Water and energy are two commodities that are interdependent but priced very differently. The future projections of global water and energy use plus food production equal long-term challenges for an expanding world population.  It takes a lot of water to produce energy, and shale gas extraction requires more water than traditional energy extraction techniques.  According to Chesapeake Energy, it takes 4.5 million gallons of water to drill and fracture a typical deep shale gas or oil well.  Furthermore, it is estimated that up to 20 billion barrels of waste water is generated from hydraulic fracturing per year.  This figure is also expected to accelerate.  While the energy sector accounts for a relatively small percent of total water use in the U.S., it is forecast to rise due to increases in shale gas supply.  There are many questions about the future of hydraulic fracturing, like where to source water over the next 100 plus years, as it won’t likely be available from current sources, and then what to do with the waste water. Water use in hydraulic fracturing is affecting many groups, including energy companies, state and local regulators, the U.S. Environmental Protection Agency, municipalities, landowners, lawyers, water treatment and disposal companies, and equipment suppliers.  Dialogue among these parties is shaping standards of practice.

At the heart of the matter is water supply and demand dynamics.  State and local officials in many regions are forecasting a growing gap between supplies and demand as a result of expectations about population growth and climate change.  Increasing water demand from hydraulic fracturing is exacerbating the problem, as water is the key link in the supply chain that enables energy sector growth.  The hydraulic fracturing industry can address some water risk using various techniques.  Sourcing and disposal is key.  First, the use of “brackish” water instead of potable water to preserve fresh water supplies can be increased.  Recycled municipal water is also a viable option for energy production.  Waste water from gas and oil production can be treated and reused.  It could also be remediated for agricultural use.  Furthermore, metals and solids with commercial value can be extracted from the waste stream using advanced separation technologies.  However, there is more technological development needed to improve the cost dynamics.  Desalinization and reverse osmosis technologies are expensive, though costs are coming down.  It may even be possible to one day harvest water from flue gas.  Water distribution to and from drilling sites poses another problem.  Currently, most water is trucked, and trucking is struggling to keep up with demand.  It is also the biggest cost component of disposal.  Pipelines may be feasible solutions in some cases, or there may be cost effective ways to evaporate produced water.

Drilling companies are attempting to meet these challenges; however, changing regulations are complicating the matter as well as the mobility of the energy sector, and options vary by region. Often the practices used come down to economics and the low cost solution is likely to win out.  The hope is that the solution is long-term in nature and environmentally responsible.  There will be investment opportunities in finding effective solutions to the water challenges as it relates to new energy production.  At Portfolio 21 Investments, we have a policy not to invest in the extraction or production of oil, gas, or coal; however, we are proactively exploring potential investment opportunities in companies that apply environmental solutions and preservation in the energy sector.

Tony is Senior Portfolio Manager with Portfolio 21 Investments.  He has 15 years of experience in the field of investment management.

The clean burning claim was bothering me, because I know that with the price of natural gas as low as it is, truly clean and renewable energy sources like wind and solar will have to become just as cheap in order to compete─or we will not continue to develop these important renewable sources as quickly as we would otherwise.  In checking on the clean burning claim, I found a spot-on research piece from the Flemish Institute of Technology in Belgium analyzing the emissions of actual city buses running on natural gas versus those running on diesel.  It found virtually no difference in carbon dioxide (CO2) emissions between the two fuels.  Even I was surprised, I thought the natural gas bus would have some CO2 emission advantage.  It turns out that the power output of natural gas under real life driving conditions causes the amount of fuel burned, and CO2 emissions released, to be higher than one would expect.

I also looked into the differences between the air emissions of electric generating facilities running on natural gas versus those running on coal.  The United States Environmental Protection Agency site summarized what I found nicely, “Compared to the average air emissions from coal fired generation, natural gas produces half as much CO2.”

Natural gas is just cheap; it isn’t clean.  And it might not even be cheap.

As you know, natural gas is cheap because the oil industry is aggressively exploiting a natural gas production technique known as fracking, and through this technique the supply of natural gas has increased greatly, which has caused the price to plunge by more than 50%.  However, fracking uses a tremendous amount of water and injects hazardous chemicals deep into the ground at high pressure.  The water use is an obvious issue and of immediate concern; the chemical injection will require years or decades to determine the real environmental impact.  The long-term environmental consequences of these practices are simply not reflected in today’s price of natural gas.

One of the energy sources that natural gas is very likely to crowd out is nuclear, because it has become expensive and complex to build and run a nuclear plant and therefore the price difference between gas fired plants and nuclear is greatest. Nuclear is expensive for many reasons, but two primary reasons are the regulatory system that governs nuclear power production and the money an owner of a nuclear plant has to set aside to properly decommission the plant at the end of its useful life. This governance system is designed to protect public health, safety, and the environment─which are, of course, closely related systems.  We do not have a strong regulatory system to govern the production of natural gas and there is no requirement to set aside funds to clean up wells at the end of their productive years. The problems caused by producing natural gas will be dealt with by society at some unknown future date in an unknown manner.  There are 450,000 gas wells in the United States, scattered throughout the countryside on top of shale deposits.  There are less than 70 nuclear power plants.  If one of those nuclear plants has a problem, it is worldwide news.  If one of those gas wells starts leaking chemicals into your local water supply, who is going to notice?

So I don’t think that natural gas is as clean or as cheap as we are being led to believe. And I think that the sign on our city buses should be removed.

John Streur is President of Portfolio 21 Investments. He has 25 years experience in the field of investment management. 

In my opinion, the movement’s last demand is idealistic and not likely to be achieved.  As a result of the U.S.’s extensive supply of low priced shale gas, I believe that natural gas will continue to be a replacement for more carbon intensive coal and oil.   That being said, I do agree with the group that hydraulic fracturing poses significant environmental and health consequences.  Methane is the principal component of natural gas and is a potent greenhouse gas.  Over a 100 year time span, methane is over 20 times more effective in trapping heat in the atmosphere than carbon dioxide.  Beyond methane releases, natural gas production creates other air emissions that can have negative impacts on local air quality and on global climate change.

The chemicals used in hydraulic fracturing vary depending on geologic formation, but can include carcinogens such as benzene, arsenic, lead, and other toxic chemicals, such as hydrochloric acid, ethanol, diesel, and sodium hydroxide.  The total amount of toxic chemicals used during hydraulic fracturing can be as high as 110,000 gallons per well and is typically around 25,000 gallons[i].  Toxic chemicals have both human and environmental health impacts and can have long-term effects due to persistence, bioaccumulation, and carcinogenicity.

It is estimated that hydraulic fracturing uses between 2 and 10 million gallons of water per well[ii]. The extraction of such large amounts of water has raised concerns about drawing down drinking water aquifers.  Methane contamination of drinking water (shallow groundwater) has also been documented.[iii] While dissolved methane in drinking water is not characterized as a health hazard for ingestion, it is a fire hazard.  In the U.S., a recent Environmental Protection Agency investigation in Wyoming concluded that contaminants from fracturing fluid were released into the drinking water aquifer[iv].

Given these known environmental and health consequences, it is imperative to close loopholes exempting oil and gas companies from U.S. environmental regulations.  Currently, because of an exemption known as the “Halliburton loophole,” the EPA does not regulate the injection of fracturing fluids under the Safe Drinking Water Act.  Another loophole allows the oil and gas industry to emit toxic air pollutants without the same limits imposed on other industries.

Both of these loopholes are actively being protested by citizens and politicians alike.  To add your voice, join the Natural Resources Defense Council’s campaign to repeal the legislation that created oil and gas loopholes.