Point of View

NC needs to look at Poland for fracking reality check

June 30, 2014 

Just weeks after Gov. Pat McCrory signed the law to allow shale gas exploration in North Carolina, the state is spending taxpayer money to jump-start the industry, including a half-million dollars for drilling test wells near Sanford and another million for the energy sector.

This spending raises some important economic questions for the state: Will there be a boom? How long will it be until state coffers bulge with royalties? Could taxpayers actually lose money?

The recent experiences of Argentina and Poland show what could happen here. Argentina looks like it will be a shale oil and gas success. It already has more than 150 “unconventional” wells producing hydrocarbons. To get this far, the state-owned oil and gas company YPF has invested more than $1 billion. Only now is it starting to break even after several years. Argentina has extensive oil and gas experience and a huge shale resource that is mostly near existing oil and gas pipelines and infrastructure. Even so, it has taken big money to make it work there.

Poland looks like a bust. A few years ago, it was set to be the first European country to harvest shale gas – its reserves estimated at 190 trillion cubic feet, a hundred times bigger than North Carolina’s. Sixty wells later, Poland’s boom is ending before it began.

What went wrong? For starters, Poland had less gas in the ground than first thought, and it was harder to extract than people expected. Money turned out to be the ultimate constraint. Poland, like North Carolina, lacked the infrastructure to get the gas and oil to market. Moreover, wells cost as much as $15 million to drill in a new area. They’re always expensive, but they’re really expensive as drillers work out the kinks in equipment and local geology.

Companies also have to drill a lot of shale gas wells to make money because most wells don’t pay out. The shale gas business is similar to Las Vegas, where the casinos know if enough people gamble they’ll make money because the odds are in their favor. Companies work to set the best odds possible in terms of rules and incentives and then drill a lot of wells knowing that most of them will lose money. They’re banking on the quarter or third that strike it rich. It’s an economy of scale.

In North Carolina, we don’t have an economy of scale. It’s true that we’re still learning about our resource here. We don’t know exactly how thick the shale deposits are. We don’t know whether we’ll have 2 percent organic carbon content or 10 percent, or how much propane, butane and even oil we’ll have.

We do know one thing for certain: The total area of shales in our state is tiny compared with other areas in the U.S. and other countries in the world. Nothing is going to change that fact. It’s also the reason big companies aren’t paying attention to North Carolina.

In recent months, I’ve sat in meeting after meeting with oil and gas executives, scientists from the U.S. Geological Survey and others. When North Carolina’s energy potential comes up, there mostly are shaking heads and bemused smiles. Major drillers of oil and gas won’t be coming to North Carolina anytime soon.

If they don’t come, who will? The smaller wildcatters and mom-and-pop drillers, that’s who. Major companies stick around 10, 25 or 50 years and have a financial incentive to follow environmental safeguards and stewardship. Small companies often don’t. They come and go, and if they’re out of business when liability arises or when things need to be cleaned up, that’s too bad for the taxpayers left holding the bill.

Which brings us to how much taxpayers will be asked to pay to bring drilling here. That depends on what additional incentives the state will provide on top of the millions we’re already spending.

If the major oil and gas companies are betting against North Carolina, we should be paying attention. And we should be watching the state budget closely to minimize what taxpayers shell out. If we don’t, we’re going to get our pockets picked.

Rob Jackson is an earth sciences professor at Stanford University and long-time Duke faculty member.

News & Observer is pleased to provide this opportunity to share information, experiences and observations about what's in the news. Some of the comments may be reprinted elsewhere in the site or in the newspaper. We encourage lively, open debate on the issues of the day, and ask that you refrain from profanity, hate speech, personal comments and remarks that are off point. Thank you for taking the time to offer your thoughts.

Commenting FAQs | Terms of Service