Gas Math

We have told you about the thousands of jobs just here in Oklahoma – 350,000 of them – supported by oil and natural gas drilling. And, we talk about how affordable natural gas prices lead to affordable energy bills in the winter. So, on the surface it’s easy to say the benefits of shale gas outweigh the costs of drilling.

However, a group of Yale economists wanted to see if they could prove it by performing a cost-benefit analysis, valuing and balancing the pros against the cons. All of their findings were released in a paper called “The Arithmetic of Shale Gas.” And, luckily for us, Forbes magazine broke it all down for us.

Christopher Helman from Forbes writes:

“Their conclusion: the benefits of continued shale gas development are enormous and dramatically outweigh even worst-case scenario costs of pollution and clean-up.”

So, let’s take a look at some of the specifics as outlined by Helman. He starts by looking at the where the price of natural gas started in 2008, before the gas boom. Then, the price per mcf of natural gas was $7.97. Fast forward three years and we find us with an average price of $3.95. That’s a price drop of $4.02. Helman points out, when multiplied by the 25.6 trillion cubic feet of fuel the country consumed in 2008, America is paying $103 billion a year less for natural gas. Now, with prices even cheaper, the benefit to consumers is even greater.

Keep in mind, says Helman, that had producers not started combining horizontal drilling with hydraulic fracturing, American would have started importing natural gas five years ago and we’d be paying upwards of $14 per mcf of natural gas and telling a much different economic story.

The report’s authors write:

“It is starting to acknowledge that consumer benefits from the technology of shale gas drilling and new gas production can be expected to exceed $100 billion per year, year in and year out, as long as present production rates are maintained.”

So, how do these benefits weigh against the costs to drill?

The authors collected reports about “accidents, misuse of technology and power well design/installation.” A 2011 report from the Secretary of Energy turned up only 19 incidents out of thousands and thousands of wells drilled where water from hydraulic fracturing operations was spilled. In none of these instances was groundwater contaminated.

With no evidence showing contamination, the authors decided to calculate costs for a worst-case scenario that assumes 100 spills per year for every 10,000 new wells drilled each year. They hypothesized that if 5,000 gallons of fracturing water spilled into a field, the cost to clean up the contaminated soil would be around $2.5 million. Also, if a drinking water source were contaminated, the cost to drill a new water well and haul in potable water would run about $5,000. Supposing 100 incidents a year, clean-up costs associated with alleged accidents would costs in the neighborhood of $250 million.

So, the Yale students determined the $100 billion in savings benefits to consumers far outweighs the $250 million in damages that may never even be needed thanks to strong regulations at the state level.

Click here to download and read the full Yale paper.