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Issue No. 16 - September 15, 2013

1. Fracking and property values

Fracking and property values
As reported in this Ecowatch article, in 2012 Duke University and Resources for the Future published Shale Gas Development and Property Values: Differences Across Drinking Water Sources, a National Bureau of Economic Research (NBER) working paper on the effects of unconventional gas drilling on property values in Washington County, Pennsylvania. The study found that in isolation, the risk of groundwater pollution could negatively affect property values by as much as 24 percent, enough to fully offset any gains from lease payments or an increase in local economic activity. This potential for a decline in the value of a property was found to be higher if the property used groundwater rather than a public water supply.
Properties with an on-site water well were found to lose 13% of their value.The study did not examine the potential negative effects of other "negative externalities" than the risk to groundwater, such as increased traffic and noise, air, and light pollution.

"Gas Drilling Jitters Unsettle Catskills Sales" (New York Times, Sept. 2012) relates the difficulty a landowner in Hancock, NY, in the desirable Catskills region, was having trying to sell his 14-acre site with a house and two garages (and a gas lease)...for $107,000. Another landowner trying to sell a ranch house on six acres, located near land for which gas leases had been signed, was having no luck selling at the price of $164,000, reduced from $219,000. The article discusses the difficulties selling property generally in the Catskills, despite the fact that hydraulic fracking has not yet been authorised for the region.

"Loss of property values, difficulty getting mortgages and home insurance" (from reports that property owners who have actually experienced negative effects of shale gas development on or near their land, such as health problems or explosions, have in some cases had to evacuate their homes with no prospect of being able to sell them, even at values reduced by 75%, and risk having their mortgages foreclosed.

On the other hand, "Wind Farms Don't Affect Property Values" (EcoWatch). Such were the findings of this study, which was supported by the US Department of Energy.

2. Fracking and mortgages

Fracking and mortgages

"How the Fracking Boom Could Lead to a Housing Bust" (The Atlantic, August 2013) reports on the housing market in areas such as Bradford County, Pennsylvania, where 93% of land is under lease to gas companies. A couple of prospective buyers in Washington County, Pennsylvania was recently refused a mortgage because the property they intended to purchase was across the street from a gas installation.
"Rush to Drill for Natural Gas Creates Conflicts With Mortgages" (NYT, Oct. 2011), part of the Drilling Down series of articles, reported that major US mortgage lenders Fannie Mae and Freddie Mac prohibit mortgage holders from signing gas leases without the prior consent of the lender. The article contains links to many documents obtained by the New York Times, such as this one, which outlines the Fannie Mae/Freddie Mac position.

3. Fracking and insurance

The Fuss Over Fracking

A resident of St. Anne's, in the Fylde district of Lancashire, England, recently reported on the trouble he was having finding a home insurance provider willing to cover the risks associated with hydraulic fracturing, which is proposed for his area. Here is an excerpt:

"My brokers have made enquiries of nearly 300 insurance companies, either by telephoning them directly, or via email. The vast majority are treating this as an ‘Excluded Peril’ and are not prepared to cover the risk under any circumstances, even if the risk was shared by the policyholder by increasing the voluntary excess. However, they have found one company, Royal, Sun Alliance, who are prepared to underwrite the risk. However, in order to facilitate this, they have increased my premium by 19.4%."

The ability (or inability) of homeowners in fracking areas to obtain home insurance is not the only issue of concern related to shale gas development and insurance. Another is the level of mandatory insurance coverage required by public authorities of gas companies engaged in fracking. This report by Milliman, one of the world's largest providers of actuarial and related products and services, outlines the "potential for catastrophic losses" and concludes that: "Strengthened insurance requirements could be an effective way to alleviate concerns that potential victims or the public will be left holding the bag if something were to go wrong."

The Fuss Over Fracking: An Examination of the Insurance Issues Associated with Hydro-Fracking
, a white paper published by the law firm Nelson Levine de Luca & Hamilton (see graphic above), provides an in-depth examination of the insurance and liability issues related to hydraulic fracking, to aid insurers in assessing the potential risks.