A Controversy Coming to an Energy Investment Near You, Fracking Fluids Part I

Commodities / Environmental Issues Mar 08, 2010 - 06:41 PM GMT

The controversy surrounding fracking fluids is getting louder. Websites and media savvy organizations are getting more press on this issue, using a very simple and powerful pitch – are the chemicals used in fracking fluids in oil and gas wells contaminating our drinking water?

North American investors have not been directly hit by this issue yet, meaning that a company’s stock hasn’t plummeted because they had to stop drilling over these concerns – yet.

“Fracking” is sending a specially designed fluid down an oil or gas well at ultra-high pressure. The fluid, usually water – but can contain some chemicals with very long names – gets blown out into the reservoir rock, creating cracks and channels to allow the oil & gas to get to the well.

The technologies of horizontal drilling and fracking has allowed the industry to access huge untapped resources of oil and gas in shale rock, which is called “tight” because shale is more dense, or tight, than the sand formations which has produced almost all the oil & gas in the world. All the shale gas plays in the US and Canada, and the Bakken oil shale play in North Dakota and Saskatchewan have created billions of dollars of shareholder wealth and given North America self sufficiency and independence in natural gas.

Fracking and horizontal drilling ended the big bull run of natural gas prices from 2002-2008, where prices went from under $2/mcf to over $14/mcf. And many industry experts are now saying so much natural gas has been discovered because of newly developed fracking ability that prices won’t see double digit prices for many years.

(I wrote a story on the growing importance of fracking – to the industry and to investors – which you can read here: http://tinyurl.com/yjxexl6)

But the fracking-fluids-potentially-contaminating-water issue has legs – which really surprises me that I haven’t heard more pro-active PR from the industry about their side of this story. Investors ought to be aware of this issue, especially in shale gas/oil plays close to large population centres, such as the Marcellus Shale Gas play in New York state (where one gas stock in particular has me very, very intrigued….). I fear this could be a PR disaster for the industry if they don’t handle this properly.

(Of course, this would be bullish for natural gas prices across North America….there’s a silver lining everywhere. A cynic might even say this issue – which is mostly heard in the US - could be one of the saviours of the Western Canadian gas industry.)

I asked a friend of mine at a Canadian fracking company – who for obvious reasons wants to stay anonymous – to explain this issue for me in simple terms. He says sometimes there are some “nasty” chemicals used in fracking, but he estimated that 70% of frack jobs use ingredients you buy at a grocery store.

In my next story – Fracking Fluids Part II, he will share his “secret” recipe, outlining how he makes homemade frac sand from ingredients at the grocery store.

“I make a frac gel using household items – MacGyver style,” he told me. “I am literally using items my wife buys regularly and can in a few moments generate a stable frac gel that the kids can hold and play with. For less than 20 bucks you can whip this together and cover frack gels for ~70+% of all work done in fracturing.”

Stay tuned; MacGyver will tell all in Part II.

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Keith Schaefer, Editor and Publisher of Oil & Gas Investments Bulletin, writes on oil and natural gas markets - and stocks - in a simple, easy to read manner. He uses research reports and trade magazines, interviews industry experts and executives to identify trends in the oil and gas industry - and writes about them in a public blog. He then finds investments that make money based on that information. Company information is shared only with Oil & Gas Investments subscribers in the Bulletin - they see what he’s buying, when he buys it, and why.

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