-----

Resources



Market News

 January 09, 2012
Will Ohio Regulators Kill the Natural Gas Bull Market?

 

I was 12 years old when I experienced my first earthquake... though at the time, I didn't even know it.

I was in my bedroom while my parents were in the basement.

The house shook slightly, and my father yelled up to me, "Quit jumping around up there!"

Baffled, I attempted to explain that I was only reading and not jumping around. I was quickly disciplined for lying.

(The next morning --- after we found out it was an earthquake --- my father laughed and apologized for yelling at me.)

Since then, I've experienced two more earthquakes. Both happened last year, and both were intense enough to get my heart racing.

Growing up on the East Coast, I have little experience with earthquakes. And I know I'm not alone.

In fact, after a magnitude 4.0 earthquake shook the city of Youngstown, Ohio, last week --- a place with no history of earthquakes at all --- folks got real anxious and starting asking a lot of questions.

Was it just a random event?

Was it a prelude to the Mayan Armageddon?

Was it those fracking wells that some have warned us about causing earthquakes?

The Devil is in the Details

It's highly unlikely that the recent earthquakes that shook Youngstown, OH, were just random events. And I'm not confident that the Mayan calendar serves as an accurate predictor of the end of the world.

No, for the good people of Youngstown, it is extremely likely that their recent earthquake experiences have something to do with fracking.

Now before you start drafting any hatemail or criticize me for being anti-jobs, understand that I'm not saying that all our hydrofracking operations are causing earthquakes...

There's absolutely no data to support such an argument --- and quite frankly, if this were the case, we would've been aware of this problem when fracking first started decades ago.

The fracking connection to the Youngstown earthquakes isn't actually a result of the actual hydrofracking, anyway; instead, it seems to be connected to the deep underground injection of wastewater that was generated during the fracking process.

According to John Armbruster, a seismologist Ohio regulators brought in to monitor the earthquakes:

Youngstown is an area which doesn't have a history of earthquakes. This disposal well started operating in December of 2010.

Three months later, the earthquakes began and the earthquakes are trickling along. From March to November, you have nine earthquakes, all of a similar size, 2.5, 2.1, 2.7.

On Christmas Eve, there was a magnitude 2.7 earthquake. Our location of that Christmas Eve earthquake was about one kilometer from the bottom of the well and the location of the earthquake was sufficient evidence that there could be a link.

Following the well-publicized coverage of Armbruster's analysis, many residents of Youngstown started questioning whether or not it was worth it to host all these disposal wells.

Certainly lax regulation in Ohio has made it a prime location, but with all these recent earthquakes, changes could be coming.

Even Earthquakes Can't Stop the Bull Market

I don't know if we'll necessarily see stricter regulations in Ohio. But I do know that when you consistently trigger earthquakes in regions where earthquakes are uncommon, business as usual will not be an option...

Especially in this case, where you'll find little support for oil & gas lobbyists reciting the "You can't prove it" line that's become a common refrain for decades.

When the earth rattles, people reassess the trade-off for the sake of economic recovery promises.

That being said, this is not something that will slow the domestic production of oil and gas in the United States. In fact, I would argue that it will make it safer and more efficient, which, despite what some media whores might tell you, is actually a good thing for our country.

We certainly require increased oil and gas production. Might as well do it in a way that poses less of a threat to our natural capital.

Going forward, I believe the oil & gas industry will absolutely have to address this issue. There's just no way they're getting around it.

So there are two possible approaches they're likely to take.

The first is quite simple...

You see, there are disposal wells all across the country. But only a very small percentage are being linked to earthquake triggers, because not all disposal wells contain brittle basement rock riddled with faults.

So going forward, it's possible that many of these operations will simply pony up for seismic surveys before proceeding. Rest assured, no oil & gas company actually wants to see a repeat of these earthquakes anywhere else.

Another option is for these operations to recycle the water instead of injecting it into waste wells.

I attended the subcommittee on natural gas in D.C. last year, and I found that most oil & gas companies are actively developing their own wastewater recycling processes.

There are also a number of companies that provide water recycling services for fracking operations. But at the end of the day, I think that if the oil & gas companies decide to go this route, they'll just do it themselves, and not outsource those kinds of operations.

Point is, even earthquakes can't stop the domestic production of oil & gas. This is a done deal, and there's no turning back.

Although lately, I have noticed more "big money" interest in domestic production operations that haven't had any earthquake issues like the ones in Youngstown...

Particularly in the Three Forks location, where there are about 2 billion barrels being developed right now.

I'm actually capitalizing on some of that action myself.

Here's a link if you want to see a detailed map of the Three Forks location for yourself.