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Closer to Fantasy than Fact: the Illinois Chamber of Commerce Report on the Economic Impact of Shale Gas in Illinois

by William C. Rau

The Illinois Chamber of Commerce report on “The Potential Economic Impact of New Albany Gas on the Illinois Economy” asserts that the shale industry, [which uses fracking in drilling operations], would call for $9 billion in capital expenditures and would generate 47,000 jobs under a “high impact scenario”. In our estimation, this scenario for Illinois is much closer to fantasy than to fact. It is tantamount to a flight of fancy for the following reasons:

1. The study assumes that shale gas industry is economically viable and can therefore raise $9 billion. In fact, this industry is a “commercial failure” with some key players, such as Chesapeake Energy, teetering on the edge of insolvency and moving out of the gas market.[1] For four years now, the production cost for shale gas has substantially exceeded the market price for natural gas. Shale gas companies have accumulated piles of debt and are now hard pressed to generate enough cash to cover operating expenses. Some companies in Texas are not even paying landowners contractually obligated royalty payments.[2] The number of operating drilling rigs in the Barnett and Haynesville shale fields in Texas and Louisiana have dropped by over 70%, and the shale gas workforce has been cut to the bone. As Adam Durvney, a reporter for the Shreveport Times, noted in an Nov 25, 2012 article,

“Oil and gas firms fled the Haynesville Shale, one of the world’s largest natural gas deposits and a major driver of the northwest Louisiana economy, in droves this year as natural gas prices reached record lows. Economic activity associated with drilling fell to bare-bones staffing and proved a major blow to local economies.” [3]

2. The high impact scenario assumes “90% local content” to achieve its predicted job and capital expenditure numbers. The drilling technology employed in shale gas extraction, namely “high-pressure, high-volume horizontal hydrofracking,” is a technically specialized kind of drilling mastered by Texas oil and gas service companies, such as Halliburton and Baker Hughes. Who, then, are the Illinois drilling companies that can qualify for this drilling work and thereby achieve the “90% local content?” The experience in Pennsylvania is that drilling companies bring in crews from their home states and move to the next shale field when the work is done. The impact locally is temporary boom then bust. Local hires for drilling are likely to be modest; many other jobs will be temporary, low-paying service jobs that will disappear when the drilling crews leave.

3. Shale gas reserves for other fields, such as Marcellus and Haynesville, are overestimated by a factor of 3 in the Council report.(4) If the same gross overestimate carries over to the New Albany shale field in Illinois, then our shale gas resources are not 11 trillion cubic feet. Rather, they are 4 trillion cubic feet or less. These reserves will not support the kind of robust estimates found in the Chamber report.

4. The Chamber report assumes no regulatory or environmental costs — convenient assumptions since both costs, especially environmental, will be very high. The “high impact scenario,” where 1360 wells are drilled, will require at least 20 billion gallons of input water for drilling [5] – 13 billion which will be lost for good underground – and 7 billion gallons of corrosive flowback brine, which must be removed for gas to flow to the surface. That brine will be laced with 33 million gallons of toxic frack chemicals, heavy metals, such as arsenic, cadmium, barium, etc., which are picked up from the shale, and an unknown amount of radioactivity. Flowback brine from shale wells in Pennsylvania are logging levels of radioactivity that average more than 300 times the maximum containment level (MCL) allowed by the Environmental Protection Agency.[6]

Where is the 20 billion gallons of input water to come from? Which Illinois aquifers and lakes will take the big water hit? What is the price tag for cleaning up flowback brine? How will the corrosive salt, heavy metal, carcinogenic frack chemicals, and radioactivity be removed from the flowback brine? How will a highly leveraged industry carrying unsustainable amounts of debt pay for these cleanup costs? How will it make good on lawsuits against it if it undermines the health, living conditions, and property values of Illinois citizens who are caught in the frack zone?

Or, is it the Illinois citizens who will be left with a pile of unpaid bills?

Sources
1 Ben LeFebrve. December 14, 2012. “Chesapeake Offering Buyouts to 275 Employees”

Russ Fischer. December 12, 2012. “Chesapeake Energy: Converting To Oil Production At A Breathtaking Rate.”

Clifford Krauss. June 9, 2012. “Shareholders Rebuke Chesapeake Leadership.”

2 BRETT SHIPP, WFAA TV, Dallas Fort Worth, TX.. Friday, Oct 26 at 10:09 PM. “Disappearing rigs and royalties producing Barnett Shale questions.”

3 Adam Duvernay, 10:46 PM, Nov 25, 2012. “Cold winter would drive natural gas prices up.”

4 Arthur E. Berman and Lynn F. Pittinger. August 5, 2011. “U.S. Shale Gas: Less Abundance, Higher Cost.” The Oil Drum.

Arthur E. Berman. October 28, 2010. “Shale Gas—Abundance or Mirage? Why The Marcellus Shale Will Disappoint Expectations.” The Oil Drum.

5 We are conservatively assuming five frack jobs per well and the quantity of water, sand and chemicals reported for an average well in the U.S. Congressional Report Service, October 30, 2009. Unconventional Gas Shales: Development, Technology, and Policy Issues. http://www.fas.org/sgp/crs/misc/R40894.pdf. We are also assuming that flowback brine will represent about one-third of input water. The amount could be higher or lower.

6 Ian Urbina. February 26, 2011. “Regulation Lax as Gas Wells’ Tainted Water Hits Rivers.” Also, go to the New York Times Drilling Down series. Under 11th entry in the “Regulations Lax . . .” subheading there is an Excel spreadsheet with radioneuclide data for Pennsylvania wells.

Spencer Hunt. September 4, 2012. “‘Fracking’ brine: Gas-well waste full of radium. Study suggests water trucked to Ohio from Pa. might be radioactive.”

Abrahm Lustgarten. Nov. 9, 2009. “Is New York’s Marcellus Shale Too Hot to Handle?”

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