Fracking economics - review of presentation given by Deborah Rogers

SU hosted hosted an anti-fracking speaker, Deborah Rogers, on Thursday night.  (link here.)  

She is an anti-fracking activist, focusing on the financial side. I knew this going into the speech, but I was still hopeful she would give an objective presentation of the facts, then just discuss her interpretation of them.  That didn't happen.

As somebody who reviews economic impact studies and sees the bias on both sides, many of her statements were misleading or interpreted in a way I found questionable. 

Here are four issues I had with points she made:

1. Do you want to produce something using more inputs, or less inputs?  She talked about how the direct jobs with natural gas drilling were "only" 180,000 nationwide.  That produces 45% of our country's energy.  This is while the direct jobs with renewable energy was about the same, but produced 15% of energy.  She then concluded that it would be better to promote renewable energy because it creates more jobs.  (Note - you could make an externalities argument for why to use renewables - but that's not what she was doing.)

This is faulty economic logic.  If you can produce more output with the same amount of workers, then you're better off.  If it takes 3 times the workers to produce some level of output, the price will be higher. 

2. She laughed off the statement that "fracking has helped the poor", claiming that natural gas companies had no interest in helping the poor.  Here is an excerpt from  the story she was discounting:

Thanks to the lower price for natural gas, families saved roughly $32.5 billion in 2012. (That's 7.4 billion MMBTUs of residential use of natural gas times the $4.40 reduction in price.) The windfall to all U.S. natural gas consumers—industrial and residential—was closer to $110 billion. This is greater than the annual income of all of the residents in 14 states in 2011.

She, of course, didn't go into the specifics, she just called it laughable that companies would want to help the poor.  With that, she might be right.  But the great thing about the free market is that sometimes the poor do benefit, even if the companies had no intention of helping the poor.  Because of fracking, the quantity of natural gas increased, pushing the price down.  This helped the poor.  She can deny this all she wants, but its pretty clear the lower natural gas prices have benefited the poor, and, as I argued, are a big reason Obama got reelected.

3.  Is the natural gas industry being unfairly subsidized relative to "green energy"?  She described, several times, how the drilling industry damages roads and don't pay the fair share of the damage.  This, she says, gives them an unfair advantage over green industries.  Several points related to this:

A. In research I'm doing with Dave Ramsaran, we have found that these companies are paying for road improvements, and citizens are saying their roads are better.  What she claimed didn't match what we found in our research.

Let's assume she's right for a moment, however ....

B. It's disingenuous to talk about fracking being subsidized by government relative to green energies.  The only reason windmills, solar panels, etc. are somewhat viable now is they've been so heavily subsidized by tax dollars.  Many times, quite poorly.

C. Do other companies pay road taxes?  For example, what about Fed Ex or UPS?  Or environmental companies?  If no companies pay traveling on roads, should frackers?

4. She disregarded the indirect jobs, saying they're counting "prostitutes and strippers".  If any statement showed her bias, it was this.  Technically, she's right.  If fracking brings in 1,000 jobs, one or two might be for strippers and prostitutes. The others are for grocers, restaurant workers, hotel workers, lawyers, etc., however.

There was one part of her talk that I thought was informative and interesting.  She made an argument for why she thought production would drop and prices would rise.  I've heard others make the case before, but she made it as clearly as I've ever heard.  I don't think I agree with her (and it's different from other reports), but it was a well-argued case and was informative.  Overall, however, I was quite disappointed.

Both the left and right make assumptions that can help give an incomplete story on the economics of fracking.   Those who do this work, from both the left and right, get paid for this, and it's a common problem with many economic impact studies, not just fracking.  Unfortunately, I felt like yesterday's speech was a good example of this.

USA today story on fracking

Link here

Excerpt:

Many wells behind the energy gush are quickly losing productivity, and some areas could hit peak levels sooner than the U.S. government expects, according to analyses presented last week at a Geological Society of America meeting in Denver.

Two researchers are quoted in this study who think the boom will end more-quickly, at least within the regions currently being drilled.  Later, however, we hear:

The boom will continue for decades, says William Fleckenstein, a petroleum engineering professor at the Colorado School of Mines, which receives funding from the fossil fuel industry. He says major shale regions are performing better than expected. Though well productivity falls quickly after the first year or two, he says the initial gush gives investors a quick payback. 

"The technology is going to improve," he says, adding that forecasts based on shale wells drilled even a few years ago won't be accurate. He points to EIA data, released in October, that shows how rig productivity has increased over the last year for new oil wells in the Bakken and Eagle Ford and for gas wells in the Haynesville and the huge Marcellus shale, which stretches from New York south to West Virginia.

The production level, of course, is key to the prices we'll see for natural gas in the future.  Based on the rhetoric of the amount of shale gas available, I've always been of the opinion that even additional exports won't affect the price much in the next 10-15 years, as there is so much room for additional oil production.  If it slows down that could change things.  I find the optimistic view more likely.

EI of fracking from Purdue University and other assorted links

1. Jayson Lusk has a link to a Bill Moyer interview of Wendell Berry

The whole post is worth reading, but I want to point out one excerpt where Jayson didn't comment:

BILL MOYERS: When you and I were born in 1934 there were almost seven million family farms in this country. There are now roughly around two million family farms and most of us are further away from the foundations of nature than we’ve ever been.
WENDELL BERRY: Well, there’s another tough problem. And so you have to look ahead a little bit. 

How is this a problem?  This means five million people/families are freed up to do other productive things for society?  So many journalists and talking heads miss this obvious point. It is better for society when we can produce the same products with fewer people.  That way we can produce more products and services.

2. Purdue University agricultural economists study shale gas with two findings.

First, they find that through 2035, US GDP should be 3.5% higher because of shale gas. (2.2% higher with it, but it would be 1.3% lower without.)

Second, they estimate that shale gas exports would decrease GDP.  Their reasoning is that prices would go up in the US, and that price increase would more than offset the increased in GDP from exports.  I have to dig into their model more to know, but at first glance I think they're likely underestimating how much natural gas is available.  The amount is so enormous that I suspect the moment prices start to rise by even a little bit, oil companies seeking to make a profit will drill more, keeping the price down.

That being said, I am planning to read both of the articles referenced to examine their assumptions/models/etc.


3.  Larry Flynt advocates torture for his shooter.  

While I am in favor of the death penalty, I think "enhanced interrogation" techniques should be reserved for the cases where there's potentially information that would save lives if discovered.  That being said, I agree with Flint that this shooter gets a quick and painless death - and that isn't justice.

Jobs from fracking in PA, and other links

1. The industry reports that shale gas employs over 230 thousand in Pennsylvania.  

While I haven't reviewed this yet (I need too), that sounds too high.  Even if accept Considine et al.'s economic impact estimate (this was an industry funded study with the larger impact), at $100,000/job you have about 140K jobs.  Throw in the extra jobs from the "stimulus" of lower natural gas prices, and you're still not quite to 230 thousand.  I will try to review soon to get a better grasp on this report, however.

2. Great Forbes articles on GM foods

An excerpt:

Genetic modification has been with us for millennia.  Breeders routinely use radiation or chemical mutagens on seeds to scramble a plant’s DNA to generate new traits.  “Wide cross” hybridization has given rise to plants that do not and cannot exist in nature; these plants include the varieties of corn, oats, pumpkin, wheat, tomatoes and potatoes we buy every day.  (Yes, even “heirloom” varieties and the overpriced organic stuff at Whole Foods.)  On average, every day we consume dozens of servings of these varieties of fruits, vegetables, and grains derived from wide crosses.

3.  More on Obamacare finances (via Greg Mankiw).


4.  IRS agent targets conservative?

If an IRS agent abuses his/her power to target specific individuals for political purposes, I think that agent should be tried for treason as they are "betraying one's country".

"Most Absurd" claims about fracking

Article is from the Washington Examiner.  It contains my analysis of the claim that fracking causes more STIs in my review of the Earth and Water Watch study.

Excerpt:

The same person who blames fracking for flatulence also wants to blame it for bee deaths. She links to a study from the BBC that claims diesel exhaust confuses bees and makes it difficult for them to find flowers. Note that the BBC report on the study doesn't mention fracking at all -- the connection was made by someone opposed to fracking.

Fracking ban up for vote, and other links

1. In Ohio community, fracking will be on the November ballet

Once again, a charter amendment proposed by the FrackFree America National Coalition, known as the Youngstown Community Bill of Rights, will appear on the Nov. 5 ballot. The slightly modified charter amendment would ban fracking and the injection of drilling waste water in the city of Youngstown.

2. Charles Krauthammer's oped from this weekend is outstanding.   

Excerpts:

President Obama indignantly insists that GOP attempts to abolish or amend Obama­care are unseemly because it is “settled” law, having passed both houses of Congress, obtained his signature and passed muster with the Supreme Court.

Yes, settledness makes for a strong argument — except from a president whose administration has unilaterally changed Obama­care five times after its passage, including, most brazenly, a year-long suspension of the employer mandate.

He's right that leftists do comment, all-the-time, that this law is settled and we should just deal with it.

And ...

Accordingly, House Republicans presented three bills to restore funding to national parks, veterans and the District of Columbia government. Democrats voted down all three. (For procedural reasons, the measures required a two-thirds majority.)

Senate Majority Leader Harry Reid won’t even consider these refunding measures. And the White House has promised a presidential veto.  The reason is obvious: to prolong the pain and thus add to the political advantage gained from a shutdown blamed on the GOP. 

3. We should remember that communism (i.e., government control of the economy) has killed 100 million people

To talk openly about the history of communism is to talk openly about the history of the Left. And even among those who were not communists themselves, vast swathes inside the Leftist tradition stayed far too close to the communists for comfort.

It's their very dirty big secret, and although they can't do much these days about tracts such as theBlack Book of Communism lying on the dusty top shelves of our public libraries, they'll be damned if they're going to start handing them out to children in the classrooms.

Fracking Links

1. Washington Post story on Democrats embracing Obamacare.

2. The consequences of low gas prices

3. Calling for loosening of endangered species laws.  (May need to use the cached copy).

These laws are ridiculous, overly burdensome, and give government bureaucrats at the EPA and elsewhere way too much power.  As we've seen, these government agencies will abuse their power way too often for this to be viewed as an unlikely outcome.

Review of The Social Costs of Fracking by Food and Water Watch

Food and Water Watch released a study on the negative consequences of fracking.

This study asks some good questions.  However, any study done by an organization called "Food and Water Watch" obviously isn't objective.  This organization actually would like to ban fracking.  I've only done a quick review, but I have a couple questions/concerns:

The authors claim:

1. "Fracking is associated with more social disorder arrests: Disorderly conduct arrests increased by 17.1 percent in heavily fracked rural counties, compared to 12.7 percent in unfracked rural counties."

Is this percentage increase controlling for the increase in population?  Heavily fracked counties would have greater population growth. With a greater population, you'd expect more disorderly conduct arrests.  Especially when they're young men.

That being said, I've heard anecdotal information of more bar fights in towns where there is a lot of fracking, so this wouldn't shock me if it holds, even after controlling for the population.  We don't have enough information yet to know, however.

The authors also claim:

2. "Fracking is associated with more cases of sexually transmitted infections: After fracking, the average increase in chlamydia and gonorrhea cases was 62 percent greater in heavily fracked rural counties than in unfracked rural counties."

Once again, does this control for the population of younger people of young men in the areas?  More younger people, more STIs, right?  Further, this seems to be a cost that is mainly borne by the individual who contracts the STI, right?  It really doesn't concern me whether a person has an STI, as that doesn't impose a cost upon me. Economists would call this a private cost.

Without controlling for the population, it could be that the percentage of these cases, while increasing, is increasing at a smaller rate than the population of young people!  It could be that fracked counties actually have a lower STI/population rate!  Further, what does a 62% increase mean?  It could mean three more people, right?  Or does that mean an additional 0.02% of the overall population?  The report doesn't explain.

Related to this, the authors of this study use actual numbers at times (reporting on driving crashes), but only display the percentages at other times (STIs).  This weakens their credibility.

I would also like to know what other factors the authors examined but found no social costs in "fracking counties"?  In theory, if the authors assess 40 items (like health outcomes, property values, etc.), and they could only find two or three where there were negative consequences, the social "costs" of fracking, might actually be better labeled as the social "benefits" of fracking.

I respect that this organization is attempting to answer tough questions.  Objective research on the costs/benefits is needed.  This organization isn't creating objective research, however.

Three fracking links

1. Energy companies giving up on NY.

I don't blame them.  Why try in NY when so many states are open to fracking?

2.  A call for a moratorium on new fracking permits in PA.  

and

3. A call for a 6-month moratorium on fracking in Arkansas.

For those proposing the moratoriums, I would like them to answer the question, "what specific results would cause you to advocate lifting the moratorium in the future?"  I fear that the response would be "that fracking is safe" or some similar answer without quantifying what results would make them think it is safe.  (Remember, 20 years after GM foods, there are plenty who advocate against this perfectly safe food process.)  This would allow them to continue the moratorium indefinitely.