Thursday, August 01, 2013

Study says more shale drilling could benefit economy; insurance companies fear risks

"Increased oil and gas production ranks at the top of the list of things analysts say the country can do to boost the sluggish post-recession recovery," according to a report by McKinsey Global Institute entitled "Game Changers: Five Opportunities for U.S. Growth and Renewal," Nathanial Gronewold reports for Environment and Energy News. The report suggests "that hundreds of billions of dollars could be added to the economy from shale oil and gas by 2020, and that the oil and gas industry could contribute substantially to the gross domestic product over the next seven years." (Marcellus Shale Project Documentary photo by Scott Goldsmith: Drilling site in Washington County in Pennsylvania)

The report says that "if allowed to proceed unimpeded and encouraged, oil and gas drilling and production growth could add $380 billion to $690 billion to the overall economy," Gronewold reports.
"A high volume of hydrocarbon production and other economic activities associated with it could contribute as much as 3.7 percent to national GDP by 2020."

"The report argues that the direct benefit to the oil and gas industry from shale exploitation could range from $115 billion to $225 billion by 2020, with the rest of the economic boost coming from an expected surge in manufacturing stemming from huge new reserves," Gronewold reports. "It lists petrochemicals, steel, paper and glass as industries most likely to experience a boost from expanded shale energy production. McKinsey estimates that as much as $1.4 trillion in new investments may be needed to realize shale's full potential -- investment that will come almost entirely from private sources, thus not burdening local or national public sector budgets." (Read more)

But safety concerns still linger, and some major insurance companies, concerned about potential hazards, "remain unwilling to take on fracking and well drilling risks in shale plays until operating, regulatory and legal liability issues become clearer," Peter Behr reports for E&E News. "Insurance providers want a clearer picture of the potential hazards of deep well hydraulic fracturing in U.S. shale plays as they weigh the costs of covering the risks -- or consider whether to provide insurance at all, industry officials and experts say."

Attorney Earl Hagström told Behr, "Environmental risk has been around for a long time. Insurance companies know how to deal with it. But there are a lot of unknowns (in shale gas operations), and a lot of conflicting information. If something goes wrong, how big a problem is it? It is an unresolved issue that will have to play out over the next few years, maybe longer. The insurers and the re-insurers are reticent to participate if they can't understand the risk. If they can't understand the risk, they can't price it."

Seth Chandler, a University of Houston law professor, told Behr "some operators or subcontractors may be going without drilling and fracking coverage. Standard liability insurance policies don't cover the fracking issues. If you frack and you don't have liability insurance that covers you, you're betting that nothing bad is going to happen. And if you believe the frackers, nothing does happen." (Read more)

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