Fracking and house prices, Buyer beware by C.R., January 15, 2014, The Economist
WHEN potential purchasers look around a house for sale, it’s the property’s visible features that typically draw most attention. The number of bedrooms, amount of floor space, and what the local area is like all tend to have the greatest influence on how much a house is worth. On the other hand, environmental threats to particular properties—from flooding, pollution, and other disasters—are often not considered by potential buyers, because they are not immediately obvious. But new research suggests these less-visible factors are now starting to affect property values as well.
A new NBER paper* argues that the impact of fracking on water quality has affected the value of otherwise similar properties in parts of America. … Looking at house prices in parts of Pennsylvania and New York between 1995 and 2012, the paper finds that house prices near shale-gas developments fall when they rely on ground-water sources for their water supplies, because of fears that the fracking process may pollute local aquifers. However, homes which are similar but are dependent on piped water from other areas appear to receive a small boost in value from such developments. Better public knowledge about the threat environmental risks pose to individual properties is also starting to affect prices in other places around the world. As we pointed out in the print edition last month, increasing public awareness of flood risks has recently started to influence house prices in parts of Britain:
The housing market seems already to be pricing in higher [flood] risk. Between 2008 and 2012 property prices rose in four out of the five Lincolnshire postcodes with the lowest flood risk. They fell in four out of the five areas of highest risk (see chart). This may have some good effects. Forcing homeowners to shoulder more of the costs of flooding should encourage them to invest in precautions and discourage builders from erecting houses in risky areas. But in the meantime, in low-lying parts of Britain, wellington boots and sandbags may make wiser investments than houses.
One of the reasons behind this change is improved accessibility of information about such problems. For example, in Britain, more detailed flood maps displaying which properties are at risk from surface-water flooding, as well as from rivers and tides, were published online on December 12th by the Environment Agency, a regulatory body. Similarly, in America and Australia, many states are now publishing maps of where fracking is permitted to take place, and from where water supplies are drawn. Although such problems were difficult to find out about in the past, they can now often be quickly uncovered by an internet search. When it comes to buying houses, it seems, punters need no longer find themselves dropped in at the deep end.
*“The housing market impacts of shale gas development”, by Lucija Muehlenbachs, Elisheba Spiller and Christopher Timmins. NBER Working Paper 19796, January 2014.
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CLIENT ADVISORY New Technology Creates New Insurance Issues for Oil and Gas Lease Operators by Pascal Ray and the AmWINS Energy Specialty Practice
This shift to unconventional drilling and heavy multi-stage fracking has created new insurance issues for the industry:
• Increase in blowouts during the completion/fracking stage.
• Increase in blowouts involving communication between multiple wells.
• Increase in blowouts caused by casing/cementing failure.
• Increase in blowouts caused by surface events.
In addition to these blowout trends, we are seeing:
• An increase in blowouts involving producing wells.
• An increase in blowouts involving plugged and abandoned wells.
While fracking has been the cause of some of the blowout increases, producing wells and plugged and abandoned wells are experiencing underground blowouts from the failure of old and corroded casings. These underground blowouts can lead to cratering events that are costly and difficult to bring under control. Underground blowouts can be much more expensive to bring under control than surface blowouts, yet many operators do not insure these wells or have high enough limits for them. Another issue that has arisen from fracking is an increase in surface and water table pollution events that can result in expensive claims and erode the Control of Well limit rapidly, if not entirely.As a result, many of the blowouts that are now occurring are under-insured.
Gas-well ordeal finally ends well February 16, 2011
It took three years to reach a settlement and finally closure for residents impacted by a leak from a gas well drilled off English Drive in Bainbridge. According to the Ohio Department of Natural Resources, gas seeped into nearby water wells from the Ohio Valley Energy well and caused an explosion in December 2007 at the home of Richard and Thelma Payne on English Drive. Residents who joined a lawsuit against the Austintown company now are being compensated for their inconvenience and suffering …
Forty-three households were involved in the class-action suit…. A separate amount was given to Mr. and Mrs. Payne, whose house on English Drive was lifted off its foundation by the explosion. Ohio Valley Energy and other companies involved with the drilling also paid off Nationwide Insurance, which had the coverage on the Paynes’ home. [Emphasis added]
Rabobank is against shale gas extraction by Kees de Peace, July 1, 2013, Trouw
Rabobank refuse to lend to businesses that deal with the extraction of shale gas money.Even farmers who lease their land to energy companies with the intention of shale gas out of the ground, do not get loans from the bank. … Here and there by negligence and badly beaten wells question of pollution of soil and water. Thereby colliding gas interests and agricultural interests increasingly with each other. Rabobank is the largest agricultural lender. The bank considers the production of what it calls “unconventional fuels” such as oil from tar sands and shale gas from deep bedrock, as polluting and do not contribute to it. A spokeswoman for the office of Rabobank in Utrecht confirms this arrangement. Which is based on the ‘Position paper on oil and gas activities’ that the bank has recently issued. … The position of Rabobank applies worldwide, says the spokesperson, but is mainly used in practice in the U.S..
NETHERLANDS: ‘Rabobank turns against shale gas’ by Presseurop, July 1, 2013, Trouw
The country’s largest bank is refusing to lend to companies that wish to invest in shale gas. The Amsterdam daily reports that Rabobank “does not want to contribute to energy which it believes to be polluting,” and has said as much in a recent position paper on its business and sustainable development. For the moment, this decision will mainly have an impact on the bank’s operations in the US, where Rabobank is the leading lender to farmers, and where the drive to develop shale gas is such that it has been called “a second gold rush”. [Emphasis added]