The Big Fracking Bubble: The Scam Behind the Gas Boom
It’s not only toxic – it’s driven by a right-wing billionaire
who profits more from flipping land than drilling for gas.
Rolling Stone
15 March 2012
By Jeff Goodell
Aubrey McClendon, America's second-largest producer of natural
gas, has never been afraid of a fight. He has become a billionaire
by directing his company, Chesapeake Energy, to blast apart
gas-soaked rocks a mile underground and pump the fuel to the
surface. "We're the biggest frackers in the world," he declares
proudly over a $400 bottle of French Bordeaux at a restaurant he
co-owns in his hometown of Oklahoma City. "We frack all the time.
What's the big deal?"
McClendon dominates America's supply of natural gas the same way
the Tea Party-financing Koch brothers control the nation's
pipelines and refineries. Like them, McClendon is an influential
right-wing power broker – he helped fund the Swift Boat attacks
against John Kerry in 2004, donated $250,000 to the presidential
campaign of Rick Perry, and contributed more than $500,000 to stop
gay marriage. But unlike his fellow energy czars, McClendon knows
how to tone down his politics and present a friendlier, less
ideological face to the public. He secretly gave $26 million to
the Sierra Club to fight Big Coal, and built a Google-like campus
for Chesapeake's 4,600 employees in Oklahoma City, complete with a
63,000-square-foot day care center, a luxurious gym and four cafes
manned by cook-to-order chefs. He even voted for Barack Obama
because he thought the country needed "an inspirational figure."
At 52, McClendon still looks like the whip-smart accountant he
once aspired to be – crisp white shirt, polished shoes, a toss of
white hair. To hear him tell it, the cleaner-than-coal fuel he
produces will revive our faltering economy, free us from the
tyranny of foreign oil and save the planet from global warming. "I
have a fossil fuel that makes other fossil fuels obsolete," he
boasts. By McClendon's estimate, the industry has drilled more
than 1.2 million wells nationwide, yet so far there have been only
a few confirmed cases where things have gone wrong – despite dire
warnings from scientists and environmentalists that fracking
pollutes rivers and streams, contaminates drinking water and turns
large swaths of farmland into industrial moonscapes. "Where is the
mushroom cloud?" McClendon asks. "Where are the dogs with one leg?
Where are the people that have been maimed or hurt?"
He sips his Bordeaux; his own private wine cellar once boasted
more than 10,000 bottles.
It's a good riff, with some truth to it. But what McClendon leaves
out is the real nature of the business he's in. Fracking, it turns
out, is about producing cheap energy the same way the mortgage
crisis was about helping realize the dreams of middle-class
homeowners.
For Chesapeake, the primary profit in fracking comes not from
selling the gas itself, but from buying and flipping the land that
contains the gas. The company is now the largest leaseholder in
the United States, owning the drilling rights to some 15 million
acres – an area more than twice the size of Maryland. McClendon
has financed this land grab with junk bonds and complex
partnerships and future production deals, creating a highly
leveraged, deeply indebted company that has more in common with
Enron than ExxonMobil. As McClendon put it in a conference call
with Wall Street analysts a few years ago, "I can assure you that
buying leases for x and selling them for 5x or 10x is a lot more
profitable than trying to produce gas at $5 or $6 per million
cubic feet."
According to Arthur Berman, a respected energy consultant in Texas
who has spent years studying the industry, Chesapeake and its
lesser competitors resemble a Ponzi scheme, overhyping the promise
of shale gas in an effort to recoup their huge investments in
leases and drilling. When the wells don't pay off, the firms wind
up scrambling to mask their financial troubles with convoluted
off-book accounting methods. "This is an industry that is caught
in the grip of magical thinking," Berman says. "In fact, when you
look at the level of debt some of these companies are carrying,
and the questionable value of their gas reserves, there is a lot
in common with the subprime mortgage market just before it melted
down." Like generations of energy kingpins before him, it would
seem, McClendon's primary goal is not to solve America's energy
problems, but to build a pipeline directly from your wallet into
his.
As recently as a decade ago, many energy experts believed that
America was nearly pumped out – that the only oil and gas left
here at home was too difficult and too expensive to get out of the
ground. Until we can ferment synthetic fuels with genetically
engineered yeast or develop solar cells as cheap as Frisbees, the
argument went, we would be stuck buying oil from the Arabs.
Geologists had long known there was a lot more energy buried deep
underground – they called these subterranean rock layers "the
kitchen," because it was where the gas and oil were actually made,
before they bubbled up and gathered in reservoirs. But nobody knew
how to extract these deep reserves – at least, not in a way that
made economic sense. Then, in the 1980s, a Texas wildcatter named
George Mitchell began working on a way to drill a mile down into
the earth, turn the drill sideways, and keep drilling horizontally
into a thin layer of shale. Next, he pumped in a few million
gallons of water and sand under enough pressure to shatter the
rock. When he pumped the water out, gas and oil flowed out of the
rock's fractured pores.
The new technique ignited a boom in drilling for "unconventional"
sources of gas and oil:
Shale gas now provides 25 percent of America's gas supply,
enabling the U.S. to pass Russia as the world's largest producer
of natural gas. Initially, even environmentalists were
enthusiastic. Fred Krupp, who heads the Environmental Defense
Fund, called the gas boom a "potential game changer" – a cleaner
energy source that could replace coal and oil for a few decades,
until the cost of wind and solar power dropped enough to put
fossil fuels out of business. But exactly how much gas and oil we
can continue to squeeze out of deep sources like shale rock is
unclear. In his State of the Union address, President Obama
estimated that there's enough to fuel the country for nearly 100
years. T. Boone Pickens, the energy billionaire who has a major
stake in Chesapeake Energy, offers an even more sweeping
assessment. "Natural gas," he tells me point-blank, "is the
solution to America's energy problems."
At first, when oil and gas producers confined themselves to
fracking in the wide-open spaces of Texas and Oklahoma, nobody
much gave a damn. The trouble started in 2007, when drilling
operators made a run on the Marcellus Shale, a broad region of gas
reserves that stretches through Pennsylvania and up into Ohio and
New York. Almost overnight, fracking's technological miracle was
recast as the next great environmental menace. The Oscar-nominated
film Gasland exposed the dark underbelly of fracking, interviewing
residents who could literally light their faucets on fire, thanks
to the gas that had contaminated their drinking water. Last year,
The New York Times documented how gas drillers were dumping
millions of gallons of irradiated wastewater loaded with toxic
chemicals into Pennsylvania's rivers and streams, largely without
regulatory oversight.
At the same time, scientists began to conclude that America's
reserves of natural gas have been overhyped. In January, the
Energy Department cut its estimate of the amount of gas available
in the Marcellus Shale by nearly 70 percent, and a group
affiliated with the Colorado School of Mines warns that there may
be only 23 years' worth of economically recoverable gas left
nationwide. Even worse, new studies suggest that because of
fugitive emissions of methane from wellheads and pipelines,
natural gas may actually be no better than coal when it comes to
global warming. "I was an early optimist about natural gas," says
Robert Kennedy Jr., who sits on a panel that's advising Gov.
Andrew Cuomo on whether to allow drillers like McClendon to expand
into New York. "But after looking into it, I now believe that,
without tighter regulations and stricter oversight, the shale-gas
boom could turn out to be an economic and environmental disaster."
The oil and gas business is full of guys like T. Boone Pickens,
self-made men who rose from a hardscrabble life on the prairie to
become titans of the industry. McClendon, by contrast, grew up
awash in oil money: He's the great-nephew of Robert S. Kerr, the
influential Oklahoma governor and senator who co-founded the
Kerr-McGee Corp. in 1929.
Kerr-McGee was the ExxonMobil of its time, an energy giant that
eventually sold for $16 billion. McClendon's personal fortune is
now estimated at $1.2 billion, including a major stake in the
NBA's Oklahoma City Thunder and a $20 million retreat in Bermuda.
By the time McClendon headed off to college, at Duke University,
he didn't have much interest in the family business. He majored in
history, joined a frat and listened to a lot of Bruce Springsteen.
But his real passion was accounting. "I just wanted to be a
businessman," he says, "and to me, the best way to understand
business was to be an accountant." He might have gone on to a
steady, solid career at Arthur Andersen had he not come across an
article in The Wall Street Journal during his senior year. "It was
about two guys who had drilled a big well in the Anadarko Basin
that had blown out, and it was alleged to be the biggest blowout
in the history of the country," McClendon recalls. "They sold
their stake to Washington Gas and Light and got a $100 million
check. I thought, 'These are two dudes who just drilled a well and
it happened to hit.' So that really piqued my interest."
After graduation, McClendon married his college sweetheart and
went to work for a small Oklahoma City oil company owned by his
uncle. He worked in accounting for a few months, but quickly
became what is known in the industry as a "landman" – the person
who finds and negotiates the leases that allow drillers to extract
oil and gas. "Landmen were always the stepchild of the industry,"
he says. "Geologists and engineers were the important guys – but
it dawned on me pretty early that all their fancy ideas aren't
worth very much if we don't have a lease. If you've got the lease
and I don't, you win."
In 1982, McClendon struck out on his own as a landman. He was 23,
living in a modest house, making $24,000 a year. "I bought a
typewriter, rented an office, bought some maps and basically just
started to follow around other companies, trying to see what
crumbs they would leave," he says. He called his tiny outfit
Chesapeake Investments – for no reason except that "I always loved
that region of the country." He soon forged a partnership with
another landman, Tom Ward. "We worked together for six years,"
Ward recalls, "doing deals for scraps of land in Oklahoma, faxing
each other in the middle of the night. Eventually, we got the hang
of it."
When the fracking revolution began, McClendon says, he and Ward
quickly realized that the new technique offered them an opening.
In the natural gas industry, the advantage had long gone to
operators with the geological and engineering expertise to
pinpoint gas reservoirs.
Now it didn't matter where you drilled – the gas was pretty much
evenly distributed throughout the earth's deep shale layers. The
edge suddenly belonged to operators who could lock up as much land
as quickly and as cheaply as possible – precisely the skill that
Ward and McClendon had developed scraping around Oklahoma land
deeds. In 1989, the two men chipped in $50,000 to form a new
company, Chesapeake Energy, to focus primarily on shale gas. It
grew like a Silicon Valley startup: By 1993, when Chesapeake went
public, the firm was valued at $25 million.
From the outset, financial risk-taking was as much a part of the
firm's success as technological innovation. Chesapeake was the
first gas-exploration company to issue high-yield junk bonds,
which gave it a steady cash flow to pay for leasing and drilling.
"To be able to borrow money for 10 years and ride out
boom-and-bust cycles was almost as important an insight as
horizontal drilling," McClendon says. "For the first time, we were
able to build a company where, if something didn't work for a
little bit of time, we could regroup and find something that did
work."
By 2003, Chesapeake had expanded deeper into Oklahoma and Texas,
as well as Louisiana and Arkansas. "They became a land-acquisition
machine," says Phil Weiss, an analyst at Argus Research who has
followed the firm for more than a decade. The key to success was
discovering new gas plays before other companies, then leasing
vast tracts of land as quickly and quietly as possible.
Chesapeake's land operation became almost as technologically
sophisticated as its drilling operation, with a huge databank of
property records and mineral-ownership rights across the country.
"The goal is not just to pump gas," explains Pickens. "It's also
to lock up future reserves." The company's financial statements
estimate that it currently holds drilling rights to as much as 100
trillion cubic feet of gas – enough to supply the entire country
for five years.
At Chesapeake, McClendon operated more like a land speculator than
an oilman. "Our approach is to go in early, quietly and big," says
Henry Hood, who directs Chesapeake's land purchases. "We like to
get our deals signed before anybody knows what we're up to and
tries to run up prices." But buying up such huge swaths of land
requires huge chunks of cash – and the money often comes not from
gas production, but from selling off land or going into debt.
After Chesapeake drills a few wells in a region and "proves up"
the reserves, it hawks the leases to big oil and gas companies
looking to get into the shale-gas game. In 2010, it pocketed $2.2
billion by selling land it bought in Texas for $2,000 an acre to
one of China's largest oil companies for $11,000 an acre. "That's
a five-to-one return on investment," says Jeff Mobley,
Chesapeake's senior vice president for investor relations.
In recent years, the company has also sold off the future proceeds
it expects to receive from thousands of wells – a complex
financing deal that enables it to borrow cash now without counting
the debt it will owe when it has to drill the wells later. The
very first deal, made with Deutsche Bank and a Swiss investment
firm, brought Chesapeake more than $1 billion in return for 15
years of future production from 4,000 wells. "It's not illegal,
but most gas and oil companies don't do it," says Bob Brackett, an
analyst with Sanford C. Bernstein & Co. "Chesapeake's poor
credit rating pushes them to turn to unconventional financing."
To make its operations even riskier, leaseholders like Chesapeake
are required by law to drill on the land within three to five
years after acquiring the rights or wind up forfeiting the lease.
"The more land they acquire, the more capital they have to spend
upfront," says Deborah Rogers, a former investment banker who
learned just how precarious Chesapeake's business model was when
she looked into the firm's financial statements after the company
sunk wells near her property in Texas. "Then they have to drill it
or lose it, which further adds to capital costs. And the more they
drill, the more gas they produce, which lowers the price of gas
and further reduces their revenues. In the end, this drilling
treadmill is difficult to sustain for long – especially if the
wells underperform, or the resource turns out to not be as
valuable as they thought."
This sort of gambling suits McClendon, who is known for placing
big bets – and sometimes losing big. During the financial meltdown
in 2008, McClendon was forced to sell off 94 percent of his stock
in Chesapeake – some 33 million shares – for $550 million to meet
a margin call on his personal investments. (Only a few months
earlier, the stock had been worth $2 billion.) Despite the
dramatic setback, Chesapeake's board boosted McClendon's annual
salary to $112 million, making him the highest paid CEO at any
S&P 500 company at the time. The pay hike, which sparked a
shareholder lawsuit, was scorned by Wall Street analysts.
"McClendon clearly thinks of Chesapeake as his own personal piggy
bank," says one. In the end, that piggy bank may prove to be
empty: In February, Chesapeake announced that, because of low gas
prices, its revenues will fall $3.5 billion short of its expenses
this year.
Until a few years ago, Bradford County was a forgotten landscape
of struggling dairy farms and strip-mall nail salons dotting the
Susquehanna River in northeastern Pennsylvania.
Then, in 2007, gas speculators looking for the next big play
zeroed in on the geologic formation called the Marcellus Shale, a
300-foot-thick layer of gas-soaked rock that underlies much of
Pennsylvania, as well as parts of Ohio and New York. Chesapeake
was one of the first operators to rush into the region, buying up
nearly two million acres of land in just a few months. Since then,
the company has drilled more than 600 wells here, and it hopes to
drill thousands more, virtually covering the region with rigs. "In
10 years," McClendon says, "the Marcellus is likely to become the
most productive natural gas field in the world." The county,
population 62,000, has already been transformed from sleepy
farmland to industrial boomtown: the roads crowded with trucks
hauling water, the rail lines rumbling with trains hauling sand,
the roadside bars overflowing with drill hands from Oklahoma and
Texas, the hotels and motels booked for months in advance.
Chesapeake's operations in the region are run out of an old
department store in the county seat of Towanda, located on the
banks of the Susquehanna some 20 miles south of the New York state
border. It feels more like a military outpost than a corporate
office, with dozens of white SUVs emblazoned with the Chesapeake
logo parked in rows out front. Inside, offices are separated by
thin walls thrown up in a hurry, many of them decorated with arty
shots of drilling rigs in pristine landscapes. In these parts, the
company's PR efforts are squarely aimed at quelling any
environmental fears. To underscore how safe fracking is, Brian
Grove, Chesapeake's director of corporate development in the
Marcellus region, explains that the layer of shale being drilled
is 7,000 feet beneath the surface, whereas drinking water rarely
runs deeper than 1,000 feet. "That leaves 6,000 feet of rock in
between," he says. "There is no way that any fluids are going
to migrate from the shale rock up to the drinking-water aquifers."
Grove, an affable guy in a Chesapeake shirt, also points out that
the entire length of the well bore is encased in heavy steel, to
prevent gas from leaking into the drinking water.
What's more, he adds, the top 750 feet of the well, where it's
most likely to pass through aquifers, gets a triple layer of steel
– a precaution the company took after it had some problems with
methane near the surface getting into drinking water. In short, he
suggests, the fluids and gas traveling up the well bore are
completely isolated from the surrounding earth by up to three
layers of heavy steel. "It's a closed system," he says. "Done
right, drilling and fracking does not pollute drinking water."
This, in essence, is the mantra at Chesapeake: Everything we do is
safe and environmentally responsible. Trust us.
One afternoon, Grove drives me out to the Nomac 7 rig, which is
drilling about 15 miles east of Towanda. I climb up into the
operations box on the rig and watch as the driller guides a bit a
mile down into the earth through an eight-inch hole. Once the
drilling is finished, millions of gallons of fracking fluid –
water and sand, mixed with a host of chemicals that make the water
"slippery" – will be injected deep into the well to fracture the
underground shale. The wastewater, known as flowback, will then be
pumped out, and gas production will begin.
The problem with all sophisticated technology, of course, is that
things inevitably go wrong. Last April, a Chesapeake well in
Bradford County suffered a massive blowout. It was the onshore,
natural gas version of what happened to BP in the Gulf two years
ago: A wellhead flange failed, and toxic water gushed
uncontrollably from the well for several days before workers were
able to bring it under control. Seven families were evacuated from
their homes as 10,000 gallons of fracking fluid spilled into
surrounding pastures and streams. Pennsylvania fined the company
$250,000 – the highest penalty allowed under state law.
Well failures, in fact, are fairly common at drilling sites. I ask
Anthony Ingraffea, an engineering professor at Cornell University
and a former consultant for oil-service firms, to look at the 141
violations levied against Chesapeake in Pennsylvania last year.
According to Ingraffea, 24 of them involved failures of well
integrity. "When a well loses integrity, it means the seal is
broken and something – usually methane, but it could also be
flowback water – is leaking out underground," he says. "And it's
impossible to know where it is going, or in what amounts."
It's also impossible to know what chemicals are flowing out of the
wells, or how toxic they are, because companies like Chesapeake
are not required to disclose the compounds they use in fracking
operations. Providers of fracking fluids, such as Halliburton,
claim that the composition of such fluids can't be revealed
without disclosing trade secrets. In 2005, the industry lobbied
hard for what's known as "the Halliburton loophole," which exempts
it from federal disclosure requirements. In recent months,
Colorado, Texas and Pennsylvania have moved to tighten state
regulations and require mandatory disclosure of what's in the
fracking fluids, but loopholes still remain. "We don't know the
chemicals that are involved," Vikas Kapil, chief medical officer
at the National Center for Environmental Health, admitted at a
recent conference. "We don't have a great handle on the toxicology
of fracking chemicals."
Whatever it is, there's a lot of it: Random data I sampled from
five wells that Chesapeake drilled in Pennsylvania and Ohio last
year reveals that the company injected between 24,000 pounds and
230,000 pounds of chemicals into each well. Some of the chemicals
are relatively harmless, used in common household products. But
others – such as 2-butoxyethanol – are known to cause cancer in
animals.
An even larger threat is the flowback waste that is pumped out
after a well is fracked.
It's a salty brine, mildly radioactive, and laced not just with
toxic chemicals but with natural hydrocarbons and heavy metals
like barium and benzene, which are known carcinogens even in
minute quantities. In fracking operations out West, the flowback
is generally injected into underground sites that meet EPA
standards. But in the Marcellus, there are virtually no injection
sites. In the early days, gas producers did pretty much whatever
they wanted with the billions of gallons of toxic water their
operations produce. "Since there were no laws covering the
disposal of this stuff at first, they just dumped it into rivers
or hauled it off to sewage plants to be 'treated,' which they knew
didn't work," says Deborah Goldberg, a lawyer at
Earthjustice. "They just wanted to get rid of the stuff as
quickly and as cheaply as possible." At one fracking operation, a
subcontractor was caught opening the valves on the back of his
truck and dumping the wastewater on roads.
New laws in Pennsylvania now prohibit companies from discharging
flowback into rivers and streams. Instead, operators like
Chesapeake either "recycle" their water by running it through a
filtration system, or haul it off to Ohio and inject it
underground – a process which, some seismologists now suspect, is
the reason Ohio was hit by an uncharacteristically large number of
earthquakes last year. (The injected water lubricates fault lines,
the theory goes, causing them to slip.)
McClendon dismisses the dangers of flowback, insisting that other
industries cause far more pollution. "Why are you not focused on
the amount of oil runoff from parking lots when it rains?" he
recently asked a top environmentalist. "What about the billions of
tons of agricultural chemicals that run off every day into streams
and rivers? That's real pollution that kills real fish, and
degrades a real environment. What's worse for Chesapeake Bay?
Fertilizer runoff from poultry farms? Or fracking 200 miles away
for which there is no evidence that one drop has ever gotten more
than 100 yards away from a well site?"
According to McClendon, environmentalists hate fracking for a
self-serving reason: because it upends their dreams of green
power. "If you believe in a world where the wind and the sun are
going to produce all our power in the future, then we've disrupted
that vision of the world," he says. "On the other hand, if you
dream of a world where air is cleaner, where energy is half the
price it was before and we're not exporting a million dollars a
minute to OPEC or having to go fight wars in Afghanistan and Iraq,
then you should embrace natural gas. That's what's so troubling to
me – that people are willing to turn a blind eye to the enormous,
well-known consequences of what we do today and not realize that
this new path is the only affordable, scalable way to something
else."
Last year, scientists at Duke University, McClendon's alma mater,
published the first rigorous, peer-reviewed study of pollution at
drilling and fracking operations. Examining 60 sites in New York
and Pennsylvania, they found "systematic evidence for methane
contamination" in household drinking water: Water wells half a
mile from drilling operations were contaminated by methane at 17
times the rate of those farther from gas developments. Although
methane in water has not been studied closely as a health hazard,
it can seep into houses and build up to explosive levels.
The study caused a big stir, in part because it was the first
clear evidence that fracking was contaminating drinking water,
contrary to the industry's denials. Just weeks after the study was
released, the Pennsylvania Department of Environmental Protection
fined Chesapeake $1.1 million – the largest fine against an oil
and gas operator in the agency's history – for contaminating
17 wells in Bradford County, including some that had been part of
the Duke study.
McClendon, a major benefactor to Duke, fired off a blistering
letter to the university, which was printed in the alumni magazine
and widely circulated online. He didn't point out any errors by
the scientists or question their methodology. Instead, he went
after their character, dismissing the study as "more political
science than physical science" and accusing them of having a bias
against fossil fuels. "These guys," he tells me, "have invested
their lives in the view that climate change is occurring, that
fossil fuels are bad, and that natural gas is a fossil fuel, and
therefore it's bad."
When I ask Avner Vengosh, a geochemistry professor who served as a
lead author of the study, about McClendon's letter, he laughs
lightly. "I have no agenda," he says. "I am a scientist. I report
what the evidence I find tells me to report." He and his
colleagues visited Chesapeake's headquarters in Oklahoma a few
weeks before the study was finished and shared their results with
the company. They also offered to consider any data that
Chesapeake might have that would challenge their results. "They
offered us nothing," says one scientist who attended the meeting.
One of the wells in the study belongs to Sherry Vargson, a dairy
farmer who lives in a white house on nearly 200 acres in Granville
Summit, a rural area 20 miles from Chesapeake's regional
headquarters in Towanda. Unlike many residents, who have been
forced by gas companies to sign nondisclosure agreements, Vargson
is happy to discuss her experiences with Chesapeake. In 2007,
shortly after her two children left for college, a landman from
the company showed up at her door and asked to lease the mineral
rights beneath her farm. "He told us there was natural gas in the
shale rock a mile down, and they had a new way to drill for it
that was minimally invasive and would cause very little damage to
our land," she recalls. "He said it was a patriotic thing to do,
that natural gas would help America gain energy independence."
The landman offered Vargson $100 per acre, plus 12 percent in
royalties. He told her there was no way to predict how big the
royalties would be, but emphasized that she stood to make "a lot
of money" over the 30-year life expectancy of the well. Vargson
accepted the deal.
"We thought we were taken care of," she says.
Drilling, which began the next year, was an immediate nightmare.
One morning, Vargson woke up at 6 a.m. to find 18 trucks idling in
her driveway. The hillside behind her house was leveled for a
drill pad, and the rig went up 500 feet from her back door. Once
the fracking began, water trucks made hundreds of trips up and
down her driveway, while air compressors roared all day and night.
When the gas was flared off before production began, the flame was
so bright in the night sky that she could see it glowing red on
the horizon 12 miles away.
Vargson noticed not long after production began in 2009 that water
in the trough out back stopped freezing on cold nights. Inside the
house, the faucet began to sputter and spit.
Her husband seemed to have a lot of headaches, and Vargson felt
nauseous if she stayed in the shower for more than a few minutes.
Acting on a tip from a friend, she had her water tested. It was
loaded with methane.
"I discovered I could light my water on fire," she says. "And I
still can." To demonstrate, she walks over to the faucet in her
kitchen, lights a match and turns on the faucet.
Whoosh! A flame shoots out like a blowtorch.
Vargson stopped drinking the water after she discovered the
methane – but tests showed that her water also contained elevated
levels of toxic chemicals like radium, manganese and strontium.
Chesapeake agreed to supply Vargson with fresh drinking water,
delivered to her door in five-gallon jugs once a month, but it
denies any responsibility for the elevated methane levels. Tom
Darrah, a Duke geologist who has examined Vargson's well for a new
study, finds that difficult to square with the facts. "Anyone who
has seen the data I have and thinks this much methane in her well
is from natural sources has their head in the sand," he says.
For Vargson, and many homeowners just like her, fracking has
proved to be a full-blown disaster. Since she signed up with
Chesapeake, her back pasture has become a full-time industrial
zone, her water supply has been contaminated, and it will be
virtually impossible to sell her home, since it lacks drinkable
water. What's more, her well turned out to be a dud: The landman
from Chesapeake who sold her on the deal failed to mention that 80
percent of a well's gas is often depleted within the first two
years. In all likelihood, Vargson's well will end up being a
money-loser for Chesapeake, either sold off to another company or
refracked in an attempt to dislodge more gas. Either way, the
royalty checks that Vargson and her husband were counting on for
retirement will hardly pay for dinner and a movie. "We made about
$1,400 the first month, and it's been all downhill from there,"
she says. Her check for last November: $70.
I ask her how she feels about the promise of fracking now. "I
think the industry is destroying our water resource to extract a
gas resource," she says. "And in the long run, I don't think
that's a very smart trade."
As fracking has come under increasing attack, McClendon has used
his financial clout to keep the drills pumping. Chesapeake spent
only $2 million on federal lobbying last year – about average for
a company its size – but it has contributed almost as much to
political candidates and PACs in the current election cycle as the
Koch brothers. (McClendon makes it clear that he won't be voting
for Obama this time around.) In Pennsylvania, Chesapeake has
contributed more than half a million dollars to state and local
politicians since 2008 – the highest total in the industry.
McClendon, who funds an industry lobbying group called America's
Natural Gas Alliance, has also used his cash to attack Big Coal,
hoping to topple his chief competitor and refit coal plants to run
on natural gas. In 2007, when a Texas utility threatened to build
11 new coal plants, he won over many clean-energy activists by
spending $1 million on a "Coal Is Filthy" media blitz. The $26
million he gave to the Sierra Club helped fund its "Beyond Coal"
campaign, which has blocked more than 150 new coal plants. But in
2010, when McClendon tried to cement an alliance with
environmental groups at a two-day conference in Colorado, the plan
backfired. McClendon struck many of the assembled activists as
aloof and arrogant. A few weeks later, after he backed away from a
promise to lobby for tougher laws requiring the industry to
disclose the chemicals it uses in fracking fluid, one top
environmentalist sent an e-mail to other participants calling
McClendon "a pathological liar."
But McClendon's worst enemy may not be environmentalists or coal
companies, but his own recklessness. He played a leading role in
creating the fracking bubble by hyping the promise of endless
natural gas and sweet-talking Wall Street into funding a massive
land grab. If the bubble bursts, Chesapeake's stockholders won't
be the only ones who pay the price – the shock waves will be felt
throughout the economy, from homeowners who rely on natural gas
for heat to manufacturers who were betting on it to power their
new factories.
Thanks to McClendon's gambles, Chesapeake is struggling to cover
$10 billion in long-term debt. In recent weeks, the company has
announced it will sell off more land and shut down some
production. McClendon also hopes to increase demand and boost gas
prices by promoting cars and power plants that run on natural gas,
and by cutting deals to export gas to Europe and Asia, where
prices are five times higher than in the U.S.
Turning vast stretches of Pennsylvania into a pincushion in order
to ship gas to China doesn't exactly mesh with McClendon's
emphasis on making America energy independent. But unless
something changes, that's precisely where things are headed – on a
grand scale. "In the Marcellus, the boom has just begun," says
Ingraffea, the Cornell engineer. "The idea is to drill
everywhere." Tougher laws and stricter enforcement could mitigate
the damage to people and the environment, but widespread drilling
– especially at the boomtown pace that McClendon is pushing – will
inevitably result in mishaps. Well casings will fail. Fracking
chemicals will be spilled. Drinking water will be contaminated.
Methane will seep into the atmosphere, accelerating global
warming. When you add it all up, you can see why many
environmentalists and clean-energy activists no longer see natural
gas as a bridge to a more sustainable future. "It's time to stop
thinking of natural gas as a 'kinder, gentler' energy source,"
Mike Brune, executive director of the Sierra Club, recently
blogged.
"Instead of rushing to see how quickly we can extract natural gas,
we should be focusing on how to be sure we are using less."
That kind of talk enrages McClendon. "What does that mean, Mike?"
he asks angrily when I ask him about Brune's comment over dinner
at his restaurant. "Does that mean we maximize the use of coal?
That we fill the countryside with windmills and kill all the
migratory birds and double electricity prices while we do it?
What's the human cost to doubling electricity prices? What's the
human benefit to halving them? I think those are enormously
important questions that are never imposed at the same time people
say, 'Fracking is bad.'"
I look at the $400 bottle of wine on the table. Much of what
McClendon says is misleading – wind power is as cheap as gas in
some places and falling fast, and cutting back on gas doesn't have
to mean burning more coal. But his plan is clear. He's not going
to back off until every last square foot of shale rock in America
is drilled and fracked and sucked clean of gas. McClendon may rely
on sophisticated new drilling technologies, but at heart, he's
driven by the same dream of endless extraction that has gripped
oil barons and coal companies since the dawn of the Industrial
Revolution. In the end, all his talk of energy independence and a
cleaner, brighter future boils down to a single demand, as simple
as it is disastrous: Drill, baby, drill.