Competition for Water: Farming vs. Fracking

Claudia Hitaj, Jeremy G. Weber, and Andrew Boslett

United States Association for Energy Economics North American Conference

October 25-28, 2015Pittsburgh, PA

*The views are those of the authors and should not be attributed to the USDA or the Economic Research Service

Fracking and Farming in the News• “When drought occurs, fracking

and farming collide” (Denver Post, Feb 2014)

• “Kale or fracking? Farmers and corporations fight it out for water” (The Guardian, Nov 2014) Hydraulic Fracturing & Water

Stress, Ceres (2014)

EnergyInDepth.org (2014)

3

Motivation

• Academic research on shale development and water has focused on water quality (Olmstead et al., 2013; Vidic et al., 2013)

• We focus on water quantity: does fracking crowd out water use in agriculture?

• Fracking uses several million gallons per well– Fracking in Texas’ Eagle Ford Shale can at times

account for nearly 90% of local water use (Nicot and Scanlon, 2012)

5

Oil and Gas Extraction: Water Use Varies Within Plays

5

Map created using data from USGS

Acres of Irrigated Harvested Cropland as Percent of All Harvested Cropland Acreage: 2012

U.S. Department of Agriculture, National Agricultural Statistics Service

7

Theory

• Growth in water demand not necessarily a problem if institutions account for water scarcity

• But they may not (e.g. rule of capture), and fracking may cause further overuse

• A lack of crowding out may reflect– Fracking uses too little water to affect prices– Poorly functioning water markets (e.g. prices and

use don’t change)

8

Data

Farm-level• Farm and Ranch Irrigation Survey (FRIS) from

2003, 2008, and 2013County-level• Water use per well across shale plays (USGS)• Wells drilled (DrillingInfo)• Palmer modified drought index (NOAA)

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MethodologyDependent variables• Quantity of water for irrigation on farm (gallons

and gallons/acre), and price of waterIndependent variables• Quantity of water used for fracking normalized by

county area• Drought index and drought index squaredModels• Fixed effects at the farm level• First difference with state and state*year FE

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Fixed Effects: Irrigation Water (Gallons)Dependent variable:

Water for irrigation (gallons)All shale

states Kansas Louisiana Montana

Water for fracking -0.060 -2.151* 0.457** 3.937**(gallons/acres in county) (0.057) (1.231) (0.229) (1.717)

Drought index 134.033*** 63.942 6.550 67.742(24.461) (113.787) (172.173) (54.095)

Drought index squared -8.334*** -4.517 0.710 -4.884(1.514) (7.537) (11.994) (2.990)

Constant -395.947*** -19.364 -12.579 -163.357 (92.990) (409.499) (603.462) (220.331)

Number of observations 28,232 1,594 2,350 1,791Adjusted R2 0.006 0.008 0.007 0.003

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Fixed Effects: Irrigation Water (Gallons/Acre)Dependent variable: Water for irrigation

(gallons/acre)All shale states Arkansas Oklahoma Texas Pennsylvania

Water for fracking 20.685 -35.795** -55.237** 42.596* 6.562**

(gallons/acre in county) (18.419) (17.880) (23.980) (23.772) (3.152)

Drought index 59,878*** -214,396 -8,756 117,784*** 75,212*

(12,327) (144,320) (16,328) (45,196) (39,236)

Drought index squared -4,042*** 6,618 525 -8,933** -4,220**

(739) (8,588) (951) (3,751) (2,117)

Constant -1,208 1,613,224*** 104,249 -243,039* -308,328*

(47,987) (604,335) (68,281) (133,306) (180,241)

No. of observations 21,399 1,709 1,098 2,154 1,179

Adjusted R2 0.014 0.152 0.005 0.057 0.019

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First Difference ResultsD.Water for irrigation (gallons) D.Water for irrigation (gal/acre)

Stacked 2008-2013 2003-2013 Stacked 2008-2013 2003-2013

D.Water used for fracking -0.043** -0.023 -0.044 6.508 -1.012 -17.626

(gal/acres in county) (0.022) (0.026) (0.030) (8.724) (12.227) (13.600)

D.Drought index -19.6 -44.5** -111*** 32,816*** 28,347*** 16,100*

(16.044) (18.385) (21.302) (6,546) (8,347) (9,222)

D.Drought index squared 0.317 1.943 5.808*** -2,413*** -2,123*** -1,180*

(1.051) (1.209) (1.406) (430.951) (547.693) (610.168)

Indicator if in 03-08 148*** 15,842**

(17.0) (6,236)

No. of observations 28,237 12,221 12,221 16,471 6,377 6,282

Adjusted R-squared 0.016 0.007 0.005 0.014 0.009 0.005

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Fixed Effects: Water PriceDependent variable: All shale states Wyoming Texas

Water price ($/million gallons)

Water for fracking -0.00036 0.00242 0.00308

(gallons/acres in county) (0.001) (0.009) (0.002)

Drought index -0.428 -0.077 -1.608***

(0.272) (1.421) (0.293)

Drought index squared 0.026 0.009 0.107***

(0.018) (0.118) (0.026)

Constant 5.620*** 3.287 10.324***

(0.978) (3.951) (0.845)

Number of observations 3,525 423 214

Adjusted R-squared 0.022 -0.001 0.319

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Preliminary Results: MixedIn this specification, can detect:• No effect of fracking on the cost of surface water to farmers• No nation-wide effect of fracking on water use for irrigation

Effect varies across regions

Negative effectArkansas (Fayetteville), Oklahoma (Woodford), Kansas (Woodford, Excello)

Positive effectLouisiana (Haynesville), Montana (Bakken), Texas (Eagle Ford, Barnett, Haynesville), Pennsylvania (Marcellus)

What factors are we missing?

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LimitationsDo not account for:• Production changes within a farm over time

– Switching to a different crop– Improving efficiency of irrigation machinery

• Different water markets and sources of water• Reuse of fracking water• Larger farms are more likely to be part of the

survey multiple times

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Summary• Fracking can have a negative or positive effect on

irrigation in agriculture– Competition for water – Wealth effect for farmers through increased economic activity

or royalties• A lack of crowding out may reflect

– Poorly functioning water markets – Isolated water markets– Fracking uses too little water to affect prices

• Future work:– Test additional model specifications and samples– Identify the role of different water markets

Shale Production

U.S. Drought Monitor, Week of April 14, 2015

droughtmonitor.unl.edu

ProPublica

Fixed Effects: Shale Coverage

Irrigated acres Value of ag products

Non-irrigated harv. acres

Percent of county covering a tight or shale formation

0.141*** 1,427.188 0.184***

(0.027) (1,116.857) (0.055)

(year=1997)*percent tight/shale -0.068*** -80.693 -0.117***

(0.006) (115.671) (0.012)

(year=2002)*percent tight/shale -0.176*** -44.888 -0.202***

(0.008) (124.960) (0.017)

(year=2007)*percent tight/shale -0.263*** -733.568*** -0.274***

(0.009) (229.356) (0.020)

(year=2012)*percent tight/shale -0.300*** -1,248.265*** -0.535***

(0.011) (284.409) (0.025)

Ag-wide effect

Non-irrigated harvested acreage does not include pastureland or non-harvested land

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Fixed Effects: Energy Production

Irrigated acres Value of ag products

Non-irrigated harv. acres

Btu of energy (oil + gas) per county area in acres 0.027*** -421.369** 0.035***

(0.008) (202.283) (0.008)

(year=2007)*Btu energy -0.021*** -12.572 -0.051***(0.007) (92.212) (0.007)

(year=2012)*Btu energy -0.029*** -114.694 -0.064***

(0.008) (164.631) (0.007)

Ag-wide effect

Non-irrigated harvested acreage does not include pastureland or non-harvested land

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First DifferencingDep. Var.: D.Irrigated Acres Shale states Irrigation areas

D.Btu Energy (02-07 and 07-12) -0.001 -0.012

(0.002) (0.015)

D.Btu Energy (07-12) -0.003 -0.133***

(0.003) (0.032)

D.Btu Energy (02-12) -0.006* -0.091***

(0.003) (0.027)

Oil/Gas Production Over Time (County-Level)Dep. Var.: Oil & Gas Production (Btu/acre)

Shale states WY, CO, TX

Percent of county covering either a tight or shale formation

177.711*** 287.924***

(47.167) (110.377)

(year=2007)*percent tight/shale 171.040*** 308.480***

(45.211) (114.166)

(year=2012)*percent tight/shale 555.157*** 757.189***

(118.897) (229.693)

Observations 3,184 860

Instrumental Variables (County-Level)

Dependent variable D.Log Irrigated Acres

D.Share Irrigated Acres

D.Log Non-Irrigated Cropland

D.Log Value Ag Production

D.Log Value/Acre

D.Oil/Gas production 0.520 -1.640 -0.030 -0.805*** -0.036

(Btu/acre) (0.553) (2.075) (0.294) (0.311) (0.194)

D.Drought index 0.018* 0.090** 0.048*** 0.019*** 0.007

(0.010) (0.038) (0.009) (0.005) (0.005)

D.Drought index squared -0.001 0.004 -0.001* -0.001*** 0.000

(0.001) (0.002) (0.001) (0.000) (0.000)

Constant 0.068 2.686*** 0.047 0.286*** -0.007

(0.109) (0.595) (0.049) (0.045) (0.032)

Number of observations 2,055 2,054 1,842 2,055 2,055

Adjusted R2 0.019 0.123 0.127 0.076 0.463

Instrumenting for oil & gas production per acre with percent of county covering a tight/shale formationNon-irrigated harvested acreage does not include pastureland or non-harvested land

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Conclusions• Mixed results at the national level across the different

specifications: – Some evidence of an impact of fracking on water use, particularly in

irrigation areas (localized impacts)– Negative agriculture-wide effect

• A lack of crowding out may reflect– Poorly functioning water markets – Fracking uses too little water to affect prices

• Future work:– Focus on the intensive margin using FRIS data– Test additional model specifications and samples– Identify the role of different water markets– Interact rainfall and the effect of fracking