Possible Effects of Hydraulic Fracturing and Shale Gas

Possible Effects of Hydraulic Fracturing and Shale Gas Development in Durham County Zheng Lu

Shale gas has become viable in the last decade due to advances in technology • The US has 2, 119 trillion cubic feet of natural gas • ~60% is stored in shale/coalbeds/tight sands • Large-scale production of shale gas has is possible due to advances in horizontal drilling and hydraulic fracturing • Wells extend vertically for ~1000 feet until it reaches a potential shale layer • Horizontal drilling goes along the layer for 1000 -6000 feet

Hydraulic fracturing utilizes pressure to fracture rock formations to create flow • Typically involves millions of gallons of fluid pumped into a gas well at high pressures • Fluid is composed of water, chemicals additives, propping agents (used to keep fractures open) • Substantially increases natural gas extraction from unconventional sources

The fracking process can be seen below:

Hydraulic fracturing has enabled the utilization of more US resources

Technology has allowed potential reserves in the Piedmont to be tapped

Hydraulic fracturing and shale gas has many benefits • Shale gas is a clean fuel when compared to coal and oil • Less greenhouse gases emitted • Job creation • Marcellus Shale development in PA has added over 100, 000 jobs in 2011 • Revenue • Marcellus Shale development has generated over $10 billion for PA’s economy • Royalty payments for residents • (12. 5%-21% per unit of gas extracted)

There also environmental concerns associated with the process • Water supply effects • Water is heavily used during the fracking process (millions of gallons) • Might limit quantity available for other uses • Quality may be reduced • Accidents • Accidental release of fracking fluid • Chemicals seeping into the water supply • Pollution • Air pollution • Noise pollution

Hydraulic fracturing can greatly impact water resources

The NC Senate has approved a bill which would allow fracking • Approved on February 23, 2013 • Allows NC Mining and Energy Commission to start issuing fracking permits by March 2015

We can use the hedonic model to measure the value of fracking • Comparison to Washington County, PA (Marcellus Shale) • Recently allowed fracking • Find data on house prices and attributes using Zillow • Utilize map of gas well locations in Washington County as a cross-reference

Two maps are utilized to find distance from house to well

Simple hedonic model • Widely used to value characteristics which do not have a given value in their own markets • Can be used to show marginal values of changing attributes

The simple hedonic model suggests that living close to a well is bad • Age and Well distance are significant at 5% • A 1% increase in age leads to a decrease in value of 0. 24% • An increase of 1 mile increases house value by 11. 4% • Lot size is significant at 10%

The fixed effects model • Equivalent to a First Difference model because t = 2 • Results are flipped from previous regression • Δage might be picking up inflation effects

There are some issues with the regression analysis • Lack of data points • 20 different locations used for the first regression • 11 used for the fixed effects regression • Sample size too small • Results may change by taking more samples • Assumptions made probably too broad • Possible interaction terms?

The results of the initial analysis are inconclusive • It is unclear if the benefits of fracking outweigh the costs • Finding a more efficient method/source to gather data on houses would be invaluable • Drilling may affect individuals that depend on well water and have a septic sewage system differently than those that depend on public water and sewage