1. 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, 2015
Pittsburgh, PA
Fracking, which became commercially viable in the early 2000s, uses several million gallons of water per well. Oil and gas production from shale wells declines rapidly, by about 70% by the end of the first year. This means new wells must be drilled continually in order to keep up the supply of oil or gas from shale formations. Between 2008 and 2013 about 40,000 new wells were drilled each year. Jeremy Weber, Andrew Boslett, and I are studying the effect of the recent growth in oil and gas extraction on agriculture, which is the most water-intensive industry in most regions. I became interested in this topic, after I read conflicting statements from the energy and agricultural industry on the severity of this issue.
*The views are those of the authors and should not be attributed to the USDA or the Economic Research Service

2. 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)
Energy companies and Environmental groups are emphasizing different facts.
It is immediately clear that if there is any effect from fracking on water use in agriculture, the effects will be localized.
Consider Kern County, California. It is home to the North Belridge and South Belridge oil fields, the country’s sixth largest oil areas. A lot of the production in the Belridge fields has come from fracking, or hydraulic fracturing, a process that involves injecting a mixture of water, sand and chemicals into shale rocks containing oil and gas to break them open, enabling the well operators to extract them. 
The region, near Bakersfield, also is home to half of the country’s carrot crop and 40% of its pistachio production, Lee says.
These two industries are in direct competition for water. Last summer, Kern County was in crisis mode, getting only about a third of the water it had expected from the California State Water Project. So, who gets that water: the Shell/ExxonMobil joint venture now running Belridge, or the carrot and pistachio farmers? 
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)
Local water stress
In 2013, on average about wells per county in drilling regions of Arkansas, Kansas, Oklahoma, 50 in Texas, 80 in Colorado, and 110 in North Dakota.
Water, chemicals, and sand are pumped into the well to unlock the hydrocarbons trapped in shale formations by opening cracks (fractures) in the rock and allowing natural gas to flow from the shale into the well.
• When used in conjunction with horizontal drilling, hydraulic fracturing enables gas producers to extract shale gas economically.
• Without these techniques, natural gas does not flow to the well rapidly, and commercial quantities cannot be produced from shale
2 – 10 million gallons of water per well
These next maps look at the geography of shale production, water use, and irrigation across regions.

4. Shale gas: - Barnett
Fayetteville
Haynesville
Marcellus
Eagle Ford
Tight oil:
Bakken
Permian
Eagle Ford in TX and Bakken in Montana and North Dakota, and the Permian in TX are the most important tight oil plays.
Marcellus, Haynesville, Eagle Ford, Fayetteville, and Barnett are the most important shale gas plays.
Type of play, depth, gas only or oil and gas, all play a role in how much water is needed for fracking a well.

5. Oil and Gas Extraction: Water Use Varies Within Plays
This includes vertical wells, which require less water.
Bakken: ranges from 1.3 to 7.7 gal/MMBtu oil (south-eastern part to the northwestern part) or 0.82 to 1.89 million gallons per well
Eagle Ford: 10.1 gal/MMBtu of oil versus 4.1 gal/MMBtu of gas
Water use depends on a variety of factors, such as depth, type of rock formation, whether there is oil, dry gas, or a combination of both
High water use per well in Texas, Oklahoma, Kansas
Arkansas, Louisiana
Wyoming, Colorado, ND and Montana
Map created using data from USGS

6. Acres of Irrigated Harvested Cropland as Percent of All Harvested Cropland Acreage: 2012
Most irrigation in western US
Some overlap:
Arkansas & Louisiana
Texas, Oklahoma, and Kansas
Colorado, Wyoming
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)
A lack of crowding out could be good or bad. For one, it could mean that too little water is used in fracking to affect water prices. On the other hand, it could mean that water policy does not account for the scarcity of water (e.g. rule of capture), in which case people just pump more in the present (hence no change in the price of water), to the detriment of the future.
Texas groundwater belongs to the landowner. Groundwater is governed by the rule of capture, which grants landowners the right to capture the water beneath their property. The landowners do not own the water but have a right only to pump and capture whatever water is available, regardless of the effects of that pumping on neighboring wells.
Surface water, on the other hand, belongs to the state of Texas. It can be used by a landowner only with the state's permission.
We could be pumping too much groundwater to the detriment of the future.

8. Data
Farm-level
Farm and Ranch Irrigation Survey (FRIS) from 2003, 2008, and 2013
County-level
Water use per well across shale plays (USGS)
Wells drilled (DrillingInfo)
Palmer modified drought index (NOAA)
FRIS is farm-level. Quantity of water used, acres irrigated, investment in irrigation equipment
HUC – hydrologic unit code, 8 digit, converted to county-level
The Palmer Drought Severity Index (PDSI) uses readily available temperature and precipitation data to estimate relative dryness. It is a standardized index that spans -10 (dry) to +10 (wet). - See more at:

9. Methodology Dependent variables
Quantity of water for irrigation on farm (gallons and gallons/acre), and price of water
Independent variables
Quantity of water used for fracking normalized by county area
Drought index and drought index squared
Models
Fixed effects at the farm level
First difference with state and state*year FE
Fixed effect and first difference controls for time-invariant unobserved characteristics at the farm level
Price of water is determined as the cost of off-farm surface water divided by the quantity of off-farm surface water
Control for time-invariant farm-level characteristics with fixed effects or by differecing.
Almost 50% of farms were surveyed at least twice, 13% were surveyed in all three years

10. 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
***
63.942
6.550
67.742
(24.461)
( )
( )
(54.095)
Drought index squared
-8.334***
-4.517
0.710
-4.884
(1.514)
(7.537)
(11.994)
(2.990)
Constant
***
(92.990)
( )
( )
( )
Number of observations
28,232
1,594
2,350
1,791
Adjusted R2
0.006
0.008
0.007
0.003
Not unsurprisingly there is no uniform effect across all regions, since water supply varies.
However, we were surprised to see a significant positive effect as well.
We think this could be a wealth effect, farmers receive royalties and invest them in irrigation equipment.

11. 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 ** **
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

12. First Difference Results
D.Water for irrigation (gallons)
D.Water for irrigation (gal/acre)
Stacked
D.Water used for fracking
-0.043**
-0.023
-0.044
6.508
-1.012
(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)
( )
( )
( )
Indicator if in 03-08
148***
15,842**
(17.0)
(6,236)
No. of observations
28,237
12,221
16,471
6,377
6,282
Adjusted R-squared
0.016
0.007
0.005
0.014
0.009
D. stands for the 5- or 10-year difference

13. Fixed Effects: Water Price
Dependent variable:
All shale states
Wyoming
Texas
Water price ($/million gallons)
Water for fracking
(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

14. Preliminary Results: Mixed
In 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 effect Arkansas (Fayetteville), Oklahoma (Woodford), Kansas (Woodford, Excello) Positive effect Louisiana (Haynesville), Montana (Bakken), Texas (Eagle Ford, Barnett, Haynesville), Pennsylvania (Marcellus)
What factors are we missing?
Negative effect
Woodford: tight oil + shale gas
Fayetteville: shale gas
Kansas: ? Woodford (tight oil + shale gas) and Excello-Mulky (shale gas?)
Positive Effect
Eagle Ford: tight oil
Haynesville: shale gas
Barnett: shale gas
Marcellus: shale gas
Bakken: tight oil

15. Limitations Do 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
Water supply issues

16. 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
difficult to distinguish between an agriculture-wide effect and an irrigation-specific effect
With new data, we can test for the impact of royalties on irrigation

17. Shale Production

18. U.S. Drought Monitor, Week of April 14, 2015
It’s important to control for drought, since it could exacerbate any competition for water.
Drought conditions change, but here Texas, Oklahoma, Kansas are affected
droughtmonitor.unl.edu

19. Water, chemicals, and sand are pumped into the well to unlock the hydrocarbons trapped in shale formations by opening cracks (fractures) in the rock and allowing natural gas to flow from the shale into the well.
• When used in conjunction with horizontal drilling, hydraulic fracturing enables gas producers to extract shale gas economically.
• Without these techniques, natural gas does not flow to the well rapidly, and commercial quantities cannot be produced from shale
2 – 10 million gallons of water per well
ProPublica

20. Fixed Effects: Shale Coverage
Ag-wide effect
Irrigated acres
Value of ag products
Non-irrigated harv. acres
Percent of county covering a tight or shale formation
0.141*** 1,
0.184***
(0.027)
(1, )
(0.055)
(year=1997)*percent tight/shale
-0.068***
-0.117***
(0.006)
( )
(0.012)
(year=2002)*percent tight/shale
-0.176***
-0.202***
(0.008)
( )
(0.017)
(year=2007)*percent tight/shale
-0.263***
***
-0.274***
(0.009)
( )
(0.020)
(year=2012)*percent tight/shale
-0.300***
-1, ***
-0.535***
(0.011)
( )
(0.025)
For some reason we see a negative effect of being in a shale area on irrigated acres, even before shale development took place!
The large number of small farms could be messing things up
Observations: more than 2 million
Non-irrigated harvested acreage does not include pastureland or non-harvested land

21. Fixed Effects: Energy Production
Ag-wide effect
Irrigated acres
Value of ag products
Non-irrigated harv. acres
Btu of energy (oil + gas) per county area in acres
0.027*** **
0.035***
(0.008)
( )
(year=2007)*Btu energy
-0.021***
-0.051***
(0.007)
(92.212)
(year=2012)*Btu energy
-0.029***
-0.064***
( )
Observations: 1.1 million
Non-irrigated harvested acreage does not include pastureland or non-harvested land

22. First Differencing Dep. 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***
(0.027)
!!! Mention that this is a table showing the regression coefficients from SIX different regressions. We did the stacked difference and the two sets of 5 year differences separately.!!!
Observations:
Stacked difference: 860,000 for shale states and 174,000 for irrigation areas
Difference 07-12: 280,000 for shale states and 58,000 for irrigation areas
Difference 02-12: 250,000 for shale states and 52,000 for irrigation areas
With First Differencing we see an effect only in the sample of farms in irrigation areas
Irrigation areas
share of farmland irrigated in 1997 by county greater than 5%
Shale states
5 = Arkansas
8 = Colorado
20 = Kansas
22 = Louisiana
30 = Montana
31 = Nebraska
32 = Nevada
35 = New Mexico
36 = New York
38 = North Dakota
39 = Ohio
40 = Oklahoma
42 = Pennsylvania
46 = South Dakota
48 = Texas
49 = Utah
54 = West Virginia
56 = Wyoming

23. 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
***
***
(47.167)
( )
(year=2007)*percent tight/shale
***
***
(45.211)
( )
(year=2012)*percent tight/shale
***
***
( )
( )
Observations
3,184
860

24. 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)
D.Drought index squared
-0.001
0.004
-0.001*
-0.001***
0.000
(0.001)
(0.002)
(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
Adjusted R2
0.019
0.123
0.127
0.076
0.463
Instrument for oil/gas production per acre with Percent of county covering a tight or shale formation
Instrumenting for oil & gas production per acre with percent of county covering a tight/shale formation
Non-irrigated harvested acreage does not include pastureland or non-harvested land

25. 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
difficult to distinguish between an agriculture-wide effect and an irrigation-specific effect