Who pays the real costs for oil from shale?

by Kurt Cobb

Resource Insights, December 19, 2010

If you externalize the costs of a business activity, it means other people pay the costs—environmental, social and otherwise—and you get the profits. It goes on all the time in extractive industries such as oil and natural gas and mining. And, it is also a natural strategy for manufacturers who dump their pollution into the air and the water.

It’s even practiced in finance where the executives of Wall Street banks have managed to collect the bonuses made off a phony boom in the last decade and saddle taxpayers with the losses of the inevitable bust caused by bad and often fraudulent loans, misleading derivative contracts, and leveraged speculation in stocks and commodities.

If the loopholes are there, you can be assured that people in business will take advantages of them. That’s exactly what is happening in the business of shale gas drilling. Drillers are exempt from federal clean air and water regulations under a bill shepherded through Congress in 2005 by none other former Halliburton CEO Dick Cheney in his capacity as the then vice president of the United States. (Halliburton is one of the world’s largest providers of drilling fluids for shale gas drilling and other oil and gas drilling operations.)

That means the drillers can externalize the environmental costs of these hazardous fluids and other materials needed to fracture the shale and thereby free the natural gas. They can foist those costs on nearby residents in the form of ruined water supplies, toxic air pollution, poisoned land, and health problems for humans and animals.

The environmental and health horrors associated with shale gas drilling are now in the news on a daily basis. But I have begun to think about the issue in another way. All of these externalized costs have an energy cost. And, the toxic fracturing fluid—millions of gallons of which are pumped into each and every shale gas well—will stretch out the time frame during which such costs are borne.

No one knows what will happen to the half of that fluid which never returns to the surface during operations. There is concern that it could migrate to drinking water aquifers and destroy the drinking water not just for the few who happen to live near a drilling site, but for people living in huge swaths of the United States by polluting water sources for large cities such as New York.

Now, of course, that water could be cleaned up if it becomes toxic. Already shale gas drillers are having to provide filtering systems for people whose well water has become contaminated. In some cases, even this isn’t enough, and water must now be trucked in to families whose water is no longer fit to drink even with filtering.

In order to judge whether shale gas will provide any net energy to society, we must first decide where to set its system boundaries. It is hard to know exactly where to stop spatially: Should we, for example, include the energy needs of a family dependent on a worker at a subcontractor that provides software services to the driller? But, it is even harder to know what time frame to use.

One thing is certain. The legacy energy costs of doing shale gas drilling will not disappear anytime soon. The country and its people could be paying the externalized costs of such drilling decades after it ceases to provide any material benefit to society.

If New York city is forced to expend considerable energy to purify its water to clean out toxic chemicals leaching from wells in its watershed 50 years from now, how shall we then judge the presumed bounty of energy that shale gas supposedly represents?

The same kinds of questions have been raised about nuclear energy. If one takes into account the entire energy cost over time of building, operating, decommissioning, and then protecting decommissioned plants and their wastes—wastes that will remain dangerous for conceivably tens of thousands of years—it is possible to understand why some people claim that nuclear energy provides no net energy to society. Rather, it burdens future generations with huge legacy energy costs. We who are alive today get to externalize the energy costs of nuclear power by foisting them on future generations. This is probably the only way that one can consider nuclear power—as it is currently configured—an energy source rather than an energy sink.

I believe we may ultimately find that shale gas is nothing but an energy sink. It will provide net energy for a while to those who are living now while burdening future generations with huge cleanup costs that, in terms of energy, may equal or exceed the energy gain we are currently receiving from this supposedly “clean” energy source.