WTF - What The Frack?

 
This is my research on Fracking.
 
This is no fracking joke. Media reports that fracking is a serious environmental concern across the globe and/or it’s the future of jobs, energy and saving everything we love from certain death. Some predict an economic boom, others predict environmental gloom.
 
Nova Scotia, like many thoughtful places in the world, is trying to figure out fracking.
 
What’s it going to be? To frack or not to frack?
 
OK! Let’s Go!

 
It’s a fracktous debate. Whether you’re in the “Drill Baby Drill” brigade or the “Kale not Shale” bunch, we all want the best for Nova Scotia. And the best way to get that is to get informed.
 
If something went really wrong it would be a fracking shame.
 
Many advocates and scientists report that fracking is releasing HOUNDS OF HELL from the depths of the earth. Not actual hounds of hell... but things even worse including methane gas that pollutes our water and our atmosphere. This happens especially when things are not done right. As we all knid of know in our hearts, things are not done right A LOT.

But why should you give a frack about it?
 
The whole thing is a fracking mess.
 
OK. OK. I’m done. No more puns.
 
Ummm, except for this Cee Lo Green parody “Frack You”.
 
https://www.youtube.com/watch?v=JvfYWZ_apLs
 
Right.
 
Let’s recap this baby!
 
It’s been nearly three years since the Wheeler Report on Fracking in Nova Scotia prompted the government to continue… er, Not Fracking in Nova Scotia.
 
Despite the lack of public discussion since, the CBC reported recently that there’s a lot of fracking talk going on behind the scenes in government and loudmouth Kevin O’leary is telling Nova Scotia to get fracking, even as we tell him to Frack Off.  
 
Oh… Why does Kevin O’leary like Fracking so much?
 
Because figuratively breaking the country apart isn’t enough for him.
 
Anyway…
 
What the Frack are we talking about?
 
Who knows! It’s a big frack attack. The CBC reports that the hold up in government seems to be that they’ve spent two years or more working on a definition of what fracking is… that’s cra cra!
 
Or are they just fracking with us?

CBC says it 'might' be political... YA! no kidding... frack...
 
Alright, so, anyway, the puns will actually continue.
 
But… let’s get the boring science done first. Then we can get in to the big characters, high stakes, drama, plot twists, secret insider information and treasure!!! (Spoiler alert… there may not actually be any treasure.)
 
There are people who are fracking brilliant who believe “fracking rocks”.

Again, I know, cra cra right?
 
It’s an amazing story.
 
Listen to this woman who made a ‘reply’ documentary to the famous Gasland documentary. She says Gasland is full of hot air.
 
https://www.youtube.com/watch?v=weXXegZyGUE
 
Hey, what do shale oil and Mohammad Ali have in common?
 
They both used to be gaseous clay.
 
Here’s two years worth of work at PNS (Province Of Nova Scotia) done in 3 seconds of google search…
 
Fracking involves two technologies: breaking up underground formations to release oil and gas trapped in small pockets of impermeable rock by pumping in a mix of water, chemicals and sand; and horizontal drilling. The technology incited a boom in unconventional gas production in the U.S.
 
Whoa whoa whoa, slow down there Winning Brew (the world’s fastest race horse) this isn’t science class.
 
OK, that's right. This is a drama. And here are the two leading characters you have to know to understand the story, the protagonist and the antogonist... er, the good guy and the bad guy...
 
George Mitchell – He invented modern fracking.
 
Aubrey McClendon – The biggest mother fracker in the world.
 
Who is who? Well, read on and decide.

They’re both super-size Americans. There’s a reason that the story of fracking is in every way an American tale. In fact, it’s an only-in-America story.
 
For baby boomers who came of age in the ‘oil crisis’ of the seventies it’s difficult to understand how much things have changed. Oil is cheap and plentiful. Far from the ‘peak oil’ fears of the past, where we thought we’d run out, we’re more likely to pass “peak oil demand” meaning the future will probably use less oil and gas, and coal than we’re using now. In the last 10 years America has gone from oil importer to energy exporter. They’ll be the planet’s biggest and cheapest oil producer by 2020 or sooner.
 
And everyone’s a winner! Production has gotten cheaper and cleaner. Technology has gotten better and faster. From big airlines to the lowly commuter consumer, everyone is sharing proportionately in the saving in a big way.

It's thrilling to see the technology get better and better. But that should surprise exactly no one. That's what technology does. If you can trust America for one thing it's ingenuity, know how and progress. Wait, sorry that's three things. But it's all the same amount of awesome.

OK, fine. I admit it. I'm an Americanophile. Even in spite of all the crap going on I believe in American exceptionalism. Even when those Americans are from other countries. American systems make technological progress possible.
 
We fracking saved America ! And everyone lived happily ever….. er, wait one more thing…
 
Along the way the bottom fell out of the market. Oil went from $110 a barrel to less than $40.

Here's a site about oil prices that changes like the weather and reads like a detective conspiracy drama.

http://oilprice.com/

The Saudi led oil cartel could pump oil from the ground the old fashioned way for $27 a barrel and still make money. The Russians could do nearly as well. A max-mix of power, greed, and politics made the energy market a mess of supply and demand manipulation, therefore price manipulation.
 
Read all about the magic meaning of Saudi $60 a barrel oil. That's the price that would make money for them, motivate new investments but not move US shale into production... or any global shale.

The problem with this is that even as shale oil (and similarly for gas) went from a production cost of $70 a barrel to extract to about $57 using the best technology in the best circumstances the global price declined faster in the last three years. As Bruce Springsteen sang about factory jobs; "they ain't coming back". Those prices ain't coming back either.  Add some overheads, market factors and profit and that means it's just not worth taking shale oil from the ground.
 
Oh man !!! There’s math ahead. I love accounting SO much.
 
If shale oil costs $57 a barrel to produce and sells for $40 a barrel that means those genius Texas oil barons are making…
 
Well, losing…   $40 revenue minus $57 cost…
 
There frikin’ losing $17 a barrel fracking!
 
What kind of business is that?
 
And why on earth would we want to get in to it?
 
Enter George Mitchell, the granddaddy of fracking.
 
George was the opposite of a classic ten gallon hat Texas oilman. He was the son of an illiterate Greek goat-herder. An owlish, balding father of ten, he was dedicated to philanthropy in his community and environmentalism in general. Until he came along Fracking, which was known since at least the 1940’s meant blowing stuff up underground to see what happened. George’s innovation was to use mostly (...like 98.9 percent) water and sand to move underground cracks just enough to release oil and gas.
 
In the late 1990’s, George was nearly 80 and nearly broke trying to squeeze oil out of the Barrett field in West Texas when he got the desperate idea of fracking with water instead of explosives, nitro glycerin and even atomic blasts as had been used in the past.
 
By the time George died in 2013 at the age of 94 he was a billionaire many times over. He was held as a hero and savior of the oil industry and maybe even America. He has donated hundreds of millions to environmental causes and worked til his dying day to improve the technology and regulations around fracking.
 
At 80 George was just a crazy kid with a dream, but none of his phenomenal success would have been possible without some other uniquely American things:
 
1/ His innovations were widely shared and copied and improved on. Fracking wouldn’t have meant much if it wasn’t combined with horizontal drilling that matched the unique geology of the trapped American oil and gas.
 
America has only about 15% of the world’s “unconventional oil and gas” supply but actually brings to market more than all the rest of the world combined.
 
Why’s that?
 
2/ Mineral rights. In America, unlike all the other countries, if you own a piece of land you own everything under it too! Land of the Free ! Yea, USA USA USA, that’s what I’m talking about.
 
That means that a real competitive market quickly developed. Inventors, salespeople, governments, law, all the pieces worked as they should in a free market. In Gasland the media and Hollywood even played their part as the constitutional framers intended.
 
It’s a thing of beauty really, that meant when some “Landman” meaning an oil company advance man sent out to buy up fracking rights knocks on the rural Ohio river valley door of  Tom and Cheryl Tonnous, who own almost 60 acres, offers them $238,413.20 for oil and gas rights on their property they can work a deal and go out and buy that new tractor they’ve always dreamed of. When their neighbours see that their lives are eventually destroyed they’ll work a different deal when the land men come to see them. That’s a free market.
 
And all snuggled up some 6,000 feet beneath Noble County Ohio and much of east and southeast Ohio lies the Utica Shale, a thick layer of oil- and gas-bearing rock that has attracted billions of dollars in energy industry investment in leases and infrastructure. Representatives of the nation’s largest energy companies — Chesapeake Energy, Exxon Mobil and BP, to name a few — crowd the recorder’s office at the local courthouse here and in a dozen other counties, scouring property records to identify landowners willing to lease their oil and gas rights.
 
And this, ladies and gentlemen, is the REAL business of Fracking.
 
Enter Aubrey McClendon. This guy is a real piece of work. He’s made more money off fracking than anyone else. Well, sort of. He doesn’t actually frack much… remember the accounting above? Fracking actually loses money big time if oil is less than about $70 a barrel. Aubrey set up a company called Chesapeake. Just because he likes the name. He’s in the “Landman” business. He buys fracking rights cheap and sell them for 2, 5, 10, times what he paid AND keeps a little of the backend on any deals.

Chesapeake Stock
 
This is the kind of guy who’s obnoxiously, irritatingly, awful about his wealth and power. In a Rolling Stone interview he claimed, "We're the biggest frackers in the world," over a $400 bottle of French Bordeaux at a restaurant he co-owns in his hometown of Oklahoma City.
 
Rolling Stone revealed McClendon dominates America's supply of natural gas the same way the Tea Party-financing Koch brothers control the nation's pipelines and refineries. Like them, McClendon is an influential right-wing power broker – he helped fund the Swift Boat attacks against John Kerry in 2004, donated $250,000 to the presidential campaign of Rick Perry, and contributed more than $500,000 to stop gay marriage. Even more connivingly he secretly gave $26 million to the Sierra Club to fight Big Coal. See the less coal available the higher the price of oil and gas.
 
McClendon’s business is a type of Ponzi scheme. He uses highly… insanely… leveraged investments made possible by low interest rate debt to buy up mostly worthless fracking rights. Then he drills a few ‘test holes’, hypes the results and sells the rights for many times what he paid, moving on to the next scam with a Haley's Comet of debt behind him. The scheme has a lot in common with the sub-prime mortgage debacle or the classic “Land Speculator” scams of days gone by (and in fairness current day Nova Scotia. *** cough Convention Centre *** cough)
 
The Rolling Stone expose is revealing and their longterm journalism on fracking is worth a read. McClendon is in the pipeline business for sure. It’s the pipeline of America’s pockets to his. He’s such an overblown kingpin (think Donald Trump on coke) that he says as much in his regular boasts to shareholders. The fracking industry is made almost completely of McClendon wanna be’s.
 
What these two characters reveal is that the fracking business is mostly made of water and gas, both the kind that we use as fuel and the kind that blowhard hucksters pass.
 
So where does that leave us in Nova Scotia?
 
In 2014 the Wheeler Report was delivered to the government of Nova Scotia. It’s an independent report commissioned by the NDP and received by the Liberals. Unlike the Ivany report of the same era it’s actually excellently done because of its clear, action oriented, strategy proposal. And when put together with our fracking crazy characters   and a little independent reading (which I strongly encourage!!!) will give you everything you need to make an informed decision about fracking in Nova Scotia.
 
See, here’s the big insights of the Wheeler report:
 
1/ The only frackable basin is in North Western Nova Scotia.
 
2/ No one has done ANY investigation that would give enough information to know…

• How much if any recoverable oil and gas is there
• What the geology is like and if it even lends to fracking (most of the world does not)

In industry talk the basin is not "proven".  As we say down in Texas (I've been to Texas like twice), "We could be all hat and no cattle".

3/ None of the infrastructure, technology, systems or markets are in place in Nova Scotia to efficiently frack, extract, regulate, and re-mediate an actual industry.
 
4/ AND>>>>> here’s the big point… in Nova Scotia, like most of the rest of the world outside America, people don’t own their mineral rights. They’re owned by the government and, to put it plainly, the government is not a market, and definitely not as good a negotiator as those folks down the Ohio River Valley. They can’t be because there is no market to help them.
 
So, here it is my fracking friends. My assumption list on fracking in Nova Scotia:
 
Here are the three key figures needed to talk about fracking.
 

1. The amount of the proven reserve, meaning how much oil and gas is there.
2. The extraction ratio, meaning given the geology how much of the reserve can be extracted.
3. The infrastructure cost, meaning the pipelines, roads, technology, systems and resources required to do the fracking.  

 
In Nova Scotia all three of these crucial figures are blank sheets of paper. Nobody knows. (See the Wheeler Report)

Holy CURSE OF OAK ISLAND ! Where the rest of the world is looking for a map to find the way to a treasure, we're assuming we know the location and it's the nature of the treasure we need to discover.

And all you have to do is just keep digging deeper. Um, or get a TV show about it and make money that way. (Hey, did you know there are over 20 reality shows currently filming in Alaska? )
 
Now, you would think that that would be the end of that. hahahaha. You poor honest hard working people, that's not how we create a desperately unequal world. Think back to the Landmen, powerbrokers, hucksters and petty politicians. This deal is RIPE SWEET for speculation. This list of unknowns is the ideal and most fertile ground for their bullshit. It’s the perfect place to grow low populist dreams and magic thinking.
 
Like Sam Slick the Yankee clock peddler, landmen would love nothing more than to get in to Nova Scotia and hype the shit out of the whole fracking place.

But here’s the simple truth.
 
Oil is trading at around $50 a barrel. Gas likewise. The very best of the best developed markets in the US - and I mean these folks are GOOD and the industry has been supported by the government (much to lefty's chagrin) for generations) - can only produce unconventional oil at $57 a barrel. Starting from a dead stop there’s no reason to even suspect Nova Scotia could produce fracked oil and gas (if there is even any to produce, see above!) for less than $100 or even $200 a barrel. Given what we now know about our energy future it seems unlikely that these old timey sources of energy will ever reach those levels as global consumption passes its peak and climbs down to a place of only trivial importance in our lives.
 
This story should be familiar to anyone who follows the fortunes of deep water offshore drilling. When the cost exceeds the price available they go out of business and all that’s left is the hypsters trading rights and making crap political promises.

Most likely this would lead to BIG government "investments" in fracking development and infrastructure. This is the worst of the worst, same old same old, trick that government economic development people have fallen for since the sixties. If anything comes of all this I would like it to be that we finally don't fall for this old trick.
 
Pft... it's just water

There’s one other thing to consider… WATER. Remember water and gas are the main elements of this story. Fracking uses A LOT of water… millions and millions of gallons per well. And a functioning fracking infrastructure requires thousands and thousands of wells.  All the other cautions aside, Nova Scotians need to sit back and ask themselves what they believe our most valuable resources are. We live in a world where the amount of water is finite and never changing. But water is seldom in the place or the form we need it. Most of the world is starved for fresh water. We have so much it’s almost free. If we used up this resource to unprofitably seek a resource that we can actually just buy on the open market at ever cheaper rates we would be… well, to put it plainly, fools.

This isn't speculation. In the market today. Like right now. Gas sells for about $1 per litre at retail and Bottled Water sells for about $4 per litre. Four times as much !

And you thought it just fell from the sky for free.

Spend some time to understand why this fact is as it is. How do folks find oil, pump it from the ground, process and barrel it, ship it around the world, refine it, truck it to gas stations and sell it for 1/4 the price of retail water at the same store? (Hint for economics fans - consider Diminishing Marginal Utility and the related Diamond-Water paradox). 

Here's your MBA FOR A DAY ™ CASE STUDY. Traveling around the world from China to the USA, Nova Scotia is most known for Lobster and Salmon. Every night fancy French restaurants on the Cote d'Azur make money by promoting Nova Scotia Salmon. Given this fact, the investments we're making in these products, and our good fortune in lobster harvests, which "brand" is more valuable?

a) Nova Scotia Fracked Gas

or

b) Nova Scotia Spring Water

Which brand 'fits' better with our product mix and marketing strategy?

Which brand is more likely to lead to a prosperous happy healthy community?

Discuss. (But seriously people... the answer is b... creating wealth is about building a differentiated product with a low cost and high willingness to pay, not in profitless commoditized markets controlled by Russian and Arab Cartels).

Anyway, back to the conclusion of our story!
 
So the Wheeler report advised the government to…
 
Dun ta da dun!
 
Do nothing.
 
And I think that’s exactly right.

HEY !!! Sexy Sidebar Quote™. Here's one from Steve Jobs reported in Harvard Business Review (total name dropping) “Deciding what not to do is as important as deciding what to do,”
 
And we should keep on doing nothing until we know:
 

• the amount of frackable reserves we have
• the amount we can extract
• the price that we can do it profitably
• the relative value of the water resource we would use in the work
• the type of geology we have
• the actual demand for the product
• something about the infrastructure required. Hint - it's a fracking big number

 
The talk of JOBS JOBS JOBS without information or infrastructure is the 'magic talk' of hucksters and fools. If the product can not be produced, or produced profitably, then any net gain to the province in terms of jobs, prosperity, or wealth of any kind is not possible.
 
Like any other business scheme, the object of oil companies is to EXTRACT wealth not insert it. If we open up Nova Scotia to rotten frackers like McClendon in the current market, with the information we have, we will lose wealth not gain, even as the symbols of wealth, like the oil wells, poke up along our Northern shores.
 
Our current policy on fracking is good work well done and I very much admire both Mr. Wheeler the author of the report, Mr. Younger the Minister at the time who pushed it through, and whoever else in the current Liberal government’s early days who had the clarity of thought and information to support their position.
 
Well done.

#accidentwaitingtohappen

But now the Liberal position is characterized as a BAN. They're caught in some sort of bureaucratic/ political loop as the CBC characterizes it. But people people want to talk, and get informed, and learn more about what happening behind the scenes. A BAN is not what Wheeler proposed. The genius of the Wheeler Report is to use community based acceptance at the outset, and directing any provincial income from project back to those communities in the long run to put Nova Scotia in near the same position it would be in if we had an American style market for fracking rights.

It's the Progressive Conservative position that these systems and regulations could be put in place now. What would it mean? Pretty much nothing with unproven reserves, unknown extraction ratios, no infrastructure, work-in-progress technology and, most importantly oil at $50 a barrel. But it creates a society where people are talking, getting informed, collecting and sharing information, and following technology and opportunity in an ever changing world. And as a mater of fact, unless we see $100 a barrel and rapidly rising oil prices no one - and I mean no ligit business - is going to invest in the Nova Scotia basins.

The thing about the PC position that's important to me is that it moves past the fear and loathing and gets down to the work of defining regulations and rules and the application of a clear strategy. This is important because I believe the biggest concern is that speculators, developers, rights, traders and international companies will start doing 'side deals', and 'exploratory deals', and offer 'contributions' that the government of Nova Scotia is NOTORIOUS for doing away from the public eye. And in fact have already done as evidenced by the damage already done! These schemes are done on the QT or sold as "Economic Development".

Whatever.

This is what we have to keep in check because it's FUBAR and it's hurting Nova Scotia. It requires rules and regulations that apply to EVERYONE... even the siren speculators in the oil industry

Will technology continue to change?

Yes! That's what technology does... for better and worse.

Will the questions get answered in Nova Scotia.

I sure hope so... but in a save, non-invassive, independent, and um... credible way.

Will we ever see $100 a barrel oil again?

No one can fully predict price, and you should never say never (though I just did twice) there is just SO much oil now available, and so many alternatives, and we live in a world where growth of demand is actually going down while supply growth is going up. That's not a good case for $100 oil.

It may not surprise you at all to learn that LOTS of big players have a stake in this. Oil has been the currency of power, wealth and control for 100 years. Change, real change, is on the horizon when those powers read studies like Pricewater House recent forecast of oil prices.

Reality check - That doesn't spell opportunity for the little guy. It's not an existential threat for big oil. Contrary to Mr. Daltry and Mr. Townsend's position, we almost surely will get fooled again. We'll meet the new boss, and he will in fact be exactly the same as the old boss.

So let's rally!

What do we want !!!

Um... well... lots of things actually (crowd mumbles): clean water, healthy environment, great education, an economy filled with opportunity and promise, prosperous households. "Hey!", yells someone, "Plus all the good stuff to come that we haven't even thought of yet!"

"Totally!!!" yells the crowd. (In my imagination they're most hipsters in the crowd but their ironic Normcore costumes represent all the possible peoples and demographics of Nova Scotia.

Fine.

How do we get it !!!

If you yelled 'fracking' please go back to the beginning and start again because if you take away ONE thing from this long story it's that

Fracking = Jobs = Prosperity in Nova Scotia is an oversimplification of a complex issue surrounded by uncertainty.

All Right !  Let's get out there and get informed !

Now, let's start again and bring broadbased prosperity and the things we actually want to Nova Scotia households. Because that's what we actually want and I don't want to be fracking distracted from the goal.