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Report from the Texas Energy Boom

Fracking is wrapped in the flag of patriotism, but Asian exports and higher prices also loom large.

By Dawn Paley 19 Mar 2012 |

Dawn Paley is a Vancouver-based journalist and regular contributor to The Tyee.

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Evidence of the Eagle Ford Shale rush is visible along rural roads in southern Texas.

British Columbia isn't the only place where government and industry have ambitious plans to build pipelines to exploit shale gas reserves for the lucrative export market. Texas is booming again, and it's setting its sights on Asia.

Yet while U.S. politicians and oil executives talk about ensuring energy self-sufficiency with cheap natural gas from shale, their long-term plans suggest a future where natural gas prices might soar -- to the benefit of oil and gas companies rather than the domestic American economy.

Deborah Rogers, a financial analyst and advisory committee member at the Federal Reserve Bank of Dallas, reckons that today's natural gas boom may become tomorrow's consumer squeeze. While high-profile industry players push the Pickens Plan, which proposes mass conversion of U.S. power plants and truck fleets to natural gas, the industry's move to export natural gas will eventually drive up domestic prices.

"They have these terminals that were import terminals. They went to the Department of Energy and said: 'We are awash in gas, and we need you to flip these and make them export terminals.' And you didn't hear a peep about that in the media," said Rogers, explaining that while natural gas sold for roughly $3 per thousand cubic feet (Mcf) in the U.S. in January, it was selling for about five times that in China.

"If you have somebody who's willing to pay you $15, the domestic price is no longer going to be $3," Rogers said. A U.S. bill fashioned after the Pickens Plan, which called for amendments to the Internal Revenue Code to allow for billions of dollars in tax credits for the production and purchase of natural gas vehicles, missed Senate approval on March 13. But the push for mass domestic conversion to natural gas is far from over. "The question isn't if it gets passed, it's when," said Pickens in a statement released before the Senate vote.

Rogers isn't convinced by the rhetoric of the Pickens Plan, which claims mass conversion to natural gas will reduce dependence on foreign oil and promote energy independence. "It's going to have a highly inflationary effect on our economy, and yet who is going to make money?"

Rogers pauses for a split second before answering her own question. "The oil and gas operators are going to make a ton of money off that."

Rogers started researching natural gas fracking after she noticed odours coming from drilling near her home in a rural area of Fort Worth, Texas, which sits over top of the Barnett Shale, one of the largest gas fields in the U.S. Fracking began to take off in the Barnett about five years ago, and since then there has been a stream of shale booms across the country, each touted as heralding energy independence and economic revival.

"They've done an incredible job of spinning it, there's no doubt about it," said Rogers.

Eagle Ford revival

The latest big shale play promoted by industry and government is called Eagle Ford, in southeast Texas. Remnants of past energy booms and busts already rust and rot throughout the state, visible to anyone who takes a Sunday drive along the otherwise pastoral back roads outside of San Antonio. Refineries, pipelines and storage facilities that once oozed oil have since been abandoned, and some are now classed as hazardous waste sites.

"If you were to go looking in the old oil museum, you would discover that they drilled the heck out of this country with almost no consideration at all to ... ecological factors," said Don Henry Ford Jr., a farmer and writer who lives near Seguin, Texas.

Contamination of groundwater has long been a problem. "The notion that this is something new is ridiculous, because they drilled wells without even casing the damn things through here, and we've had water that would blow up in your face for years in this area," said Ford, breaking into a dry laugh.

From the 1970s to the 1990s, what experts call "the last great oil boom in Texas" took place in the same south Texas region as the Eagle Ford play, in a layer of earth known as the "Austin Chalk." Getting gas from chalk first involved drilling vertical wells, and in the late 1980s horizontal wells were introduced together with hydraulic fracturing or fracking.

The methods used to extract fuel from chalk provided a preview of how drilling is taking place today, deeper down in shale: a heated mix of chemicals, sand and water are forced into the earth to break up hard rock, allowing gas and oil to flow from it.

Today, companies active in shale are going back to once oil-rich areas to see if there's anything left nearby -- even if it is trapped in shale, long known in the oil industry as "junk" rock.

In 2008, Petrohawk Energy drilled a well into an untapped rock formation underneath the already drained Austin Chalk, and the Eagle Ford shale play was born. As once-marginal extraction methods become mainstream, the damage to the environment rises.

"The entire formation is full of oil, but it won't drain, so you may take one well, you drill out one way, fracture it, it runs for six months or a year, the same hole you can drill out another way, access a new area. It requires constant drilling," said Ford, whose been around oil for as long as he can remember: his father was an oil man, first in Texas and later in Ecuador, and his brothers still work in the business.

Resource rush

Regulatory agencies don't seem to see a problem with perpetual drilling. "Keep on drilling. Drill everywhere. Drill now. Drill, baby, drill!" said Elizabeth Ames Jones, while she was head of the Texas Railway Commission, the agency that is supposed to regulate oil and gas in Texas, last October. Ames Jones resigned at the end of February to seek election to the Texas senate.

The U.S. portion of Eagle Ford is around 80 km wide, and stretches from the Mexico border to northeast of Austin, Texas. In 2008, the same year Petrohawk struck pay dirt, the State of Texas granted 26 drilling permits. In the three years that followed, more than 3,700 additional permits for drilling in Eagle Ford were issued, and production of natural gas, together with light, sweet crude oil and condensates took off.

A slew of the world's largest oil companies, including Halliburton, Shell, Chesapeake and Schlumberger, are already operating in Eagle Ford. Petrohawk was bought out by Australian mining giant BHP Billiton in 2011. Conglomerates from China, Japan and Korea have each spent more than $1 billion to buy into Eagle Ford.

Not only is permanent drilling part of the plan, so too are pipelines: according to documents from the Texas Railroad Commission, 188 new pipelines were permitted in Texas in 2011 alone.

There's no doubt that some are reaping the benefits of the Eagle Ford rush. People from all over the U.S. are flocking to southeast Texas to get a shot at the action, and company trucks travel in convoy up and down the highways near San Antonio.

"It was instant, it was like overnight," said Corley Cox, who together with her husband Jerry owns and operates The Country Store, a restaurant and convenience store in Cotulla, Texas, one of the towns best positioned to benefit from the Eagle Ford shale.

"Business has doubled in the last 18 months," she said, as she rang in a steady stream of orders from men coming straight off the worksite to enjoy a hearty plate of tacos with beans and rice or a burger with all the fixings during the dinner-hour rush.

While the brisk business is a welcome change in the normally sleepy town, Cox says they've lived through a boom before, the last one about 20 years ago.

Sharon Wilson, a blogger and organizer affiliated with Earthworks' Oil and Gas Accountability Project, concurs. "This is a boom and bust industry, so they've come in and made boomtowns, and as soon as they're through they'll leave and they'll become ghost towns."

Despite a history of oil and gas production, more than half of the 22 counties where drilling has taken place in Eagle Ford have poverty rates above 20 per cent. Seven of those counties count more than one in three people living below the poverty line.

In November, Wilson recorded industry insiders comparing resistance to fracking to an "insurgency" and talking about hiring former soldiers who specialized in psychological warfare to help counter anti-fracking activists. At the same conference, she taped Matt Carmichael, manager of external affairs for Anadarko Petroleum, talking about how poverty in the Eagle Ford Shale play actually helps industry.

"We're fortunate, ah, in the Eagle Ford that, ah, that was a severely economically depressed area so we're bringing jobs, which is helping, um..." Carmichael told conference goers. "(Eagle Ford Shale) area is economically depressed, so they only care about jobs except for the hippie types who want to raise organic chickens," he said.

According to financial analyst Rogers, it's not going to be protests or petitions that bring an end to the fracking boom. There's too much money to be made. "The financial stuff, in my opinion, is what's going to bring it down," she said. "At the end of the day, money trumps everything."

[Tags: Energy, Environment.]  [Tyee]

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