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Analysis

Will BC’s Budding LNG Industry Spark More Quakes and Shake Northeast Housing Prices?

Look at Oklahoma as a possible preview of things to come.

By Andrew Nikiforuk 30 Jan 2019 | TheTyee.ca

Andrew Nikiforuk is an award-winning journalist who has been writing about the energy industry for two decades and is a contributing editor to The Tyee. Find his previous stories here.

B.C. Premier John Horgan and Prime Minister Justin Trudeau could barely contain their glee last year when LNG Canada declared its $40-billion Kitimat export terminal and related pipeline were going ahead.

But neither leader mentioned the dramatic surge in horizontal drilling and fracking in northeastern B.C. that will be required to extract the natural gas (or methane) needed by LNG Canada. The plant will take methane, process it into liquefied natural gas and then export it overseas.

What Trudeau called the largest capital project in the nation’s history will initially process two billion cubic feet of methane a day — almost half B.C.’s current production. It has the capacity to scale up and gobble four billion cubic feet a day. That’s more than one-third of Canada’s total demand.

According to energy analyst David Hughes, the project will require the drilling of an additional 400 gas wells a year for 40 years, in addition to the almost 500 wells now being drilled annually.

If you want a preview of what that kind of rapid industry expansion brings, look at Oklahoma.

In that state, America’s fifth largest oil producer, earthquakes caused by industry wastewater injection have damaged homes, sparked lawsuits and a regulatory scramble, and even depressed housing prices.

The state and northern B.C. share a well-studied geological phenomenon: unprecedented earthquake activity caused by fluid injection into the ground — mostly wastewater injection in Oklahoma and massive fracking operations in B.C.

Cracking open B.C.’s shale gas reserves requires massive fracking, as water, chemicals and sand are injected underground under high pressure to shatter rock and free trapped gas. Vast amounts of water are required — from 15,000 cubic metres to 60,000 cubic metres, or enough to fill the equivalent of up to 24 Olympic swimming pools. Even industry workers call their operations “big grunt fracking.”

Both jurisdictions suffer from industry-caused earthquakes — the only difference is that Oklahoma’s tremors have occurred on a greater scale and caused extensive property damage.

Oklahoma’s Supreme Court has even ruled that homeowners can sue oil companies for damages, and earthquake-damage lawyers do a brisk business in Tulsa.

In contrast, B.C. has experienced industry-triggered quakes large enough to level homes, such as last year’s magnitude 4.5 quake felt at the Site C dam construction site. So far, no quakes in B.C. have occurred in a densely populated area. Many landowners have complained about cracks in their foundations, but there have been no official investigations.

Until 2009, nobody thought of earthquakes and Oklahoma in the same sentence.

Years might pass before anyone experienced a magnitude 3.0 earthquake. Now it's more common to feel one on a daily basis than it was in all the years prior to the fracking boom that began in 2008. (A magnitude 3.5 rocked Cushing, Oklahoma on Jan. 24.)

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Cushing, Oklahoma has experienced its share of earthquakes in recent years, including a magnitude 5.0 earthquake on Nov. 6, 2016 that damaged property. Dolan Paris, USGS.

Travis Roach, an energy economist at the University of Central Oklahoma, calls earthquakes “a negative externality” of the fracking boom. He’s the author of “Oklahoma earthquakes and the price of oil,” an eye-popping study in the journal Energy Policy.

Roach compared oil prices with the daily rate of industry-induced tremors in the state between June 2009 and July 2016. He found a direct correlation.

Price signals (oil went to a high of $145 a barrel and a low of $26 during the time period) explained both increases and declines in tremors, he said.

“As the price of oil increased, further exploration and production was incentivized, and as more oil and gas was produced, so too was the amount of ‘produced water,’ which is subsequently pumped deep underground into injection wells,” Roach said.

Nearly a decade ago, industry pumped approximately 849 million barrels of highly salty “produced water” per month deep into the ground.

But thanks to hydraulic fracturing and the water-rich character of Oklahoma’s shale formations, the volume grew to 1.5 billion barrels (239 million cubic metres) per month by 2014. There are now 10,000 injection wells in the state. (Like many aging oil and gas jurisdictions, Oklahoma now produces between 10 and 15 barrels of wastewater for every barrel of oil recovered.)

“The first time I saw those numbers, I was floored,” Roach said.

As documented by the United States Geological Survey, the deep injection of the wastewater has reactivated ancient faults in the Earth’s basement, resulting in an epidemic of earthquakes peaking with 887 magnitude 3.0 tremors in 2015.

Every time the price of West Texas Intermediate crude oil went up 10 per cent, Roach found that increased industrial activity resulted in approximately 2.3 per cent more earthquakes a day. 

A 10-per-cent drop in oil prices had a similar effect, dampening drilling and water production and thereby decreasing the number of earthquakes by 3.4 per cent.

582px version of QuakeActivityTravisRoach.png
Energy economist Travis Roach compared oil prices with the daily rate of industry-induced tremors in the state between June 2009 and July 2016. He found a direct correlation. Image credit: Travis Roach.

Roach says Oklahoma authorities reacted slowly to the problem until the earthquakes started to damage roads and expensive homes and threaten multibillion-dollar oil infrastructure such as pipelines and storage tanks.

“A lot of the earthquakes started to happen near Cushing, Oklahoma, where the continent’s oil is stored and where the price for West Texas Intermediate is set,” said Roach. “That’s when the regulatory effort began in earnest.”

Starting in 2015, the Oklahoma Corporation Commission, the state’s version of the Oil and Gas Commission, issued 15 different directives that forced the operators of disposal wells to reduce volume or depth or shut down their operations. 

Like B.C. it also installed a so-called “traffic light system,” but a much tougher one. If a fracking operation triggers a magnitude 2.5 quake, it must change what it is doing. (In B.C. industry the trigger is magnitude 4.0, except in one area where the threshold is now 3.0.)

But it wasn’t regulations that really prompted the decline in earthquakes: it was the drop in oil prices, according to Roach.

“The drop in oil prices that began in mid-2014 led to as large of a reduction in earthquakes as the combined effect of new policies that started in March 2015,” explained the economist.

Last year Oklahoma experienced thousands of small quakes but recorded another decline in magnitude 3.0 quakes to 154.

B.C.’s industry-induced quakes have followed a similar trajectory. Between 2014 and 2018, the province experienced a thousand small such quakes, and nearly 50 events greater than magnitude 3.0.

Although the number of magnitude 3.0 tremors has been dropping in B.C., so too has the level of drilling — from a peak of 900 wells in 2007 to 444 last year — due to low methane prices. 

Even Canadian experts on industry quakes concede that, just as Roach observed, “declines may be partially associated with slowing of operations during the recent downturn.”

Asked if all the shaking would return in Oklahoma with another jump in oil prices, Roach said: “Definitely.”

But is B.C.’s Oil and Gas Commission concerned that heightened activity in B.C. due to LNG demand might increase seismic activity?

Communication manager Lannea Parfitt said the commission expected “a measured expansion” as opposed to a “sudden expansion of activity.”

Roach said the problem with regulators was that they were largely reactive and not forward-looking.

In Oklahoma, he said, regulators tried to “reduce earthquakes by playing ‘whack-a-mole’ with directives issued and disposal volumes limited specifically in areas in which a mole popped up.”

He has proposed a per-barrel fee for water disposal in Oklahoma, with the goal of encouraging better water practices and setting up a fund “to pay for existing or future damages caused by earthquake activity.”

Although the economic logic of a tax on wastewater is sound, “the political feasibility of such an action in the state of Oklahoma is extremely low,” he said.

But there are other issues created by industry-triggered quakes, including falling home values.

Roach is one of the authors of another recent study that found earthquake activity has lowered home prices in seismically active areas of Oklahoma between 3.1 and 4.7 per cent.

Roach and his associates compared single-family home prices before and after the earthquakes began with similar homes sold in non-active counties. (Studies also show people can suffer from more anxiety  in counties being rattled by man-made quakes.)

The housing study found that all the rattling and shaking had indeed taken a toll on home prices, but the estimated reductions didn’t tell the full story.

The decline in value — $127 million in one county alone — wasn’t about damage to buildings. The study found homebuyers prefer “to pay more for homes in areas that have had less earthquakes (less for homes in areas that have had earthquakes).”

The price differences may have reflected “a distaste for damages that have occurred to a home, a risk-aversion toward future earthquakes, or both.”

(In B.C., landowners in the northeast say industrial traffic, noise, groundwater pollution and all-night lighting have already devalued rural living as much as the region’s earthquakes.)

Another 2016 study on housing devaluation made the same findings, adding that a major earthquake in the region could devalue a home by nearly 10 per cent.

The Tyee asked the B.C. Oil and Gas Commission about possible house devaluation in the region, and the agency said it did not have any plan to compensate homeowners in northeastern B.C.

“Compensation is outside the purview of the commission,” it said.

It added that commission “received 14 reports of felt events resulting from the three seismic events on Nov. 29, 2018, and there has been one unconfirmed report of a cracked window, but no other indications of damage.”

But more than 300 citizens reported the event to Natural Resources Canada, because it caused apartment buildings to shake in Fort St. John.

Energy analyst Hughes notes that if both phases of LNG Canada are built, which is likely, B.C.’s gas production will have to nearly double, which means a corresponding increase in drilling, fracking, land disturbance, water consumption and produced water disposal. 

“The frequency of earthquakes, which are caused by both produced water disposal in injection wells and the fracking operations themselves, will also increase accordingly — there is no free lunch. It is the cost of doing business,” he told the Tyee. 

Roach says residents should be ready.

“If an area is experiencing quick growth in drilling activity and wastewater injection, then earthquakes should almost be expected. Especially if there are known fault lines present.”

To date, the level of earthquake activity in Western Canada has followed a simple linear pattern: as more wells are hydraulically fractured, more earthquakes are triggered.  [Tyee]

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