What the Frack?

We had dinner with friends the other night, and our hosts told us they were starting to get involved in the fracking fight in Fort Collins and eastern Colorado.

I know a little about the fracking process, though not a lot. I know enough to know that when things go wrong — and they always do — really bad things happen: like your tap water catching on fire.

Somehow, the assurance that, “Don’t worry, we’re professionals (who have a huge financial stake in this project), nothing can possibly go wrong!” rings even more false than usual. Isn’t that pretty much what British Petroleum assured us shortly before they offered up a new Louisiana cuisine specialty, “Black Shrimp?” Isn’t that pretty much what the US government assured us just before they invaded Iraq? I remember my bank’s financial advisor nearly begging me to keep my father’s money in the stock market in October of 2008, and we all know how that turned out. Good thing I’d already stopped listening to “experts” of this stripe.

Anyway, one of the more amusing arguments in this fracking fight is that, since the landowners in eastern Colorado have mineral rights to the oil under their land, they want to claim The Guv’mint is trying to take away their property rights.

Hold on there, Mister John Galt. Engage brain before opening mouth.

No one — I repeat, no one — is trying to prevent landowners in eastern Colorado from exercising their mineral rights. They’re more than welcome to pump that oil right on up, every last drop of it, just like they’ve been doing for decades.

What people object to is pumping toxic chemicals, plus a large fraction of our rather scarce Western water, into the ground to potentially contaminate wells and public water supplies all the way into Kansas and Texas.

It’s like dynamiting fish. You know, where you light a stick of dynamite, throw it over the edge of the boat, and wait for all the dead fish to float the to surface? There’s a little, itsy-bitsy problem with that, called Lots and Lots of Dead Fish. Way over your catch limit, to be sure, but the real point is that it’s also way over your ability to clean up the mess. People who dynamite fish somehow expect to just drift away in a boat full of fish, laughing and drinking beer, leaving behind a dead lake that becomes a serious public health hazard for someone else to clean up.

No one wants to stop people from fishing the lake. They just want to prevent stupid, short-sighted, greedy individuals from creating a major public problem.

It’s exactly the same thing here. No one cares if the landowners in eastern Colorado find oil under their land and pump it to the surface and sell it. No one cares if they get on their knees and pray it to the surface. The problem is fracking.

Of course, I’m a worthless city-dweller, so my opinion doesn’t weigh as much as a fart in this fight. The way it seems to be shaping up is between Big Agriculture and Big Oil, contending over water rights.

Most people don’t know this, though it’s a matter of public record (which is where I found the numbers): 83% of all water used in Larimer County is used by agriculture. That’s right — all non-agricultural use, from flushing city toilets to filling public swimming pools, from industrial plants to suburban lawns, accounts for only 17% of the water used in the county. Agriculture takes a LOT of water.

So does fracking.

I don’t know the precise fraction of the available water that is needed for fracking — I’d guess, all of it, if they could get it — but I do know there isn’t enough water to share nicely. So the real fight is Big Ag versus Big Oil. We citizens are just spectators.

Hard to say how the fight will come down.

Personally, I think the frackers will win, because they represent more faithfully the side of short-sighted, destructive Greed. And I am a political cynic, loathe to underestimate the stupidity of people who are In Greed (a little like In Love, but … well, you get the picture).

Let’s take a bigger look at oil.

People want to treat peak oil as a supply problem. It isn’t. It’s a demand problem.

We have no shortage of oil, and probably never will. What we have are rising production costs. No one can make a profit if they sell product for less than it costs to make. So as production costs rise, they will drive up the price of gasoline at the pump.

As pump prices rise, people stop using gasoline. They cut their family vacation travel in half, then start doing “stay-cations.” They car-pool. They move, to be closer to work. They negotiate telecommuting privileges with their employer. My understanding is that the oil markets saw a significant “demand collapse” in 2008 as gasoline spiked to $4.00 per gallon. Prices have gone back down, and demand has rebounded, but prices won’t stay down. As they rise, we’ll see progressively larger demand collapses of this sort.

Once that starts, the oil companies are going to be in a world of hurt, because every collapse in demand will mean they’re now overproducing. They’ll have a glut of oil, all of it competing for too few customers, which will drive prices below what it cost to produce the oil. They’ll have no choice but to cut production to match the lower demand and keep prices above production costs. Some oil companies will go out of business; the most costly wells will be shut down. As the remaining wells run dry, the expensive wells will be reopened, but they’re the expensive wells — so gasoline prices will continue to rise, driving demand down even further.

Within a century, we won’t be burning oil for fuel. At least, we plebes won’t. Other technologies, even if it’s nothing more than draft animals and human muscle, will be cheaper and more readily available. We’ll still have jet planes and tanks for governments and the very wealthy to play with, at least for a while, but the oil business will be only a ghost of what it is today.

So why frack? Why now?

My understanding is that fracking is a little like rolling the end of the toothpaste tube to get out one last glob of toothpaste. Or like shaking a can of soda and then popping the top. You get a big squirt of oil and natural gas, and then — well, pretty much nothing, even if there’s plenty more down there. Continuing to frack after that first squirt is like shaking the opened can, trying to get it to squirt again.

In other words, fracking is a very short-term opportunity for quick profits, and it works because water is currently being sold at agricultural rates (cheap), and demand for oil is at peak, at the highest price we’ll ever see at that demand-level. If oil prices were lower, fracking wouldn’t break even: it’s an expensive process. If prices were higher, demand would tumble, and fracked wells would be among the first to be shut down, because it’s an expensive process.

Fracking is the latest get-rich-quick scheme in the oil markets. Everyone wants in now, before the opportunity passes.

If fracking were completely failsafe and harmless, I’m not sure anyone would care. Go ahead and roll the tube tighter, shake the can, squeeze out that last little bit of profit on your land before you tear down your oil pumps and go back to ranching or farming. Good luck to you.

But fracking isn’t failsafe or harmless. It’s dynamiting the lake to get the fish to come to the surface.

This entry was posted in General.

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