Thursday, November 1, 2012

Fracking Water: fuel versus food

The United States has had a number of advantages once it became a continental power.  It was isolated, and still is, from the other great powers making immediate border defense costs low.  It was positioned, via inexpensive water transport, in between a number of major world markets, and was large enough both North-South and East-West to have a naturally diversified and independent economy.

Two more specific advantages we had were the access to our own fossil fuel supplies, and access to abundant water to supply industry and of course to raise crops.   The drought in the mid-west, with its linkage to global warming issues, and the more aggressive methods used to extract fossil fuels - with its linkage to fracking - show that both resources are coming under pressure.  Furthermore both are coming to be in competition with each other.

For Farms in the West, Oil Wells Are Thirsty Rivals
Matthew Staver,The New York Times, 7 September 2012

GREELEY, Colo. - A new race for water is rippling through the drought-scorched heartland, pitting farmers against oil and gas interests, driven by new drilling techniques that use powerful streams of water, sand and chemicals to crack the ground and release stores of oil and gas.
A single such well can require five million gallons of water, and energy companies are flocking to water auctions, farm ponds, irrigation ditches and municipal fire hydrants to get what they need.
That thirst is helping to drive an explosion of oil production here, but it is also complicating the long and emotional struggle over who drinks and who does not in the arid and fast-growing West. Farmers and environmental activists say they are worried that deep-pocketed energy companies will have purchase on increasingly scarce water supplies as they drill deep new wells that use the technique of hydraulic fracturing.
And this summer's record-breaking drought, which dried up wells and ruined crops, has only amplified those concerns.
"It's not a level playing field," said Peter V. Anderson, who grows corn and alfalfa on the parched plains of eastern Colorado. "I don't think in reality that the farmer can compete with the oil and gas companies for that water. Their return is a hell of a lot better than ours."

They are not saying that the natural gas prospectors are stealing the water, just that they are driving the cost of the water up, and that they are the only ones who can afford to pay the higher price.
As with a lot of economic activity, it is not the overall usage, but the changes at the margin, that are having an effect.  The natural gas companies are only adding the equivalent of 1/10th of 1-percent to the State's demand.  Agriculture uses 85% of the State's water to do its thing.
But when supplies are tight, even very small changes can have disproportionate pricing costs.  In supply and demand terms, an elastic demand meets and inelastic supply.  Goods that have this characteristic tend to have very wide price swings.
It is rather similar to what happens in the housing bubble buying mania.  Not everyone was flipping there homes to sell for a fast profit. Most simply continued to live in their homes.  But the activity of the people at the edges (the flippers) caused changes in the behavior of those not directly involved in home purchases.  Banks allowed borrowing on greater values, and even long term owners needed to deal with change in prices if they had to make changes - like moving for a job, or retiring to a smaller home.
So the argument as to whether fracking is using up 1/10th or 2/10ths of 1-percent are not entirely semantic.

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