LEVICK | April 28th, 2016

What’s Next?: The Fight Over Fracking

“What™’s Next?” is privileged to interview Gary Sernovitz, a Managing Director of Lime Rock Partners, a creative private equity investment firm.  An expert on the energy sector, Gary has become an outspoken advocate for the safe fracking of natural gas. His book, The Green and the Black: The Complete Story of the Shale Revolution, the Fight over Fracking, and the Future of Energy, was published by St. Martin™’s Press in February 2016.

Gary, in both your book and your April 11 New York Times column you make the case that natural gas fracking has been victimized by a mis- and dis-information campaign. What™’s at the root of these misleading charges?

I think there are four roots. First, because of fracking and the shale revolution, oil and gas drilling came to areas in which it was completely alien. Citizens found all the technology, terms, and equipment to be exotic and frightening. The fact that these new areas included places close to New York City, where I live, only magnified the problems because we New Yorkers are very certain that issues affecting us are the most important issues in the world.  

Second, there were clearly some well construction mistakes in the early days of the shale revolution and before it—this was all so new—and I think people have become fixated on some isolated incidents in 2008 or even earlier. Check out the amount of monthly Twitter traffic on Pavillion, Wyoming or Dimock, Pennsylvania, and then read about when these incidents happened.  

Third, the oil business has always been a classic villain, for reasons understandable and in part cultural, and people are prone to believe the worst of it. Those preconceived notions are aggravated by the much-talked-about cultural splits of red states and blues states, the coasts and the Southwest, etc.  

Finally, there are some specific early “introductions” to fracking, like Josh Fox™’s documentary Gasland and Ian Urbina™’s “Drilling Down” series in the Times, which really anchored a lot of people™’s perceptions, no matter the legitimate criticisms to both. But it™’s hard to forget the image of that guy lighting his tap on fire, even if that had nothing to do with fracking.

What can responsible citizens and companies do to counteract these myths and misinformation?

Buy my book and give it to everyone you know! Or more seriously, I think responsible citizens have to prepare themselves that being convincing on fracking and engaging with people on the issues is going to take some work. This is not telling someone the sky is blue. You have to be versed in some technical discussions and rely on often conflicting scientific studies—and the conflicting industry/environmentalist interpretations thereof. The risk of confirmation bias runs deep.  

 I think a good first step is getting a good grounding on four specific technical issues: the dangers of fracking itself (which too often is blamed for everything); other nuisances, risks, and accidents that could happen in oil and gas drilling (such as wastewater-related earthquakes); whether gas is better for the climate than coal (a once-obvious question that has been complicated by conflicting, and often exaggerated, claims about methane leakage); and finally the impact to American influence, the global economy, and oil and gas prices if we stopped fracking.

That™’s a lot to do, for sure, and you also have to put the negative incidents in perspective: one bad shale well doesn’t condemn the entire enterprise, just as one bad burrito shouldn’t encourage us to ban Mexican food. But we have drilled 85,000 modern horizontal shale wells, so there is a lot of data out there.  

The second step is to abandon the hope that there are easy answers, either non-technical ones or all signs pointing in one direction.    

The final step is to engage with your friends and family on human terms, acknowledging the complexity, granting the risks, and avoid all the traps supporters of oil and gas usually fall into, like asking,“Hey, smart guy, if you hate fossil fuels, how did you get to work or power your iPhone?” It™’s tempting, but it just turns people off.

Is there a realistic hope that fracking can get back on track in places like New York State?

This is not something that the industry spends a lot of worrying about, in my experience, because of the secret fact: generally speaking, places where fracking has been banned (like New York State) are not places many people want to frack. In New York State, there are a few towns along the Southern Tier, bordering Pennsylvania, that could probably be economically drilled given slightly higher natural gas prices. But the Marcellus Shale thins out pretty quickly the farther north you get. There was a lot of rhetoric of the gas drilling destroying the Catskills or the New York City watershed, completely divorced from the industrial realities. So most of the industry thinks that if fracking gets back on track in New York, it™’s fine, and probably fair (after all, New York consumes 4.5% of the nation™’s gas), but not really much of a big deal. 

Practically speaking, there has been no law banning fracking in New York. It was just an executive decision by Governor Cuomo that could be reversed by a new governor. But unless gas prices go a lot higher by the time of pro-gas governor gets elected in New York, people can probably get rid of the image that they probably have in their mind: of rigs and roughnecks driving as fast as possible up from Pennsylvania, like the Southern Tier version of new Mad Max.

How do you address fears – exaggerated or not – that fracking is causing earthquakes in the Midwest and Southwest? 

I think this is one of the most frustrating issues, which is not talked about well on either side. When the oil industry responds to critics, they point out that the word “earthquake” can describe a lot of events. Most of the shale development-related “seismicity” is around 3 on the Richter scale, which is like a truck passing close by your house and rattling your dishes.  They also make the accurate point that most of the seismicity has happened in Oklahoma and has nothing to do with fracking per se, but with the wastewater disposal. Environmentalists tend to dismiss all this as industry spin (do you really care what part of the oil and gas drilling process causes an earthquake if your dishes are rattling) and argue reasonably that there have been some 4 and even 5 level quakes. But they then go too far in declaring an iron chain of causality—fracking causes earthquakes, and earthquakes are bad, and bad things must end, so fracking must be banned—without ever asking the obvious questions: does fracking automatically cause earthquakes; can the earthquakes that happen be stopped; what are the number of earthquakes relative to the amount of drilling; what is the damage of the earthquakes; and would the consequences of stopping fracking be worse than the benefit of stopping these earthquakes (and how do you even measure those ethical choices with different parties benefiting and hurt?). These are the questions we must ask about any human activity. People died, horribly, because of faulty airbags, but we don’t then want to ban driving.

I think the fears are best addressed by, again, science and regulation.  Shale-related earthquakes have almost always been related to disposing produced water, which comes up naturally with produced oil and gas, into depleted old wellbores and into the ground. This has been done for decades and decades. The problems have begun because more oil and gas means more water to dispose of and people are doing it in new areas (such as in Ohio) and in new deeper zones in old areas (primarily Oklahoma).  The solution is not a terribly complicated one: don’t dispose of water in zones that cause seismic activity. This has already been achieved in Ohio, as far as the reports I’ve seen, a long time ago, and Oklahoma regulators are doing a very thoughtful job of balancing a fight against seismicity with the needs of a locally crucial industry. That sort of smart local regulation—which more often than not comes up with straightforward, pragmatic solutions—is happening, no matter how often those achievements are obscured by the smoke of rhetoric.

What™’s the next big challenge for the domestic natural gas industry and what should smart companies be doing about it?

Well, I think the two big challenges are prices and demand.  On prices, smart companies can’t do much except produce less—or produce more and convince their neighbors to produce less—because we have been consistently and structurally oversupplied with gas, minus some seasonable aberrations, for eight years now. This will get corrected at some point, as low prices inhibit supply, but the industry is getting tired of dreaming of its getting better next year, every year. 

On the demand side, this is out of the hands of the industry per se but in the hands of its customers. I’d encourage companies and industries that can switch to gas from coal or oil-based products to do so with conviction and speed, and without the fear that shale gas is some flash in the pan. I recommend more fuel switching at electric utilities to gas from coal. More steel mills switching to gas. I’d like to see more petrochemical plants in the U.S. using gas as a feedstock. And more export terminals, to help displace coal in other countries—and provide them with basic power.