Marcellus Shale Natural Gas Drilling Operators' Choice of Wastewater Disposal Method
Open Access
- Author:
- Edmundson, Caitlyn Elizabeth
- Graduate Program:
- Agricultural Economics
- Degree:
- Master of Science
- Document Type:
- Master Thesis
- Date of Defense:
- August 01, 2012
- Committee Members:
- Charles William Abdalla, Thesis Advisor/Co-Advisor
- Keywords:
- Marcellus Shale
natural gas drilling
wastewater
underground injection
recycling and reuse
brine treatment plant
logit - Abstract:
- As natural gas drilling in the Marcellus Shale region moves forward, the issue of wastewater disposal has risen to the forefront. In 2010, the Pennsylvania Department of Environmental Protection (PA DEP) issued more stringent total dissolved solids (TDS) regulations effectively prohibiting the discharge of wastewater into Pennsylvania’s surface waters. Then in April 2011, the PA DEP requested that drilling operators cease sending wastewater to municipal sewage treatment plants. These policies have increased the use of underground injection, particularly in Ohio, and recycling and reuse as wastewater disposal methods. This thesis seeks to determine the factors that a drilling company considers in its choice of wastewater disposal method, through the use of a mixed logit model. In particular, the model includes price, distance, size, competition, distance to “nearest” large city, and river basin dummy variables. The model is then estimated using Stata 12 and the coefficient estimates obtained are then used to calculate the marginal effects of the variables on the probabilities that a brine or industrial waste treatment plant, an injection well, or recycling and reuse will be the disposal method chosen. The results show that the marginal effects of the price and distance variables both have the expected negative signs, meaning that an increase in either of them will result in a decrease in the probability that the corresponding disposal method will be chosen. This represents rational economic behavior. Overall the price of the disposal method and, more importantly, the cost of transporting the wastewater from the gas production well to the disposal location (for which the distance variable is a proxy), have the largest impacts on the probability that a particular alternative will be chosen. This indicates that policies that affect the price or location of disposal methods will be the most effective in influencing the use of a particular method. The marginal effect of the size variable has a positive sign which can be explained through economies of scale. The competition variable also has a positive sign. An increase in competition would place a strain on the supply of freshwater withdrawals available for the fracing process which would then create a market for the treated water that is produced by the recycling facilities. Therefore the use of recycling and reuse facilities to treat wastewater would be encouraged. The marginal effect of the “distance to nearest large city” variable has a negative sign which can be explained by access to valuable infrastructure, such as roads and pipelines, which is the result of being located close to a city. The marginal effects of the river basin dummy variables were not as intuitive and would benefit from a recalculation using a counterfactual simulation (as discussed in Section 4.4) instead of the method actually used. The results of the model estimation are then used to calculate the marginal effects of the explanatory variables on the probabilities that the three disposal methods (brine or industrial waste treatment plant, injection well, and recycling and reuse) will be chosen by the drilling operators. Their interpretations can then be used to predict what the future of wastewater disposal will look like under three possible future scenarios (a business-as-usual scenario, a permanent moratorium in Youngstown, Ohio, and a scenario in which Pennsylvania takes primacy of its underground injection program). The interpretations of the marginal effects of the variables, as well as the conclusions gleaned from the three presented scenarios, can then be considered by policymakers and utilized to influence future policies in the state of Pennsylvania.