Frontier Group intern and University of Massachusetts - Amherst student Toby Armstrong contributed this blog post. This is the second in a series of posts on the implications of the fracking bust and weak bonding requirements on taxpayers and the environment. The first post in the series can be found here.
Pennsylvania’s fracking industry – once seen as creating a lasting economic boom in the Keystone State – is on the ropes. The fracking boom in Pennsylvania and elsewhere flooded the market with cheap gas, driving prices down to around $2.50 per million Btu where it hovers today. With evaporating profit margins, new drilling has waned to the point where today there are fewer drilling rigs operational than before the boom took off, and many companies are running out of money. Some – including Chesapeake Energy, the second biggest producer in the U.S. – are flirting with bankruptcy.
As seen in past fossil fuel busts, operators may be unable, or unwilling, to finance promises to plug and reclaim drilling sites, potentially putting the burden of cleanup on the taxpayers of Pennsylvania while endangering public health and the environment.
Pennsylvania is not new to the issue of abandoned oil and gas wells. Past drilling has left the state with a log of more than 8,000 orphaned conventional oil and gas wells that need plugging, with potentially hundreds of thousands of more yet to be identified and documented. Abandoned fracked wells, however, pose unique dangers to the state and its citizens.
First, fracked wells are typically far deeper than conventional oil and gas wells, making the cost of plugging them substantial. Researchers estimate the cost of plugging an average fracked well in Pennsylvania at about $100,000 per well, but costs have been reported as high as $700,000 per well in some instances.
Second, abandoned fracked gas wells pose unique threats to public and environmental health. Local water supplies could be at risk of contamination from fluid or methane migrating from shale formations, particularly if wells are not properly plugged. As a cautionary tale, 30 cases of contamination in Texas have already been documented in conventional abandoned wells.
Additionally, unplugged wells often leak methane, a highly potent greenhouse gas, into the atmosphere, contributing to global climate change. Research has shown that abandoned wells may already contribute up to 7 percent of the state’s annual methane emissions.
Like other states, Pennsylvania requires operators to post bonds prior to drilling as collateral in the event a company can’t or won’t fund the plugging of a well. Unfortunately, despite being raised in 2012, the bonding levels set by regulators are far too low to provide adequate funds for the state to take cleanup into their own hands.
The state sets bonding levels dependent on the number of wells in an operator’s possession and the depth of the wells. Bonding levels can range from $4,000 for a single well to $600,000 for a blanket bond covering 167 wells or more. For operators like Range Resources, which operates more than 1,000 wells in Pennsylvania, the blanket bonding requirement equates to roughly $600 per well. This is dangerously insufficient, and creates an economic incentive for a financially troubled company to avoid taking responsibility for liabilities and forfeit its bonds.
Former state officials acknowledge the problem. In a story earlier this year in the Wall Street Journal, former state geologist Jay Parrish said that “bonding is outrageously small” in Pennsylvania.
Once a bond is forfeited, the money goes to the state’s DEP to be used for plugging projects, but there is no guaranteed funding mechanism in place to insure any specific well gets plugged. Given the difference between the size of the bond and the full cost of plugging, it is unsurprising the state can only afford to pick and choose plugging projects. Pennsylvania has paid almost $17 million to plug wells from past booms.
Will Pennsylvania experience the same fate as it has in previous fossil fuel booms, and that is currently being experienced in states such as Wyoming and Texas, where fracking began sooner than it did in the Keystone State? It is too early to say, but one cautionary sign might be the rise in the number of “inactive” wells – wells that are not currently producing, but that are not required to be immediately plugged. Prior to the fracking boom in Pennsylvania and other producing states, a rise in the number of inactive wells has preceded the turnover of cleanup liability for those wells to the state.
Out of the 9000+ fracking wells currently listed by the DEP, almost 700 have been granted “inactive” status, and only three are listed as having been plugged in total. At some point, these inactive wells will have to start producing again or be forced to undergo plugging and reclamation. Given the declining financial state of many operators, companies may not have the capital to finance cleanup, and will be forced to forfeit their meager bond for the state to do their dirty work.