Hydraulic fracturing – the process of extracting oil and gas resources that requires breaking rock through the high-pressured injection of liquid into the ground, popularly known as “fracking” – has caused an uptick in the number of earthquakes that are occurring across the nation. That was the conclusion of a panel of experts, including one associated with the natural-gas industry, during the Center for Insurance Policy Research session at this month’s meeting of the National Association of Insurance Commissioners in Chicago.

It was not without some irony that that conclusion was proffered at an event hosted by Oklahoma Insurance Commissioner John Doak. His department, along with the Pennsylvania Insurance Department, circulated bulletins to insurers early in 2015 disputing the connection between seismic activity and injection. Oklahoma’s bulletin states:

At present, there is no agreement at a scientific or governmental level concerning any connection between injection wells or fracking and earthquakes…In light of the unsettled science, I am concerned that insurers could be denying claims based on the unsupported belief that these earthquakes were the result of fracking or injection well activity. If that were the case, companies could expect the Department to take appropriate action to enforce the law.

While delineating between natural and induced seismic activity is a difficult task, the clear increase in the number of documented earthquakes led the panel to attribute the change to saltwater injection and disagree with the bulletin’s conclusion.

There have been regulatory efforts to ask insurers not to enforce policy exceptions for “triggered earthquakes.” But this could mean claims that are higher than those that would be supported by approved rates and forms out. Joseph Kelleher, an attorney with Dinker, Biddle & Reath, LLP pointed out that insurers simply hadn’t priced for such expansive liability.

In terms of the induced earthquakes themselves, to date, they have not been particularly severe. The panel’s consensus was that the average has been around magnitude 3.0. When asked whether it is possible for fracking to induce a high-magnitude seismic event, the panel equivocated, noting that such events appear unlikely, since no such event has been observed to-date. Nonetheless, Steve Horton of the University of Memphis’ Center for Earthquake Research suggested that caution demands that extraction efforts should avoid known areas of major fault lines, like New Madrid.

The good news for residents near injection sites, their insurers and those in the gas-extraction business is that it is possible to curtail so-called “induced seismic activity” through better liquid-disposal techniques. Water disposal is crucial, given that gas wells – measured proportionally by their output – are actually water wells. In Oklahoma, the Mississippian Lime oil play averages 9.8 barrels of water for every equivalent barrel equivalent of gas. That average is indicative of a national trend.

Mississippian Lime*Slide from “State of the Science: Triggered Seismicity in Oklahoma” by Dr. Kyle Murray.

Waste water from injection wells is often pumped back into the earth. The more water that is pumped into disposal wells, the greater the risk of seismic activity. To reduce that risk, the panel suggested recycling and reusing the water. In combination with such technical changes, the panel reported that Arkansas had enjoyed a decrease in seismic activity since it opted to prohibit exploration within 1 mile of known faults.

The insurance industry is in an interesting position when it comes to induced seismic events. It stands to gain from the continued adoption of energy generated through natural gas, because of the fuel’s net positive impact on climate change. But policy creep enforced by regulators to cover an increasing number of seismic events endangers both the industry’s underwriting flexibility and the accuracy of its prices.



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