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Fracking: An informed opinion is the best opinion

Over the last several years, the regulation of hydraulic fracturing in oil and gas extraction – or “fracking” – has emerged as one of the most controversial topics facing both the state of Colorado and the nation as a whole.

Simply stated, fracking is a technique in which water, sand, and chemicals are injected into a wellbore under high pressures in order to fracture rock formations and increase hydrocarbon recoveries.  While basic fracking processes have been used for decades, recent advancements in both fracking and horizontal drilling technologies have made it possible to economically recover oil and gas resources from shale formations. The ability to exploit shale gas in particular has resulted in an enormous increase in both U.S. natural gas reserve estimates and annual production rates.

These developments have resulted in an oil and gas drilling boom that has the potential to create significant, long-term economic benefits for both the country and the state of Colorado. To that end, it is important for Coloradans to develop a comprehensive understanding of fracking – particularly its benefits and potential risks – to ensure the Colorado oil and gas industry is developed and regulated as effectively and responsibly as possible. If rules are too lax, public health and the environment may suffer. If rules are too burdensome, the state will sacrifice some of the potential benefits associated with fracking.

According to a December 2012 Energy Information Agency (EIA) briefing, in 2006, U.S. natural gas production was approximately 18.5 trillion cubic feet. By 2011, production had spiked by 24 percent to approximately 23.0 trillion cubic feet – almost entirely due to the development of shale gas resources.  In 2006, shale gas production represented ~5 percent of overall U.S. natural gas production.

In five short years, shale gas production skyrocketed, accounting for 34 percent of 2011 overall production. Shale gas is projected to account for almost half of all natural gas production by 2035 – and along with wind and other renewable energy sources – account for the vast majority of U.S. electrical capacity. Based on this growth rate, natural gas will be a cornerstone of U.S. energy policy for decades to come.

Colorado in particular is poised to benefit from the natural gas boom: Colorado had an estimated 25.4 billion cubic feet of proved wet natural gas reserves in 2010 and is currently ranked 5th nationwide in natural gas production. The oil and gas industry contributes over $31 billion to the Colorado state economy and supports over 100,000 Coloradans. Those numbers, however, are set to increase: The Colorado Department of Labor has estimated that employment in the Oil and Gas Extraction industry will spike by 89 percent from 2011 to 2021.

Despite the significant economic benefits associated with fracking technology, the practice is not without opponents. Critics point to potential public health and environmental risks, including air pollution, groundwater contamination, water resource consumption, and the noise and nuisance associated with active drilling operations.

While the actual environmental impact of fracking is a subject of considerable debate, one fact is indisputable: Establishing transparent, common-sense regulations that support the development of the oil and gas industry, while also safeguarding public health and the environment, is in the best interest of Colorado.

In Colorado, a lot of that responsibility currently rests with the Colorado Oil and Gas Conservation Commission (COGCC), the regulating agency for the oil and gas industry. The COGCC has established several rules and regulations governing fracking and drilling, ranging from mandatory water quality testing to required setbacks on drilling operations. One notable rule requires the disclosure of fracking chemicals and concentrations on a well-by-well basis, and was crafted in collaboration with both industry associations and environmental groups.

However, in spite of these regulations, several cities and counties, most notably Longmont and Boulder County, have recently pursued bans on fracking. Those actions have been contested in lawsuits by industry groups and the administration of Colorado Governor John Hickenlooper, bringing into question whether or not the authority to regulate the industry should or should not reside at the state level. 

Regardless of the outcome of those lawsuits, an outright ban on fracking is probably an unreasonable response to concerns over public safety – especially when one considers the myriad of societal benefits associated with accessing a clean and abundant domestic energy source. Rules governing fracking should be transparent, balanced and based on legitimate and credible public health and environmental risks. Lax and unenforceable regulations that allow for potential abuses should be avoided, but so too should onerous regulations that exert unjustified compliance burdens on oil and gas companies.

In the coming years, stakeholders from across Colorado should strive to better inform themselves on fracking and approach industry regulation in a pragmatic and measured manner. The prosperity of Colorado depends on it.

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David Savier

David Savier, a manager with RAS & Associates, a Denver-based strategy and management-consulting firm, advises a wide range of clients from Fortune 500 companies to high growth start-ups. Contact David Savier at (303) 263-8570 or david@rasandassociates.com.

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