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Externalities of shale: Road damage

The past few years have brought endless glowing reports about the benefits and promise of shales, both oil and gas. We have been assured of a prolific supply that will continue to be cheap and abundant for decades to come. Unfortunately industry rhetoric has proven overtly optimistic. Reserves and economic benefit are short-lived but perhaps most importantly are the negative externalities which are becoming more and more obvious. Once such externalities are factored in shales look even less attractive.

In 2012, the State of Texas took in approximately $3.6B in severance taxes from all oil and gas produced in the state. That would be wonderful if it weren’t for the fact that TxDOT estimated that the damage to Texas roads from drilling operations now totals $4B.

Interestingly, the same pattern has emerged in the Fayetteville shale play in Arkansas. Since 2009, Arkansas has taken in approximately $182M in severance taxes but estimates its road damage from drilling to be $450M.

In Pennsylvania, in the heart of the Marcellus, the state finally began imposing a fee on drilling. In 2012, approximately $204M was collected in “impact fees”. Impact fee is an appropriate name because Pennsylvania has significant impact from drilling now. New numbers are emerging on the appalling condition of Pennsylvania roads. In 2010, PennDOT estimated road damage from drilling to $265M. But by 2013, the state estimated that $3.5 billion would be needed just to maintain the states existing assets and $8.7 billion to make all the necessary bridge repairs. Admittedly, not all these costs are directly attributable to drilling operations. But interestingly, roads that are in acute disrepair are most susceptible to flooding and peripheral problems from flooding. During Hurricane Sandy, the roads that were hardest hit were in the areas most heavily drilled. According to the Times-Tribune:

“Luzerne, Wyoming, Bradford, Susquehanna, Sullivan and Lycoming counties were among the hardest hit…”

It is not at all surprising that roads in these areas would be in such dismal shape. In June 2012, TxDOT issued their findings of potential damage done by gas drilling operations. What they found was truly astonishing. It takes 1,184 loaded trucks to “bring one gas well into production,” plus 353 loaded trucks per year for maintenance and 997 loaded trucks every five years to re-frac a well. TxDOT estimates that to be the equivalent of about 8 million cars, plus 2 million cars per year for maintenance.

In addition, it is recognized across the board by every state where drilling occurs that roads that were designed for 20 years are lasting a mere 5 due to overweight vehicles transporting drilling rigs and water for fracking operations. Further, drillers are not abiding by weight limits. Not even close. Over two weekends in June and September 2010, Pennsylvania State Police inspected 2,300 gas-drilling trucks. Of those, more than 1,600 trucks were given citations for weight limit and safety violations.

The question, of course, then arises as to who should pay for this damage. Not surprisingly, industry does not want the burden.

In July 2012, Deb Hastings executive VP of the Texas Oil and Gas Association, stated to the Ft. Worth Star-Telegram when asked about road damage caused by her industry:

“Who should pay for it? That’s the kind of questions we in the industry are asking ourselves.”

It is curious that most of us think if we damage something it is our responsibility to make it right. Somehow that logic is lost here. Perhaps this is a good argument that corporations are not people.

In the Marcellus, Katherine Klaber, head of the Marcellus Shale Coalition, an industry funded public relations entity, stated:

“Businesses are looking at the return on the significant investment to explore and extract a resource and their overall costs, including what they’re being asked to pay in taxes and fees. Governments are looking at it from kind of the other side of that coin, which is how much can we extract revenue for government needs and position this revenue in a politically salient way. Those two perspectives often result in a real mismatch of interests.”

So did I understand this correctly? Did Ms. Klaber just admit that if her industry had to pay all the associated costs “to explore and extract a resource” then their return on investment would most decidedly be “a real mismatch of interests”?

Unfortunately, after engaging in such rhetoric industry, without fail, pulls out its trump card. If you continue to burden us, they argue, with your tiresome threats of taxes and impact fees for the damage we have done, we will simply move our operations to another state where they like us (hint: call their bluff here because those “states” are becoming harder and harder to find). This is the adult equivalent of threatening to take your marbles and go home.

If this industry refuses to take responsibility for the damage they have done then someone should help them pack and politely open the door. It will save the taxpayers billions.

Road image via Texas Department of Transportation

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