrastructure remains a constraint. There simply aren’t many publicly accessible natural gas refueling sites. The count is under 1,000, less than 1 percent the number of gas stations. Last month, GE and natural gas producer Chesapeake Energy inked a joint venture to build 250 natural gas refueling points around the country.

Policy

Industry is clearly digging in even as environmental opposition gains momentum. Complicating the politics of this debate is that fracking is an intensely regional issue. State-level cultural perceptions of energy vary, for instance. Some families in Texas welcome gas rigs in their backyards, while some landowners in New York are suing to prevent nearby drilling.

Geology is different everywhere too, of course. So what was done safely in Oklahoma may not be replicable in Pennsylvania. “Local conditions matter significantly,” said Mark Brownstein, a panelist at the Times event and chief counsel for the Environmental Defense Fund’s energy program.

These polarizations have driven the debate to unproductive levels of ire, the panelists at the NYT event argued. “This is the perfectly dysfunctional fight,” said Levi, from the Council on Foreign Affairs. “There are environmentalists who believe this cannot be done safely. And there are those in the industry who say regulations will destroy their business.” The loudest voices amount to an all-or-nothing proposition, Levi added, which makes the process of brokering a solution to the fracking question very difficult.

There is a web of substantial existing regulation covering fracking, Brownstein explained, including the Clean Air Act, and the Clean Water Act. “The fundamental question is whether they are sufficient,” he said, and how to improve them if not. Another weak link he pointed to is variations in state level rules and enforcement of well construction, where one poorly built well, after all, can do enormous environmental damage.

Indeed, pointing to these weakest links, Levi made a case for the role of federal regulation. If one state underinvests or underenforces, a single disaster could stir up a far-reaching political backlash that could ultimately slow or halt development.

Some state-level policies, such as Texas’ tough disclosure rules on what frackers inject into the ground, can be cut and pasted to other state or national rules. New York State’s rules are also shaping up to be a benchmark in this respect. And some rules, such as the “Halliburton exception,” which excluded fracking from Clean Water Act standards for what is injected into wells, can only be fixed by an act of Congress.

With the scale of fracking rising, the stakes to get regulation right are growing -- and making the fight harder to resolve. Some in the industry are beginning to welcome tougher regulation, recognizing that it could help level the playing field. If tougher regulations could ensure fracking can be done safely, but added 10 or 20 percent to unit cost of gas, the fuel remains cheap, Levi pointed out. “If I were a fracker, I’d rather have 20 cents extra charge” than the environmental and political risks facing the energy today, he said.

Photo of hand of the driver by AlexussK via Shutterstock.

Check out Nocera, Levi, Brownstein and others here at The New York Times Energy for Tomorrow conference.