Water: the big issue for fracking

On February 13, the Cleveland office of the law firm McDonald Hopkins hosted a panel to discuss the pivotal water issues facing producers of oil/gas from shale via fracking.  In addition to three MH attorneys, the panel also included Jeff Dick (Director of the Natural Gas and Water Resource Institute at Youngstown State University), Samuel Johnson (Director of Water Asset Development for CONSOL Energy (NYSE: CNX)), John Lucey (EVP of Business Development and Engineering for Heckmann Corporation (NYSE: HEK)) and Sudarshan Sathe (President of Water and Wastewater Equipment Co.)

I took away three main observations from the panel discussion.

First, it’s important to keep in mind the distinction between produced water and flowback water.  Flowback water includes all of the fluids used in the fracking process to initially stimulate oil/gas production.  Produced water is defined as the flows associated with ongoing oil/gas production long after the fracking is complete,  as has long been the case with all conventional oil/gas wells that never required fracking, since all oil/gas production usually contains a sizable fraction of water.  The water treatment issues for flowback waters and produced waters are thus different.  In particular, flowback waters are contaminated by the proprietary ingredients that fracking operators want to protect for competitive advantage, whereas produced waters contain loadings of the minerals that leach out from the particular oil/gas bearing shale strata being tapped.

Second, as significant as the challenges are for treating the water resulting from fracking operations, sourcing the quantity of water from fracking operations may be even more challenging.  Simply, fracking operations require enormous quantities of water.  While the voluminous Great Lakes would seem a natural supply basin, the Great Lakes Basin Compact signed a few years ago by the jurisdictions within the Great Lakes Basin precludes transporting Great Lakes water outside the basin — and while the Marcellus and Utica shale plays are not far at all from Lake Erie as the crow flies, it nevertheless so happens that they generally lay outside that basin.  Thus, fracking operators in the Marcellus and the Utica have to get their water from somewhere else. 

Lastly, for a company that is historically rooted in the coal industry, CONSOL comes across as highly progressive.  Among other eyebrow-arching comments, Mr. Johnson argued that environmental regulations associated with fracking operations needed to be tighter than they currently were simply to drive further technological advancement — existing practices just weren’t good enough.  I leaned over to a colleague and said that either (1) Mr. Johnson is out of step with his management, (2) CONSOL was outstanding at “greenwashing” with convincing public relations messaging, or (3) the company is genuinely trying to differentiate itself from many of its peers.

The panel was timely:  just a week prior, in an appallingly flagrant disregard of environmental law, a renegade operator in Youngstown called Hard Rock Excavating was caught by regulators dumping untold tens of thousands of gallons of untreated wastewater into the Mahoning River (which drains into the Ohio River).  The principal of the operation, a Mr. Ben Lupo, is subject to up to three years in prison and up to $250,000 in fines if convicted of violating the Clean Water Act.

(Oh, by the way, even though he was only just recently caught red-handed, this event doesn’t appear to have been the first for Mr. Lupo, who seems to have a long history of illegal water dumping, according to this article by the Vindicator.  Not to mention, Mr. Lupo also owns and operates another company, D&L Energy, which was responsible for the injection wells thought to have triggered the seismic activity in Youngstown in late 2011.  It’s almost as if Mr. Lupo is waging a one-man public relations demolition derby for the industry.)

My guess is that everyone on the panel, and presumably in the audience, would be in favor of strict punishment for Mr. Lupo, assuming that his guilt is confirmed.  Not only are the environmentalists up in arms, the panelists and others who seek to pursue fracking in the Marcellus and Utica shale know that they can’t afford many bad black-eyes like the one(s) wrought by Mr. Lupo’s apparent disregard for good practices.

Water’s just too important for the fracking business not to handle wisely.