Mention the word in any city council meeting, at a little league game or among friends at your local tavern, and you are liable to get any number of responses – and some will be quite emotional. While the Illinois Department of Natural Resources slowly irons out a regulatory process, groups against the process known as “Fracking” have made strong pushes to stop it from moving forward. Meanwhile, those in favor of the approach are attempting to expedite the rule-making effort. Aside from the regulatory process, a lot of other factors are influencing whether or not Illinois will actually see a major increase in jobs and revenue because of technological advances in hydraulic fracturing. Do the hoped-for reserves exist? Will companies choose to pass by Illinois in favor of more “frack-friendly” states? And if the initiative does take hold, what is in store for those communities involved?
Hydraulic fracturing (also known as fracking) is the process of injecting wells with a hydraulic fracturing fluid, generally composed of water, proppant (such as sand), and chemicals that lubricate and stabilize the injection process. When injected under high pressure and with charges, the process allows the fluid to create small cracks in harder earth formations, and the aggregate keeps the tiny fissures open so that petroleum products can flow back into the well once the fluid has been removed. This process has been widely used for oil and gas extraction at over a million wells since the 1950’s (Energy Institute, 2012). However, new technology allows for deeper wells that are bored horizontally once they reach the desired depth, to access stores of petroleum products that have developed within deep organically-rich shale beds. A study by the National Petroleum Council has indicated that hydraulic fracturing will be the likely source of just under 70% of North America’s natural gas development (2011). And IHS Global Insights indicated that, without hydraulic fracturing, the U.S. would lose 45% of its domestic natural gas production and 17% of domestic oil production within five years (2009).
Experts purport that conditions are right for discovery of large stores of oil and gas deposits in the New Albany shale bed, which covers parts of Illinois, Indiana, and Kentucky. Potentially, large oil-rich portions of the formation are located within Illinois. With successful initiatives launched in Pennsylvania, Ohio, Texas, North Dakota and many other states, it is not surprising that advocates of the process are seeking to implement it in Illinois as soon as possible. The Illinois Chamber Foundation commissioned a study by Dr. David Loomis in December, 2012, entitled, “The Potential Economic Impact of New Albany Gas on the Illinois Economy.” In the study, Loomis indicates that three scenarios exist for the employment potential once the administrative rules are completed and the process begins in Illinois. At the low end, only 1,034 new direct, indirect and induced jobs would be created. But at the high end, 47,312 would be created, translating to more than $9.5 billion in economic impact for Illinois. The study did not include the economic impact of land leases or the potential benefits of extractable oil deposits. As a result, the economic benefits could be much greater.
The Illinois Hydraulic Fracturing Regulatory Act (HFRA) went into effect on June 17, 2013 and will be the basis for regulating high-volume, horizontal hydraulic fracturing operations in the state. For purposes of Illinois statute, high-volume, horizontal hydraulic fracturing is distinguished from traditional fracking in that “…more than 80,000 gallons per stage or more than 300,000 gallons total of hydraulic fracturing fluid and proppant (would be used) to initiate or propagate fractures…” at the site (Illinois PA 098-0022, Article 1, Sec. 1-5). The act is touted as the most restrictive of any state’s hydraulic fracturing laws, with the Illinois DNR and EPA charged with the duties of regulation and enforcement of the process. The IDNR is undertaking the massive effort of sorting through more than 35,000 public comments (unofficial count) on the draft administrative rules, which were gathered during a 45-day public comment period from November 15, 2013 to January 3, 2014. Many comments were issued during a series of five public meetings, but the vast majority was issued online. As a result of the backlog, IDNR was unable to issue a set of revised administrative rules to the Joint Committee on Administrative Rules (JCAR) of the General Assembly, originally planned to occur in April of 2014. IDNR hopes to do so sometime in July of 2014. JCAR will have an additional 45-day public comment period and a similarly high number of public comments are likely to be issued when that period begins. As a result, I anticipate that the State of Illinois will not have a set of administrative rules for implementing the HFRA until sometime in spring of 2015.
This is discouraging for many in the oil and gas industry, as well as those who cite the potential economic benefit as a primary driver for replenishment of the state’s economy. Under the HFRA, all severance tax revenues are earmarked for the state’s general fund. And fees for fracking permits are used to pay for enforcement by IDNR and IEPA. Currently, local governments hope to benefit from increased sales and property tax revenues in order to assist with road repairs, other infrastructure needs, or increased personnel costs for public safety and other services if fracking activities occur.
This additional revenue may not be enough. As an example, with many rural county road budget allocations set at .1% of the assessed property tax valuation, a county-wide increase of $100,000,000 in equalized assessed value would result in $100,000 to fund road repairs. This revenue arrives two years after the actual increase in value and the amount actually needed for repairs may well reach into the millions, given the heavy trucking conditions that such roads are generally not built to accommodate.
Other challenges include the housing needs of both high-and low-skilled transient workers. This can result in a number of challenges for often-unregulated and unzoned townships, where work camps can pop up in various unsewered and unwatered locations. On a smaller scale, multiple workers may make arrangements with homeowners to park a handful of RV’s in their driveways and overload local septic tank capacities. In areas with a limited number of apartments, rent inflation can occur, challenging folks on limited incomes, such as retirees.
In a May, 2014, conference call with staff from Ohio State University’s College of Food, Agricultural and Environmental Sciences, I learned that many communities realize the potential for workforce development opportunities if they stay ahead of the curve. Those communities that did not plan ahead often found their local bus drivers and street department personnel leaving their posts to fill truck driving positions with fracking rig operators at much higher wages. Some local colleges in Ohio began offering training in local pipeline drill-site training, specialized welding, security, diesel mechanics. With approximately 75% of short-term jobs being filled by transient staff, a number of support industries also have increased or sprung up, such as; motor vehicle sales and services, food service, hazardous emergency training, housecleaning, and laundry services.
As a result of the many challenges and opportunities that fracking may hold in store for rural central Illinois communities, the regulatory delay has one silver lining for us. Our local governments have the time needed to better prepare for, and capitalize on, what is to come.
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