Fracking, Risk and Investment: NY Attorney General Adds Fuel to the Fire

Investors are growing increasingly wary of fracking, a method of natural gas extraction that involves pumping a chemical brine underground at high pressure. Full disclosure of the risks of fracking, including water contamination and the accuracy of estimates on well output have been the subject of a growing number of shareholder resolutions. Now the New York Times is reporting that  Eric T. Schneiderman, the Attorney General of New York State, has stepped into the fray. Last week, his office issued subpoenas to three energy companies involved in fracking, seeking information on the methodology by which they calculated the long term profitability of their gas wells. Investment and Fracking Risk If you're wondering how this issue came onto a state Attorney General's radar, New York State is vulnerable to a significant risk double whammy regarding fracking. On the investment side, according to Times reporter Ian Urbina, the state has $45 million in pension funds invested in the three companies: Range Resources, Cabot Oil and Gas, and Goodrich Petroleum, along with a fourth company included in the investigation, Chesapeake Energy. On the risk side, New York is one of several states sitting atop the recently discovered gas-rich Marcellus shale formation. Unlike fracking operations in sparsely populated areas, fracking in many parts of the Marcellus could threaten water supplies for millions by polluting New York City's upstate reservoirs. Fracking and Uncertainty Federal water protection regulations were loosened for fracking under the Bush Administration, and water contamination episodes in the U.S. have factored into France's recent decision to ban fracking. In the past, energy companies were shielded by the absence of any requirement to disclose the ingredients in their fracking brine, but the EPA has been moving toward disclosure requirements, and the minority party in the House of Representatives recently issued a report on fracking brine  that listed hundreds of chemicals and other substances, from benign to highly toxic. The prospect of long-overdue water protection regulations has added an element of uncertainty to gas company investment, which the Securities and Exchange Commission recently underscored in a recent ruling on disclosing the risks of environmentally destructive practices. Fracking and Energy Investment The New York Attorney General's subpoenas address the issue from another key angle, and that is whether the Marcellus "gas rush" is a bubble based on faulty production estimates (also covered by the Times as part of its ongoing series on fracking). Elsewhere in TriplePundit we've made the argument that fracking undercuts environmental security goals outlined by the Department of Defense, and a recent Cornell University study indicates that natural gas it is not a particularly "clean" alternative to coal when methane emissions from fracking are taken into account. The trend toward price parity between solar power and natural gas in some states is also contributing to a rather hazy long term outlook for fracking. Image Credit: Money and fire by Mike Poresky on flickr.com.