The US experience provides a glimpse of our potentially prosperous but unsettling future, if we let loose a gas and oil fracking boom. By Hamish McDonald.

The underground economy of fracking

When he found this patch of land in a West Virginia valley, where two streams join together on their way to the Ohio River, Larry Barr thought he’d found a refuge from the memories of Vietnam and the hellish din of his work underground in the coalmines.

Here in Mobley, Barr and his wife Elva raised their three kids. They fattened cattle on the green flats, ran some hogs and grew some field corn. Larry restored a ’67 Pontiac in his garage.

“Sure was quiet then,” Barr says. “I wanted to be left alone when I came back [from Vietnam]. Then all this bullshit happened later.”

About 100 metres from the Barrs’ neat house between the stream and the road, a dozen gleaming red Mack trucks are parked side by side in a compound. Heavy diesel engines are rumbling, and clouds of dust whirl.

Behind the trucks a crane dangles a long red pipe over what looks like an oversized fire hydrant but is actually the head of a well drilled down and horizontally out into a shale formation two kilometres underground. Soon this pipe, a “perf gun” packaged with explosives, will be pushed down the well and set off to fracture the shale. The 2000-horsepower pumps on the truck trailers will roar into life, working to pump water and fine sand down the well to keep the shattered shale from closing up again and to allow its trapped natural gas to flow.

Millions of litres of water will flow back, turned to brine with dissolved salt and potentially some toxic compounds of barium and strontium, plus some radium and radon with short-life radioactivity. Shuttles of tanker trucks will take away the brine – no one here is quite sure where – to be evaporated off in ponds or injected deep underground in other wells, hopefully to stay put.

This is gas fracking, or “hydraulic fracturing” to be technical. The worst of it will be over for the Barrs when the well is fracked. But the permanent feature is a network of pipes, running out to a separator plant across the road to strip out petroleum condensates and water from the gas, a collection tank installation looming on the hillside above their home, and large artificial ponds along the valley to collect the creek water for the next round of fracking.

There is not much Barr can do about it. His neighbour sold his land, where the drilling pad is now located, to the gas company, Pittsburg-based EQT. Even Barr’s own land is open to the frackers. A jumble of older gas pipes, covered in rime ice, stands in a corner of his meadow, quiet now but loudly whirring when the gas is flowing. The company has built a timber wall around it, a sight-screen that doesn’t do much about the noise. 

Under the so-called split estates prevailing in West Virginia and other US  states, rights to underground resources can be acquired and traded separately from the surface ownership. “The mineral right trumps the right to the surface, whether you’ve been there four months or many generations,” says Bill Hughes, an industrial electrician with 32 hectares in nearby Wileyville.

1 . Australian projects

The fracking wave seems unstoppable, and the US experience explains the immense business and political pressure to repeat it in Australia − initially with the shallower and easier coal seams of the east coast, and imminently with the shale formations of Western Australia.

Nearly 20 companies have drilled 3500 coal seam gas wells here, mostly in Queensland where they supply 90 per cent of local gas needs and have developed a liquefied natural gas export industry. With about 260 wells opened, the industry in New South Wales is meeting fiercer political resistance over plans to extend drilling on the north coast and in the Pilliga forest.

This would dwindle in comparison if a shale gas boom kicks off here along American lines. Technically recoverable gas reserves are estimated at nearly 400 times Australia’s existing yearly natural gas usage. With WA alone holding the world’s fifth-largest reserves of shale gas, its state government has just issued regulations for its exploitation.

Prime Minister Tony Abbott appears likely to embrace the prospect of “unconventional” oil and gas when he travels to Canada and the United States next week on his current overseas trip. His like-minded conservative counterpart in Canada, Stephen Harper, is furiously pushing development of Alberta’s tar sands, which leave toxic mountains of carbon powder once the heavy oil is extracted and sent to US refineries.

The availability of shale gas is critical to US President Barack Obama’s legacy scheme announced this week to wean America off coal-fired power generation. After meeting Obama, Abbott will lead a business delegation to Houston, the Texas oil and gas industry base, where he will no doubt hear glowing accounts of fracking in the state’s Eagle Ford Shale.

2 . Gas-fracking boom in the US

The US shale-gas boom took place rapidly. In West Virginia, the first wells were drilled in 2007 by Chesapeake Energy, founded by ebullient Oklahoma oil billionaire Aubrey McClendon. Since then, Chesapeake and other operators have drilled thousands of wells, a frenzy matched in other prospective shale areas in Texas and North Dakota.

Fracking for gas and “tight” oil in shale formations has changed the settings of the American economy, and caused ripples in energy markets worldwide. The US imported 60 per cent of its petroleum in 2005. The figure has fallen to 33 per cent now, helping lower the trade deficit to the lowest in four years. Industry claims the US is actually on the verge of becoming a net oil exporter, likely to surpass Saudi Arabia and Russia in production in a year or two, though this is seen by some as based on unrealistic projections.

Domestic oil and gas output has helped America’s recovery from the 2008 recession. With domestic gas prices one-third of Japan’s, the gas boom has been the equivalent of a tax cut for householders, and a boon for industries such as  petrochemicals and glass-making. Mohsen Bonakdarpour, of consultancy IHS, adds up $US216 billion in planned investment in gas production and handling out to 2025. By then, he told a recent gathering at Washington’s Centre for Strategic and International Studies, fracking will have added $US533 billion to the US gross domestic product, or about $US3500 a household, and 3.9 million jobs.

A widely claimed side effect is that the gas boom has lowered US carbon emissions to 1994 levels. “The energy market that we are staring at: that is the solution to the climate change,” US Secretary of State John Kerry told a conference in Germany recently. Australian miners make the more modest claim that gas from coal seams and shale is an important “transitional” fuel between coal or heavy oil and future no-carbon energy sources.

US gas producers have been lobbying for years to have lifted Washington’s ban on petroleum exports, applied in the 1973 first “oil shock”, so they can chase higher prices in Japan and other markets. Seven liquefied natural gas export terminals are in various stages of regulatory approval. Cheniere Energy’s plant in Louisiana is under construction and due to begin shipping to India, South Korea and European buyers in 2017.

Freedom to export would rob American consumers of the benefit of cheap gas, as domestic prices would inevitably come closer to internationally traded levels. It would be likely to do so without delivering a much-hoped-for manufacturing “renaissance”. Companies such as Dow Chemical aren’t labour-intensive. Bonakdarpour’s estimate has only 500,000 manufacturing jobs among the 3.9 million total added by 2025. The addition to yearly GDP growth is about 0.2 per cent. The better US trade balance would meanwhile appreciate the US dollar by about 7 per cent, giving a mild dose of the “Dutch disease” affecting energy-exporting countries such as Australia.

Australia is also seeing a push for its new gas supplies to be traded at international prices, which would push up energy costs for domestic industries and households. A scientific panel reporting to the prime minister, grandly named the Australian Council of Learned Academies, last year gave a conditional nod to shale fracking in the west, but pointed out a sharp rise in prices would be needed to make it economic.

3 . Environmental threat

The environmental tradeoff is also more tentative than Kerry thinks. Stray methane emissions from drilling and processing can be more harmful than carbon dioxide above quite small levels. No one is quite sure how much is escaping, partly because in most states environmental protection agencies are starved of resources and directed by political cliques close to energy producers. A study by Cornell University engineering professor Anthony Ingraffea found 3.6 to 7.9 per cent of gas production escaped unburnt into the atmosphere, far higher than the level estimated to make the tradeoff with coal worthwhile.

Fracking shale requires vast amounts of water, much more than coal-seam fracking, and produces flow-backs of polluted brine. The protection of water resources depends on the soundness of well casings left for decades, long after operators have moved on or dissolved, and on safe disposal of the brine from fracking. Ingraffea’s studies indicate more than one in 20 wells in West Virginia’s shale show well-casing failure, leaking into aquifers. This is the biggest vulnerability of the gas boom, says Trevor Houser, of New York energy consultancy Rhodium Group – a potential political and social risk. “If a rogue operator hits drinking water it could create a backlash against fracking.”

Meanwhile, the US gas boom has virtually killed off investment in alternative energy sources such as biofuels and wind power. Demand for fuel-efficient cars has eased. Domestic oil replaces imported oil. A price increase for gas would put coal-fired power stations back in contention: they haven’t been closed, only switched to gas where that is a technical option. Reduced demand has led to US coal companies dumping cheap coal into Europe and Asia.

4 . Community damage

For the millions of Americans who live nearby a fracked well, it has been a burden of noise, diesel fumes and dust, unseen emissions of gas, and constant heavy vehicle movements. Opponents to fracking in Australia, such as residents of Kyogle on the NSW north coast, fear a similar fate for our communities.

“It just destroys the quality of life, whether you are a farmer or just a rural resident who goes to town to work,” says retired chemistry professor Tom Bond, in Lewis County, where his family has farmed since 1779. In Mobley village, Larry Barr turns from the EQT drilling pad to gesture to his house and willow-lined stream. “Who would buy it?” he says. “You interested? If you could sell it at all.”

“Not only do you go down 7000 feet and fracture the shale,” adds Bill Hughes, the electrician in Wileyville, “but you fracture the community.”

This article was first published in the print edition of The Saturday Paper on June 7, 2014 as "Underground economy".

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Hamish McDonald is a Walkley Award-winning foreign correspondent.

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