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Fracking - U.S. Going Down The Wrong Road

Commodities / Water Sector Jan 28, 2013 - 06:44 PM GMT

By: Robert_M_Williams


Some things are so sad that you have to laugh. One of the big rallying cries in Washington is that we’ll make the US ‘oil independent’ in a decade or two, meaning we’ll no longer have to depend on foreign imports. Of course it’s typical of Washington that no one tells you what the cost of such a bold venture will be, and I’m not necessarily talking about the dollar cost either. The supposed key to breaking the shackles of foreign oil is a process called “fracking”. Fracking is a process that injects a mixture of water and rock-shattering chemicals (all benign, according to industry) into an underground shale formation with the goal of opening fissures in the rock that allow hydrocarbons to flow to the surface.

I don’t know a lot about fracking, but I do know something about mining. In mining they use a process called heap leaching that drips a chemical and water mixture onto mineral spread over a big field. This process has been used a lot in Latin America, and when you drive through mining country you’ll see kilometers upon kilometers of land that is absolutely useless because of the contamination. Then there are the dramatically increased incidences of all types of cancer in the surrounding villages.

Of course all of this dances around the point. In the first place oil is a finite resource and by finding a way to get larger amounts of oil out of the earth at a faster pace, you’ll only run out sooner. What you should be doing is developing alternative methods of energy that pollute less, like wind and solar. Secondly and more importantly no one seems to understand or care that you are using a very scarce resource, water, to extract what’s left of a finite resource, oil. Perhaps more importantly you are taking that scarce resource, water, and you are contaminating it so as to leave it undrinkable!

I’m sure that we’ll have several committees in Washington packed with Senators and Congressmen who will scream about protecting their constituents and the environment, but the PAC’s will get to them. In the end they’ll give it their “seal of approval” and the oil companies will be free to make trillions at your expense. What someone should do is go to one of those committees and offer our politicians glasses of the very water, with supposedly benign material, and see if they drink it. I don’t think there will be many takers!

I’ve talked about oil and fracking because that’s where the media is focusing. I’ve also been around long enough to know that in today’s world, when the media wants you to look in one direction, you would do well to look in the other direction. So I want to look at water. Let’s start with Aqua America, Inc., the largest water company in the US:


This chart goes back to the year 2000 and you can see that price has more than quadrupled! Then we have American Water Works, another large water company formed in 2008:

Their share price has more than doubled since they entered the market place. By the way, do these charts remind you of anything? Perhaps a chart of the price of gold!!

Right now the United States is entering the second year of significant draught and water is a rare commodity. You have projects like Alberta’s (Canada) oil sands mines requiring more than 3 barrels of water to produce a barrel of bitumen. With daily output of 1.5 million barrels, the oil sands project is one thirsty customer. Fortunately for Big Oil, northern Alberta is blessed with the mighty Athabasca River. Many US shale producers wish they were so lucky. The industry’s growing need for water comes at a time when much of the country is grinding through the worst drought in more than half a century.

Just to get an idea of how much water is involved in the process, consider that in Texas’s Eagle Ford formation, one of the country’s most prolific shale plays; it takes about 150,000 gallons to drill a single well. And that’s a drop in the bucket compared to the 6 million gallons that are needed to frack that same well. Unlike northern Alberta, there isn’t a whole lot of water flowing through Texas these days. Last summer, companies were forced to truck in water from as far away as 75 miles in order to drill their wells. Meanwhile producers in Pennsylvania are running into similar problems trying to drill into the region’s Marcellus formation. State water authorities have cut off companies from drawing water from at least two major rivers. A shortage of water forced one producer, Breitling Oil and Gas, to shutter production from more than 10 percent of its wells.

When it comes to achieving energy independence, the ongoing drought in the US Midwest is an unexpected obstacle. Production from North Dakota’s Bakken play, already at 700,000 barrels a day, holds the potential to double and even triple, according to the IEA. That forecast, however, is critically contingent on sourcing adequate supplies of water. Simply put, without water you can’t frack. We’re already seeing a tug of war between the water needs of the fracking boom in the Bakken and barge traffic on the Mississippi. North Dakota wants to tap reservoirs that feed the Missouri River for fracking. Others want that water diverted to the Mississippi to ensure the river maintains the minimum level needed for shipping. South of St. Louis, low water levels are threatening to shut down commercial barge traffic.


Sooner or later we’ll run out of oil so an investment in fracking may have some short-term success, if the water holds out. The smart money though is going in another direction, toward water and alternative energy companies, because we all need to drink and sunlight is almost an infinite supply. Take a look at this chart for Solar Winds, Inc.:

Once again we see that the stock price has more than tripled in less than four years. Finally, assuming that we’ll have a significant correction these are companies that will continue to do well. Why? We have to have clean drinking water and we need electricity. We will run out of oil, probably sooner than most anticipate, so you would be wise to follow the smart money. After all they took their positions in gold in 1999 at US $255.00 and ounce; that’s why they’re called smart!

(For more information on these and other similar companies, send me and e-mail and I will get back to you.)

Robert M. Williams

St. Andrews Investments, LLC

Nevada, USA

Copyright © 2013 Robert M. Williams - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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