Gas extraction with a downside
Fracking is one of the key methods of extracting difficult-to-reach and unconventional oil and gas resources. During the process, water, sand and chemicals are injected into the rock at high pressure that allows the gas to flow out to the head of the well. The term fracking refers to how the rock is fractured apart by the high-pressure mixture.
Since the early 1950s more than 1 million fracking jobs have been performed in the US alone, and today facilities seem to pop up everywhere. Understandably, this activity has raised a lot of environmental concerns. It has also forced thousands of people to relocate, because of the increased traffic and noise as well as chemical emissions and fumes.
Furthermore, fracking involves huge amounts of water that have to be transported to the fracking sites in areas such as Texas where water resources are already scarce.
On the other hand, shale gas production has significantly boosted the oil production in the US and driven down gas prices. Fracking is believed to guarantee gas supplies in the US and Canada for the next 100 years and it also presents an opportunity to generate electricity at half the CO2 emissions of coal. These are the benefits that the energy companies and some politicians present in defense of shale gas and fracking.
Today, fracking happens primarily in Texas and other American states, but the industry expects the drilling for shale gas to expand to other countries within years. No matter what local communities and environmental activists say, fracking will continue in one way or another.
What we can do as active investors is that we can make sure that it is carried out the right way. This means that the companies involved take the environmental issues and local communities into account and address the associated risks the right way. We believe that this can contribute to better revenue and some energy companies share our belief. These are the companies that we will be looking to invest in.