Gas Boom Might Not Be All It's Fracked Up to Be

Is cheap natural gas really all that cheap? The risks associated with fracking have begun to raise questions, and when it comes to our domestic fossil fuel supply, relatively low retail prices mask a heavier load that includes taxpayer subsidies, profound impacts on public health and the environment, and a negative effect on some local economies. Now on top of that it seems that the current boom in cheap natural gas might be a bubble, carried along not only by the factors noted above as well as some financial dealings reminiscent of the notorious Enron  scandal barely ten years ago. A brewing scandal in the natural gas industry Something fishy has been in the air since at least last June, when the New York Times started to raise questions about the methods that the gas industry uses to calculate the long-term profitability of gas wells. In August, the Times reported that a major player in the current natural gas boom,  Chesapeake Energy Corp., was among the targets of an investigation by New York State Attorney General Eric Schneiderman. New York pension funds have millions invested in four gas companies including Chesapeake, and Schneiderman was exercising a form of high-powered shareholder activism by raising questions about the industry's profitability. New York State also has a particular interest in the risk exposure of fracking because some of its most important water supply reservoirs, which serve 8 million people in New York City and several upstate communities, are located within the gas-rich Marcellus shale formation. A flood of bad news for Chesapeake Just last week, the trickle of news turned into a flood. According to a report by Reuters, Chesapeake Energy is coming under scrutiny by the Securities and Exchange Commission. A followup story on National Public Radio raised the possibility that the case could expose an Enron-scale debacle that threatens to turn the natural gas boom to bust, a prediction supported by a New York Times article noting that Chesapeake's stock price has fallen 45 percent in the past year (Chesapeake is the second-largest gas driller in the U.S., behind Exxon Mobile). The Times has also been following the woes of long-time Chesapeake chairman Aubrey K. McClendon, who has been the target of shareholder activists for his "unusual compensation plan," which according to the Times included a 2.5 percent stake in every well drilled by the company, as well as his habit of borrowing millions ($846 million, says the Times), from investment firms with ties to Chesapeake. The fracking gas bubble The financial issues are just one factor in unearthing the true cost of natural gas.  Over the past year, questions have also been raised about the cost of local public health risks caused by water and air contamination related to fracking operations, and long term climate risks associated with the leakage of methane gas from fracking wells. Seismologists are also beginning to draw the connection between an increase in earthquake activity and fracking, which could lead to additional costs related to surface damage including roads, buildings, water supply facilities and other infrastructure. EPA and fracking rules Aside from the SEC investigation, fracking's environmental free ride may be slowly drawing to an end. Federal clean water rules that could have applied to fracking were loosened under the Bush Administration, and the U.S. EPA has been trying to play catchup under President Obama. It's been a slow process -- just getting companies to disclose the chemicals in fracking brine has been a struggle -- but last week EPA at least got its toe in the door with a proposed rule limiting the use of diesel fuel in fracking operations. Image: Some rights reserved by Steve Snodgrass. Follow Tina Casey on Twitter: @TinaMCasey.