Earlier today on Twitter, someone asked if we could get a definitive explanation / debunking / whatever of fracking. This isn’t definitive, but it’s my best shot at it.
The McKelvey Box is probably the best way to understand the economics of oil, gas and coal extraction, and how they change over time. When someone asks ‘How much gas / oil / coal is left?” in years, tonnes or dollars, the question is very difficult to answer, because the answer is always changing.
I have never liked the way the McKelvey Box is structured, but unfortunately it is what it is, and it works – I understand it, and I play drums in a rock ‘n’ roll band, so if I understand, it anyone can. The important thing to remember is that all the lines move, and when on line moves, it affects another one, so it will probably move too.
Start from the top left: we know the resource is there, we can get it out of the ground at a profit. The certainty of the resource existing gets lower as we go right on the diagram; the certainty of being able to extract it at a profit gets lower as we go down the diagram. The grey square is identified as discovered (ie we know where to find it) and economically viable (ie we can spend money on a rig and some crew to extract it, and make it back when we sell the product).
There is oil / gas / coal that we could extract economically if we found it; there is oil / gas / coal that we know is there but we can’t extract it economically. There are inferred reserves that we expect to be there, but if we did find them we couldn’t extract them at a profit.
As our technology improves, the cost of extraction goes down, the bottom edge of the grey square moves down. So we extract more, so the amount we have identified decreases, so the right-hand-edge moves in to the left.
As a consequence, the amount of reserves decreases, or at least doesn’t increase, so we need to look for more resources. The cost of exploration has to be offset against the current costs of extraction, so the cost of extraction (up-down) increases, but the geological uncertainty (left-right) decreases. If they stay in proportion to each other, then we’re all good*.
Then there are fluctuations in the market price for oil and gas, which is a whole conversation in itself…
But the discovered reserves and the price of extraction don’t stay in proportion, because we have finite land resources and unlimited greed. Technology can do great things, we can drill for oil sideways now, we can spot ‘soft’ bits of the planet’s crust from satellite photos, which might hold oil / gas; but we can’t invent new territory. That axis of the graph is finite, not scalable indefinitely.
There are hidden costs here: the environmental costs, and this is where the job of Government as a regulator comes in. Extracting fossil fuels is inefficient, it damages the land, it buggers up the atmosphere burning them, it perpetuates being dependent on them. Burning wood or biomass from the current carbon cycle is far better than re-introducing carbon from coal, oil, gas (or even peat, sorry) from historical carbon cycles; and using more carbon-efficient power sources like wind, wave, tidal are better yet.
The job of Government should be to regulate the market, to enourage industry and the population to be energy-efficient, to use the least-damaging energy source in order to minimise the damage to the environment. It should literally take money from the most damaging energy sources and subsidise the least damaging with it.
So, the oil and gas companies get desperate in a bid to keep profit margins up and pollution liabilities down. How can they get more out for less? The answer is simple: to be indiscriminate. Conventional resource extraction involves respecting the land: I live in Ayrshire, where before you get a mortgage on your property you check if the Coal Authority has anything to say about it. Coal mines literally undermine houses, and if that is the case the Coal Authority has a duty to let you know, and if your house sinks into a coal mine you can claim compensation.
We don’t have onshore oil in the UK, but if they drilled under your house, you would hope they would let you know? Oil exploration companies certainly have a responsibility to keep their activities from damaging the environment, because oil exploration began way back before the current system of government. Those industries are regulated if not well, then at least better-than-nothing.
This is where Fracking comes in. Fracking is not like conventional resource extraction, because when oil and gas companies asked the UK Government to license the new technology, the new techniques; they wanted it to be virtually consequence-free, like casino banking, or taking cocaine whilst Chancellor of the Exchequer. And what do you know? The UK Government said ‘OK!’
Fracking means ‘Hydraulic Fracturing’. It dates from the late ’40s and early ’50s, and was used on recalcitrant oil- or gas wells in the middle-of-nowhere, USA, to get more out of them. They pump fracking fluid (nasty stuff, don’t try and drink it) at high pressure down a well to fracture the surrounding rocks. The problem with hydraulic fracturing is that it is indiscriminate, you are not ‘placing’ the end of your drill somewhere, you are drilling until you hit a void and then you start pumping fluid in. You don’t actually know where you are extracting from. In the middle of nowhere, maybe not so much of a problem, but in the UK? We have a much denser population compared to the USA, it is far more likely that you will be Fracking under people’s homes, a centre of population, or an important piece of infrastructure.
You pump high-pressure water into a well, it fractures the rocks in the ground, the pressure drives out the gas / groundwater / moles / rabbits or whatever. It’s indiscriminate. In Scotland, we rely on rainwater for most of our water supply, but in England they extract a lot of groundwater. The groundwater is extracted from aquifers, bowl-shaped rock formations which are bounded by impermeable rock. That rock is impermeable to water, but it can be cracked by Fracking, allowing the water to drain away, or for Fracking fluid, oil, gas, whatever to enter the water supply. This sometimes happens hundreds of feet under the ground, we can’t go down there and fix it even if we can find it.
Fracking literally destroys the ground under our feet. Do I know if my castle is built on sand? Or water? Or rabbits? No I don’t. Neither does a Fracking company. But if my house, land, business is over a coal mine, I have legal redress. If my house, land, business is affected by Fracking I have no comeback.
The UK Government is absenting the mineral rights of landowners and homeowners, specifically in order to allow Fracking to be completely indiscriminate. Coal mining is precisely identifiable, geographically, Fracking far less so. So rather than making the Frackers more liable, the UK Government wants to make them less identifiable, less liable, less accountable.
Going back to the McKelvey box at the top of the piece: the market will adjust itself if regulation is the same across the market. Conventional gas vs Fracked gas will find its own balance, and the more economic one will win, for now. When the costs of extraction and identified reserves change, so does the market.
But if you skew the market in favour of the dirtier method, you make it more profitable to destroy than to conserve.
So, I would humbly submit, Fracking is a bad thing. In a country as densely populated as this, with so little regulation of the industry and so many rights taken away from householders and landowners, we cannot afford to have it under our homes, businesses and land, and we should not tolerate it.
*I am a Green. We are not all good, far from it, but I want you to understand the conventional economic model for fossil fuel extraction