The Green and the Black: The Complete Story of the Shale Revolution, the Fight Over Fracking, and the Future of Energy
What should we think of a corporation that undertakes research on one of its products only to discover that its use could be damaging—and then tries to conceal the potential dangers of that product’s use? An investigation underway by New York Attorney General Eric Schneiderman promises to shed light on one such alleged case—concerning ExxonMobil, the world’s largest oil company, and the possibility that it misled investors and the public about the dangers of climate change.
The story begins in mid-1977, when Exxon’s powerful Management Committee was briefed by James Black, a company scientist, on the potential dangers of climate change. Two years earlier, Syukuro Manabe of the US Weather Bureau and his collaborator Richard Wetherald had published the first computer model that estimated how a doubling of atmospheric concentrations of CO2 would affect Earth’s surface temperature. Their results revealed a “somewhat larger” warming of the lower atmosphere—around 4.3 degrees Fahrenheit—than had been anticipated. It also revealed that the polar regions were likely to warm two to three times faster than lower latitudes, and that worrisome disruptions to the global water cycle might result. The impetus for this landmark study came from the activities of the fossil fuels industry itself: in their introduction Manabe and Wetherald quoted a 1971 estimate by Lester Machta, director of the Air Resources Laboratory, that owing to the burning of fossil fuels, CO2 concentrations would rise by 20 percent by the end of the century.
In his briefing Black warned Exxon’s managers that the ongoing use of fossil fuels would cause Earth’s surface to warm, and that the warming might eventually endanger humanity. A year later Black took up the same theme with his research colleagues at Exxon, emphasizing some of the major uncertainties underlying the scientific projections, including how rapidly, and to what extent, the oceans could absorb the excess CO2 from the atmosphere. Within months Exxon had launched its own climate research program, including climate modeling and CO2 sampling aimed at reducing the uncertainties in climate science that Black had identified.
In order to further its research aims, Exxon formed partnerships with some of the world’s most respected climate scientists, including the Columbia-based researchers Wallace Broecker and Taro Takahashi. Their work took place in part in a sophisticated lab set up aboard the supertanker Esso Atlantic, where researchers analyzed the CO2 content of samples from air and water taken around the world from the Gulf of Mexico to the Persian Gulf. The research was aimed specifically at gaining a better understanding of the rate at which the oceans absorbed CO2, which is a key determinant of how fast greenhouse gases build up in the atmosphere and thereby push up air temperatures.
Exxon’s stated objective was “to understand where global carbon production would end up and then make forecasts of how the system would react in the future”; this had implications for how quickly “global carbon production” from the burning of fossil fuels might become a major environmental and political issue. The research results took years to publish, but by 1990 a study drawing on the data collected aboard the Esso Atlantic revealed that land-based ecosystems absorbed more CO2 than the oceans. By 2009 it had become clear that the oceans absorb only 20 percent of the annual emissions of CO2 from fossil fuels: CO2 absorption by the oceans, therefore, could not be relied upon to substantially delay the buildup of greenhouse gases in the atmosphere.
Other research questions of concern to Exxon involved the nature and extent of the impacts on the climate of increasing CO2 concentrations. By 1979 it had become evident to Exxon that computer modeling was required to investigate this. So the company’s researchers began collaborating with researchers in universities and government laboratories in order to generate highly sophisticated climate models, the forerunners of the models still in use today. It was a lauded initiative. David Slade of the US Department of Energy congratulated Exxon in 1979 for initiating a research program that he hoped “will serve as a model for research contributions from the corporate sector.”
Exxon’s research helped confirm the emerging scientific consensus about the severe risks of climate change. On November 12, 1982, the results were presented in the form of a thirty-nine-page climate change “primer.” Restricted to internal Exxon use only, the primer warned of potentially severe impacts on climate, saying that “once the effects are measurable, they might not be reversible” and that combating the threat “would require major reductions in fossil fuel combustion.”
Despite Exxon’s promising start in climate research, David Hasemyer and John Cushman show in their section of Exxon: The Road Not Taken, the new report from InsideClimate News, that subsequently the company and the scientific community have been saying very different things about climate change. In the scientific community, there was less and less uncertainty, and a consensus was forming. But Exxon, which merged with Mobil in 1999, has worked to convince the public that climate science is highly uncertain. In 2002, the company’s position was summarized by Michael MacCracken, the federal government’s chief scientist for global warming research:
To call ExxonMobil’s position out of the mainstream is…a gross understatement…. To be in opposition to the key scientific findings is rather appalling for such an established and scientific organization.
Since then, ExxonMobil’s management team has gone even further in trying to discredit the scientific consensus. In 2006 Britain’s Royal Society accused the company of funding “lobby groups that seek to misrepresent the scientific evidence relating to climate change.” In 1997 Exxon CEO Lee Raymond falsely claimed that “the earth is cooler today than it was twenty years ago.” He also repudiated the climate models Exxon researchers had helped build, saying that “1990s models were predicting temperature increases of two to five degrees Celsius by the year 2100. Last year’s models say one to three degrees. Where to next year?”
Perhaps most damagingly wrong was Raymond’s assertion that “it is highly unlikely that the temperature in the middle of the next century will be significantly affected whether policies are enacted now or twenty years from now.” What in fact was to follow that statement was nearly two decades of global, worst-case-scenario emissions of greenhouse gases. So vast was the volume emitted that the impact of those gases will be felt for many decades to come, regardless of what humanity does to reduce emissions now.
Gary Sernovitz, author of The Green and the Black: The Complete Story of the Shale Revolution, the Fight Over Fracking, and the Future of Energy, has been working in the investment side of the oil industry since 1995, when he started with Goldman Sachs. He knows the attitudes of managers of companies like ExxonMobil well, and his book takes account of their most egregious obfuscations. In many ways The Green and the Black is well balanced, reporting accurately and entertainingly on the attitudes and beliefs of oilmen and environmentalists about fracking and the oil industry in general. Strikingly, however, Sernovitz believes that the oil and gas business has changed fundamentally over the past two decades, and mostly in ways that benefit the fight against climate change. The reason, he argues, is fracking.
Sernovitz describes clearly the fracking process, which involves breaking up oil- and gas-bearing rock (typically shale) in ways that allow hydrocarbons to be extracted from it. The process is almost as old as the oil industry itself, beginning in 1866 when drillers dropped dynamite torpedoes down wells to fracture oil reservoirs and so enhance the oil flow. Over the following century acid, nitroglycerin, napalm—and in the 1950s even nuclear weapons—were experimented with to try to get at the oil. As early as the 1940s, however, it was known that water pressure provided a comparatively safe and effective means of fracking shales. When water was combined with small particles known as proppants—often sand but sometimes ceramic fragments—the flow of oil and gas was greatly enhanced because proppants keep tiny cracks in the shale open. The basic elements of modern fracking were in place.
Sernovitz traces the origins of the contemporary fracking boom to the completion of a well known as S.H. Griffin #4, which was drilled into the Barnett shale in North Texas by Mitchell Energy in 1998. The company had been experimenting for years with a variety of fluids and particles that would, it hoped, enhance the flow of hydrocarbons from the Barnett shale. The combination of fluids and proppants used in S.H. Griffin #4 was not markedly different from that used in earlier wells. But for the first time the particular combination resulted in the recovery of enough hydrocarbons for the well to show a profit. The event went unnoticed by almost everyone. Indeed it seems characteristic of the fracking boom that its significance was largely undetected, even by those on the inside like Sernovitz, for years after it had started.
The fracking of US shales, as it is most commonly done today, involves drilling a curved borehole a mile or more into the earth, with the lower section of the borehole running horizontally through the shale layer. The borehole is lined with steel and concrete, and a perforator is then lowered into it. This tube-shaped device is effectively a gun filled with bullets. When triggered, the bullets leave holes in the section of the borehole that lies in the shale. Then thousands of gallons of water, often mixed with guar (a gelling agent derived from the same bean used to make chewing gum) and some acid, diesel, or other liquids, combined with sand or ceramic proppants, are forced into the well at a pressure twenty times that of domestic hoses. The mix exits forcefully through the bullet holes in the well casing, fracturing the shale for a distance of many yards. When the pressure in the well is lowered by withdrawing part of the fracking fluid, cracks in the shale open and remain open thanks to the action of the proppants, thus allowing the gas and oil to flow to the surface.
The technological innovations required for this process to work are only one of the factors that led to the fracking boom. Another was the relatively high price of oil at the time, which made the practice profitable, and attracted sufficient investment money (prior to 2008) to support the trial-and-error business of developing the successful fracking formula. The US was also extraordinarily lucky in having just the right kind of shale for the fracking process to work in. Had US shales contained more clay, for example, the outcome would have been far less certain.
The modest innovations that perfected the fracking technique were pioneered not by the major oil corporations but by small- to medium-sized oil companies, most of which had been struggling to make money by exploiting what were considered at the time to be not very productive resources. While the fracking boom was developing, the oil and gas majors were following a very different strategy, which involved locating and exploiting ever more expensive-to-access resources, in ever more difficult places, such as deep water or the Arctic. I had an enlightening conversation in May 2009 with Tony Hayward, then CEO of BP, which revealed part of the thinking that pushed the oil majors in this direction. Why, I asked, was BP withdrawing from the solar business? “Too risky,” Hayward replied. So where, I asked, would BP go in future? “Deepwater drilling,” he said. On April 20, 2010, a major oil spill began at BP’s Deepwater Horizon oil rig in the Gulf of Mexico that would ultimately cost Hayward his job. He had, I felt, perhaps confused risk with familiarity.
Sernovitz is infuriated—indeed almost obsessed—with Josh Fox’s 2010 documentary Gasland. After it was seen by investors in fracking who had been given advice by Sernovitz, they suddenly demanded to know how the fracking companies managed water and built wells. Lengthy questionnaires, Sernovitz tells us, had to be filled out. Everyone had become an amateur engineer, wanting to discuss technical details about such subjects as well stimulation. And the questions always seemed to come back to Gasland.
Sernovitz challenges the documentary’s two major claims—that fracking causes natural gas to contaminate aquifers that people drink from, and that it involves injecting “known hazardous materials, unchecked, directly into or adjacent to underground drinking water supplies.” He argues that almost all the examples of such problems that Fox cites have nothing to do with fracking, or date from very early in the boom, when techniques were relatively unrefined. Independent studies have shown, for example, that the famous scene in which water from a tap ignites resulted from coal seam methane rather than fracked shale. Sernovitz admits, however, that it’s impossible to eliminate all faults in the fracking process, and that as a result some gas or fracking fluid may escape even from recently drilled wells.
To Sernovitz, Gasland is a diversion from the real cost–benefit analysis discussion that we should be having about fracking. On the cost side, he writes, is the annoyance caused by the industry as it emits noise and disrupts transport; and there is also the possibility that the fracking boom will exacerbate climate change. On the benefit side of the ledger, he argues, is the wealth created by fracking, the uses that its products may have in US relations with the Middle East and Russia, and the possibility that fracking will actually help address climate change.
The benefits of the fracking boom to the US economy are, in some reports, readily quantifiable. Sernovitz calculates that thanks to the fracking boom GDP will be 1 percent higher by 2040 than it otherwise would have been—an amount equivalent to the economy of Vietnam or Ukraine. And fracking has been good for employment: between 2004 and 2014 the number of jobs in the fracking industry grew from around 450,000 to 850,000—6.4 percent of the nation’s job growth over the decade. And of course the US is less dependent on oil and gas imports as a result of fracking, though Americans still imported $195 billion worth of oil in 2014.
Another national benefit for which the fracking boom is partly responsible is the low price of oil. As of early January the price of US crude oil was $34.77 per barrel, which is too low for almost any fracking to be profitable. The sensitivity of the oil industry to price has increased dramatically. In earlier decades it didn’t matter much to the oil industry whether oil was selling at $15.00 or $150.00 per barrel, because oil was cheap to produce and there was no competition from biofuels or electric vehicles. Oil from many new sources, such as the fracking shales, Alberta tar sands, and deep water reservoirs, is expensive. In 2014 John Watson, the CEO of Chevron, suggested that the break-even price for future oil developments could be $100 per barrel.
If the price of oil remains low, companies will not invest the billions required to extract such oil, nor will they explore for more. And it takes decades of exploration and investment to bring such oil to market. As a result of the low prices caused by the fracking boom—the biggest oil and gas boom in thirty years—the combined market capitalization of Shell and ExxonMobil fell $211 billion, or 28 percent, in the seven years before 2014. In effect, the aging oil industry is responding like an aging human, in that both require a narrower range of conditions relative to those of their youth.
The question of whether fracking will exacerbate or ameliorate climate change is complex. Sernovitz claims accurately that cheap gas has driven a lot of coal out of the US electricity market: the US used 17 percent less coal in 2014 than in 2004. But others argue that solar and wind energy, as well as cheap gas, have played a part, and that in the future renewables will push both coal and gas out of the electricity generation business. For example, the American analyst Jacqueline Lilinshtein, who works for Bloomberg New Energy Finance, said in October 2015: “We’ve known that wind energy can be cheaper than [natural] gas in some states, but solar is now inching toward that same milestone.” In fact Texas, where fracking was developed, leads the country in the use of wind energy, deriving 10 percent of its electricity from that source. Whatever the future of renewables, it is clear that to the extent that gas has driven coal out of the electricity market, it has helped reduce emissions from that sector. But fracking has also increased the potential supply of oil, as well as making oil cheaper. Along with emissions of methane that result from the drilling process, these factors could exacerbate the climate problem.
A recent study using complex computer models has attempted to assess the general impact on climate change of the gas made available by fracking. Overall, the authors find that gas from fracking does “not discernibly reduce the trajectory of future greenhouse gas emissions” or future climate change.* At best, the study found, by 2050 the use of the gas might have decreased emissions by 2 percent. At worst, it will have increased them by up to 11 percent.
Sernovitz makes much of the potential of innovation in fracking to extract resources and reduce costs, in the same ways that innovation has benefited solar and wind power. But the impacts of innovation on manufacturing, on the one hand, and resource extraction on the other are fundamentally different. To some degree (Sernovitz would argue to a lesser degree in fracking) each rock type is different, meaning that each well is, to a lesser or greater extent, an individually tailored operation. But when millions of almost identical units are being manufactured, innovation can have a prodigious impact. Witness the cost of solar panels, which has decreased 10 percent each year for thirty years. A huge transformation is also sweeping the wind industry. Costs are being driven down by the mass production of relatively few models, as well as containerization, the advent of gearless wind turbines, and the use of 3-D printers to produce cheaper turbine blades. As a result, some producers predict that the price of electricity from wind will be cut in half in the next five years.
Is the fracking boom the beginning of a global revolution in oil and gas, or is it more akin to a transitory and localized gold rush? As of early 2016 the low price of oil is certainly making fracking look like a boom-and-bust business. But other factors will tell in the longer term. The suitability of US shales for fracking has recently been found to be very varied. The best spots for fracking—which make up around 20 to 30 percent of any shale area—are proving to be better than predicted for yielding oil and gas, but the remaining 70 to 80 percent are proving to be worse. And the failure of fracking to catch on globally is suggesting that special circumstances were involved in the US fracking boom. Several regions and countries, including France, have banned fracking outright, but even where countries are keen to frack, the results have mostly been poor. Poland has repeatedly tried to frack its shales but their clay content is too high, and their porosity too low, to yield hydrocarbons cost-effectively.
China has the most shale of any country on earth, and has strong incentives to develop its oil and gas business. But Chinese shale is buried twice as deep as that in the US, and it is too clayey and not sufficiently brittle to frack profitably. As a result, in 2014 Chinese shales produced just 1.5 percent of the oil and gas volume extracted out of Pennsylvania’s shales, at a cost two to three times greater.
Australia has lots of shale, but the first wells drilled in Australia’s Cooper Basin, in 2014, have also yielded poor results, and companies are quietly slinking away. Argentina, paradoxically, has great shales but a political environment that works against their exploitation.
People in the oil industry, Sernovitz claims, “can easily see how our business ends,” including a future that has “everyone driving cheaper Teslas.” Yet he also asserts that “many in the oil business believe that solar and wind are liberal charity cases.” These are remarkable admissions in a book that lacks even a single reference to battery technology, much less the rapid development of electric vehicles globally. Given that the renewable energy sector is now a $270-billion-a-year business, it seems inexcusable that a book whose title includes the words “and the Future of Energy” could have such a blind spot.
The successful negotiation of a global climate deal in Paris in December 2015 may prove to be a turning point for the future of the fossil fuels industry. The parties to the Paris Agreement pledged to do their best to keep increases in global warming “to well below two degrees Celsius.” Achieving this ambitious goal will be challenging. There is already enough greenhouse gas in the atmosphere to see the increases in temperatures approach 1.5 degrees Celsius by midcentury, and if we are to have a 75 percent chance of capping warming at 2 degrees Celsius, then 80 percent of all valued fossil fuel reserves will need to stay in the ground.
For many countries, tying the Paris Agreement to domestic policy will clearly be extremely difficult; but the agreement provides for a review process that commences in 2018—prior even to the beginning of the first period of commitment (2020–2030) to programs that would reduce national greenhouse gas emissions. There is little doubt that pressure to leave at least some fossil fuel reserves in the ground will be intense, and that it will have an impact on some companies’ asset books.
One factor that may weigh in the balance is safety. The light crude oils generated by fracking can be explosive if not handled carefully, and there are concerns that transporting them by means used for heavier crudes presents dangers. The handling of natural gas is also raising concerns. On January 6, 2016, the state of California declared a state of emergency as a result of gas leaking from an old oil field into which it was injected for storage. The leak, which began in October 2015, caused more than two thousand families to be evacuated from their homes around Porter Ranch on the outskirts of Los Angeles, and another 6,500 applied for help. The gas was escaping so fast that the well accounted for a quarter of the state’s methane emissions, and the leak wasn’t capped until February 2016.
In his conclusion, Sernovitz says that “the ability to extract oil and gas from shale…has domesticated, for everyone on Earth, the snarling threat of destructive oil and gas prices,” by which he means, in part, that the propensity of the US to go to war when its oil supply is threatened has been diminished by the cheap domestic oil provided by fracking. Just how true this will be in the future is unclear. But there is increasing evidence that solar and wind power are capable of delivering affordable, safe, and clean energy to all countries.
‘Fury Over Fracking’ June 23, 2016
See Haewon McJeon et al., “Limited Impact on Decadal-Scale Climate Change from Increased Use of Natural Gas,” Nature, October 23, 2014. ↩