By CYRIL TUOHY is managing editor of Risk & Insurance®.
Hydraulic fracking, the process of extracting natural gas from shale formations, has been touted by all sorts of politicians and their gas lobby bankrollers as the answer to wean us off our addiction to foreign oil.
Proponents of natural gas extraction say the technique makes a lot of sense. Natural gas, for which there's a land-rush going on right now in New York, Pennsylvania, Texas and Wyoming, among other states, is plentiful.
Natural gas is clean-burning and the United States has got an almost endless supply of the stuff, proponents say. Most of all, it's cheap, they say.
Natural gas may be plentiful, but it's not cheap. It may be clean-burning compared with fossil fuels, but it's certainly not as clean as the renewables.
Fracking isn't cheap because while drilling a hole in the ground may cost mere millions of dollars, the clean-up of the environmental pollution is going to cost hundreds, perhaps billions of dollars.
Remember the Superfund program, and how much that eventually cost taxpayers beyond original estimates?
Fracking proponents argue there's no documentation connecting the gas extraction technique with ill health. They're right, but only for the moment, because fracking is so new there's no real data yet on how injecting shale formations with chemicals will damage life and property.
You don't need to be a genius to follow the exploding kitchen taps documented by Gasland to ask yourself just how much longer we have before our grandchildren suffer the effects of fracking chemicals in water supplies.
Why wait any longer to raise rates and price the risk into the underwriting models for all-risks, environmental and third-party liability coverage?
After the natural gas boom is over local residents are the ones who are going to suffer the effects of chemicals in their drinking water, and homeowners and local businesses are the ones who are going to be suing the oil drillers and operators, along with their insurance carriers.
By the time insurance companies get around to fighting the third-party liability claims in court, their gas industry clients will have been long gone. Carriers are the ones who are going to be on the hook, so why don't they do themselves a favor and raise rates on the drillers and operators to start reserving for future claims.
The tail on this risk is going to go on for centuries as tainted water makes its way into the watersheds, and carriers are going to be paying off these claims for centuries. Fracking is going to make asbestos liabilities seem like a flash in the pan by comparison.
October 15, 2011
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