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Frackonomics


Nick Flores[1] is an economist who knows the oil-and-gas industry from the inside, having been in the merchant marines hauling platforms and rigs to sundry locations in the Gulf.  Industry exposure didn’t end there; he was in grad school six months after the Exxon Valdez sullied the Arctic shore and studied first-hand the economics of accidents.  He was not dismayed.  In his words, “Shale gas is a revolution.  It has transformed energy in America.  What we’re seeing now is but the tip of the iceberg.”  He didn’t say from which dwindling sheet it might have been calved.

Eliding Externalities

Yet Flores is not utterly enchanted by the industry.  There is what he terms a problem of externalities, meaning that the full cost of the venture is not appreciated when such “routine” risks as methane leaks and pollution of ground or surface water, and “high-priority” risks such as cement, drill-casing, and wastewater-impoundment failures, are not factored into the economic analysis.  Such externalities are often expensive and not easily addressed, and should be internalized to reflect real costs.

Having lived in San Francisco, which receives water from the Hetch Hetchy water system, a system so pristine it is one of the few for which the Environmental Protection Agency requires no filtration, Flores comprehends the preciousness of pure water.  He wonders what will happen if in our zeal to poke the earth we should inadvertently pollute a major aquifer such as the Ogallala, which underlies eight states and once contained water equal in quantity to Lake Huron.  (It too is dwindling.)  If such an integral resource should be fouled by whatever means, what then?    Part of the damage hits the pocketbook.    In heavily fracked Washington County, Pennsylvania, property values have declined almost 25 percent in places overlying aquifers through which drillers cement their casings.  Is it “right” that property values have declined, or is it just perception?  The answer is unimportant; all that matters is perception’s effect on the market.

Flores notes EPA’s limp-wristed governance of greenhouse gases.  Methane, the major component of natural gas, is utterly ignored.  (Oh, there are voluntary programs.)  EPA may have downsized its prior estimate of how much methane leaks from fracking wells, but that puts it at odds with NOAA‘s recent study.  Who is right?  In any case, geologists and EPA agree that, compared to conventional drilling, hydraulic fracturing leaks more methane.  Fracking fluid is injected and then pumped out (or a percentage is), but it returns laden with natural gas and other disinterred volatile chemicals that if released foul the air around drill sites.   An estimated 90 percent of this “burping” can be captured in a “green-completion” process that caps the well and separates the petrochemicals for later sale.   Even though this is of economic benefit of drillers, however, it is by no means always done; old fields may lack technology while new fields may have neither pipelines nor storage facilities built, and meanwhile methane seeps away.   As you may know, methane in the atmosphere is a serious contender in atmospheric warming.   Atmospheric methane gradually converts to carbon dioxide so it is over the short term that it does its damage.   In its first 20 years, methane’s ability to capture heat in the atmosphere dwarfs that of carbon dioxide 70 times over.

Much like spent rods from nuclear plants and almost as dangerous, wastewater is a facet of fracking often overlooked and underfunded.  Current options include dumping it into often-open holding pools, forcing it into injection wells, or recycling.  Dumping it anywhere presents obvious problems including, with injection wells, persuasive evidence of earthquakes.  Recycling would be great, but it’s not easy to clean water laced with not only heavy metals and radionuclides but dissolved salts, which require reverse osmosis or other exotic means to treat.  (If desalinating salt water were easy, the world would have no freshwater problem, at least not yet.)

Options for dealing with wastewater are under creative review.  Why not ship it away?  (What do you mean there is no away?)  Last March the Coast Guard “quietly” sent to the White House a proposal to put fracking wastewater on barges, said to be safer for transport than trucks and trains.  The toxic brew will be shipped to someone else’s back yard for disposal.  Yucca Mountain anyone?  Frio County, Texas, which is not among the state’s top gas producers but that nevertheless has more disposal wells than the three top gas-producing counties combined, is evaluating a penny-a-barrel fee on disposed wastewater.  The compensation is expected to bring the county over a million dollars a year, which would feed a fund to combat environmental damage.

We have such faith in compensation.  While it comforts the aggrieved and pains the aggressor, that’s often as far as it goes.  And the aggressor’s pain may be tiny indeed.  Caps on damages provide a well-trod path for industry to escape real consequence for their sins.  (Caps can zap citizens on the other cheek when they limit damages for civil suits.)  In the end, let us not forget that no amount of compensation will restore what is irreplaceable.

Subterranean Aquifer Blues

Although groundwater property rights vary widely by state, they generally emphasize water quantity over contamination.  Some landowners may use as much groundwater as they wish without regard for impacts anywhere else.  This is called the Absolute Dominion Rule, and it is codified in 11 states, including Texas.  “Use” in this case would include, I suppose, the right to pollute the groundwater.  Colorado and other western states have adopted a doctrine of Prior Appropriation–the first landowner to “beneficially” use or divert water from underground is given priority over later users.  Now many states have updated this doctrine with a permit system.  Available permits are in hot pursuit; you can guess by whom.

When your well-water starts fizzing, fingering the culprit isn’t easy.  Contaminants act differently underground, like senators behind doors.  How do you prove who polluted the water, and when, and how?  Equally important, what is to be done?   EPA says that much progress on cleaning polluted aquifers has been made.  Wells can shlep contaminated water to the surface for treatment.  This intensive technology works if contaminants contain neither solvents nor oil and so long as the contamination has not spread.  Since fracking fluid and wastewater are excluded and aquifers tend not to be contained, EPA’s assertion seems delusional.

Market Memes

Small producers lose their shirts in these times of low gas prices, so one might wonder why they keep drilling.  Two reasons.  Leases may mandate that lessees use their drilling rights or lose them.  And prices may be low now, but just wait.  Prices for natural gas in other areas–Japan, Europe–are much higher.  It costs to convert gas to liquefied natural gas for long-distance transport, but producers have their eyes on the prize and preparations are being made.  US prices will then rise; it won’t go the other way around.

It wasn’t so long ago that energy prices were rising in the face of looming energy scarcity.  Very quickly shale-gas production has reversed that.  In the first decade of this century, US gas production went from almost none to more than 10 billion cubic feet per day.  In 2012, shale gas was 50 percent of the gas market; by 2035, Flores says, the percentage should swell to three-quarters.  If oil imports diminish and “petro dollars” remain in the US, the dollar should be fortified and economic growth fueled by this bonanza.  That is, to the extent that the bonanza remains both at low prices and here.  And to the extent that climate change does not rudely intervene.

Natural gas may burn cleanly but it remains a fossil fuel.  Our dependence on fossil fuels is irrevocably changing our world while we tend to our piquant concerns.  Even if less is escaping at wellheads, incalculable amounts of methane now erupt from thawing Arctic tundra and waters.  Will depleting a new fossil fuel will be our salvation?

via OpEdNews – Article: Frackonomics.

via OpEdNews – Article: Frackonomics.

Top selling herbicide has been shown to kill human cells ~ RiseEarth


The top selling herbicide on the market has been shown to kill human cells in independent studies. While this particular herbicide, with the main ingredient glyphosate has been deemed safe for use, only the main ingredient is being tested; neglecting the other ingredients which make up the compound.

Listed on the ingredients label of a pesticide or herbicide is the active ingredient, in this case, glyphosate, as well as inert ingredients – the inactive ingredients, or those which don’t kill weeds or pests. Some of the inert ingredients may not be specifically labeled or it will say “other ingredients” to protect trade secrets. The inert ingredients are concerning some scientists because lab studies have shown that an inert ingredient – polyethoxylated tallowamine (POEA) – commonly mixed with glyphosate, have been shown to kill embryonic, placental, and umbilical cord cells. In fact, it is more harmful to these human cells than the glyphosate itself, and even at levels far more diluted than what is used on the average farm or garden.

This is concerning because Americans use this product very liberally. To be specific, around 100 million pounds of the herbicide are applied to American farms and lawns every year. Perhaps the reason for its popularity is the idea that it is safe. Both the EPA and the Department of Agriculture recognize POEA as an inert ingredient and state that there is strong evidence it doesn’t cause cancer, and they can find no risk factors concerning. In fact, this ingredient, which is derived from animal fat, can be used in USDA certified organic products. However, these findings strongly contradict what a French study claims.

According to the French study, the tested formulas which included glyphosate and POEA, together and separately, all killed umbilical cord, placental, and embryonic cells. The scientists also hypothesized that this can cause problems during pregnancy not only because of the cell damage but it can interfere with hormone production as well. This is a far cry from what is considered so safe and nontoxic that it can go into USDA organic certified ingredients.

In 2009, Argentina petitioned for a ban on glyphosate after research came out showing the severe health and environmental effects suffered in areas sprayed with glyphosate. Birth defects, stillbirths, miscarriages, infertility and cancer were all pressing problems emerging in sprayed areas; lab studies confirmed these issues with deformities showing up in frog and chicken embryos. Furthermore, acute environmental effects included dead crops and livestock as well as waterways polluted with dead fish.

A Swedish study, conducted in 1999 showed a strong link between exposure to glyphosate and non-Hodgkin’s lymphoma– a form of cancer.

Either the FDA‘s definition of safe differs greatly from others’ definitions, or the FDA is siding with large corporations by allowing such a toxic compound to come to market.

– See more at: http://www.riseearth.com/2013/03/top-selling-herbicide-has-been-shown-to.html#more

via Top selling herbicide has been shown to kill human cells ~ RiseEarth.

via Top selling herbicide has been shown to kill human cells ~ RiseEarth.

BP suspended from US federal contracts over ‘lack of business integrity’


BP has been blocked from seeking new contracts with the US government because of the oil company’s “lack of business integrity” during the Gulf of Mexico oil disaster, the Environmental Protection Agency said Wednesday.

The temporary order bans BP from competing for new oil leases in the Gulf of Mexico – such as the auction of 20m acres taking place on Wednesday – or from bidding on new contracts to supply the Pentagon or other government agencies with fuel.

While the ban does not affect existing business, it raises wider questions about the company’s future in a crucial market.

The type of suspension imposed by the EPA typically does not last more than 18 months. But an official said that in this case the ban could be extended because of the ongoing legal proceedings. That could mean BP, the largest oil producer in the Gulf of Mexico, would remain under an extended moratorium until all criminal charges and law suits are resolved.

BP was clearly taken by surprise and struggled to explain the impact on its business. Its shares fell nearly 2% in London as investors reacted with dismay to the news which puts a major dent in the company’s already battered reputation.

The finance director of the London-based oil group warned investors at a recent presentation that any outright ban could “affect BP’s investment thesis in the US“.

The order was handed down just two weeks after BP agreed to plead guilty to manslaughter and other charges arising from the April 2010 explosion of the Deepwater Horizon oil rig, as well as pay a record $4.5bn in fines.

The oil company, in announcing its plea deal with the Justice Department earlier this month, had specifically said it did not expect to be barred from future business dealings. “Under US law, companies convicted of certain criminal acts can be debarred from contracting with the federal government,” the company said in its statement at the time. “BP has not been advised of the intention of any federal agency to suspend or debar the company in connection with this plea agreement.”

The EPA said the suspension was based on BP’s conduct at the time of the blow-out as well as the 87 days it took to contain the well. Some 4.9m barrels of crude gushed into the Gulf of Mexico before it was finally capped.

“EPA is taking this action due to BP’s lack of business integrity as demonstrated by the company’s conduct with regard to the Deepwater Horizon blowout, explosion, oil spill, and response, as reflected by the filing of a criminal information,” the announcement said.

The announcement went on to describe the oil spill as the “largest environmental disaster in US history”.

It said BP would remain under suspension, and barred from new federal government contracts and transactions, until the company can demonstrate that it meets federal business standards.

“Federal executive branch agencies take these actions to ensure the integrity of federal programmes by conducting business only with responsible individuals or companies. Suspensions are a standard practice when a responsibility question is raised by action in a criminal case,” the EPA announcement said.

The agency gave no further details about the duration of the suspension, and the potential costs to BP were not immediately clear.

In its response, BP said the ban would not affect existing business. “The temporary suspension does not affect any existing contracts the company has with the US government, including those related to current and ongoing drilling and production operations in the Gulf of Mexico,” BP said.

The company said it was working with EPA and the US Justice Department to lift the suspension. “The EPA has informed BP that it is preparing a proposed administrative agreement that, if agreed upon, would effectively resolve and lift this temporary suspension. The EPA notified BP that such a draft agreement would be available soon,” the statement said.

The press release also noted that BP had been granted more than 50 new leases in the Gulf of Mexico since the oil disaster.

Peter Hutton, an analyst with RBC Capital Markets, said the EPA action had “real significance”, especially as it came days after Lamar McKay, the head of BP in America, was promoted to head of global exploration and production.

“The critical question is whether this is a shot across BP’s bows to get a settlement, or a more sustained stance, in which case the importance of the context is underlined by comments from BP’s chief financial officer, Brian Gilvary, in a recent conference call that such actions could ‘affect BP’s investment thesis in US’.”

But Joe Lampel, professor of strategy at the Cass Business School in London, said while the ban was a blow to BP the damage should be relatively limited.

“This suspension should be seen as an additional penalty rather than a pressure tactic that the US government often uses when it wants to force firms to concede liability. We do not know how long the ban will last, but I suspect that it will be lifted after a sufficient grace period has passed.”

In its attempt to consign Deepwater to the past, BP has agreed to pay $7.8bn to settle private claims stemming from the spill, and with the plea deal reached earlier this month, had hoped to limit its criminal liability. It is still on the hook for up to $21bn for environmental damage to the Gulf. Wednesday’s move by the EPA presents an additional complication.

Meanwhile, two BP rig supervisors appeared in a New Orleans court on Wednesday to be formally charged with manslaughter in the deaths of 11 workers aboard the rig. The supervisors, Donald Vidrine and Robert Kaluza, are accused of ignoring abnormal pressure readings seen as a red flag of a well blow-out.

Kaluza told reporters just before his hearing that he was innocent of the charges. “I think about the tragedy of the Deepwater Horizon every day. But I did not cause the tragedy,” he told reporters at the court. “I am innocent and I put my trust, reputation and future in the hands of the judge and jury.”

A former BP executive David Rainey was charged separately for allegedly lying to Congress about the amount of oil that was gushing from the well. All three men were expected to plead not guilty.

The EPA action was positively received by a number of key players, including former senator Bob Graham, who had chaired the White House oil spill commission. “I can’t put a dollar figure on what that would mean but I would assume that access to one of the larger reserves of petroleum in the world – which the Gulf of Mexico is – would have some economic consequences. And the longer the prohibition, the greater the consequences,” Graham told the Guardian.

He went on to praise the Obama administration for holding the oil company to account.

“I think sending a very strong signal that the federal government is going to be a much better steward of public property and that those who are permitted to explore and then potentially exploit those public properties are going to have to conduct themselves by world-class standards,” Graham said.

Campaign groups also applauded the move by the EPA. But the Oceana conservation group said the tough line from the Obama administration was undercut by its decision to go ahead with new lease sales in the Gulf of Mexico on Wednesday.

“We are pleased that BP is being penalised for the irresponsible actions,” said Matt Dundas, the campaign director. But he went on: “Overall, President Obama is missing the lesson of the Deepwater Horizon disaster which is that offshore drilling is inherently dirty and dangerous and needs to be phased out.”

via BP suspended from US federal contracts over ‘lack of business integrity’ | Environment | The Guardian.

via BP suspended from US federal contracts over ‘lack of business integrity’ | Environment | The Guardian.

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