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Oct. 29 --The Occupational Safety and Health Administration's proposed silica rule could cost the hydraulic fracturing industry more than any other industry, according to an Oct. 24 Bloomberg Government analysis.
The proposal would impose the highest costs on companies that provide fracking services as a percentage of its annual revenue, compared with other sectors, the analysis found. The annual estimated compliance cost per fracking worker potentially exposed to silica would also be much higher than for workers in other industries.
OSHA did not initially consider the economic impact of the proposed silica rule on the fracking industry, said Bloomberg Government quantitative analyst Miguel Garrido, who authored the analysis of the silica rule's impact. Bloomberg Government is a subsidiary of Bloomberg LP, the parent company of Bloomberg BNA.
“It was known that the rule was going to have a big impact,” Garrido told Bloomberg BNA Oct. 29. “The surprising and striking thing is the industry that would be the hardest hit turns out to be fracking.”
The American Petroleum Institute, Independent Petroleum Association of America and Association of Energy Service Companies all declined Bloomberg BNA requests for comment.
Silica sand is a ubiquitous component in many fracking operations. Silica sand is mixed with water and chemicals and then blasted underground to break shale formations, with the fine sand granules acting as a “proppant” to keep the underground fractures open to allow oil or natural gas to flow. Nearly 60 percent of silica sand produced in 2012 was used in fracking, according to the U.S. Geological Survey.
The National Institute for Occupational Safety and Health recently measured the silica levels of more than 100 personal breathing zone samples at fracking sites and found just over half of them exceeded OSHA's permissible exposure limit for silica. The samples exceeded the limit by a factor of 10 or more in some instances, which is enough to overwhelm the maximum use concentration ratings for the half-mask, air-purifying respirator that workers typically wore at the sites, according to the NIOSH study, published in July (43 OSHR 733, 8/1/13).
OSHA's proposed rule would set a permissible exposure limit of 50 micrograms of respirable crystalline silica per cubic meter of air, cutting the current limit for general industry in half and the limit for construction and shipyards by four-fifths. In addition, the rule also requires engineering controls to reduce exposure, air monitoring, medical surveillance and worker training.
The agency estimated the rule's average price tag at $637 million annually over 10 years, with costs of more than $1 billion in the first year. OSHA said the proposed rule would provide $2.8 billion to $4.7 billion in average net benefits per year, based on assigning a dollar value to each anticipated life saved and illness avoided.
OSHA said 2.2 million workers are exposed to respirable silica in their workplaces, with 1.85 million of them in construction. The rule could impact more than 100 industries.
The Bloomberg Government analysis found that foundation, structure and building exterior contractors would face the largest compliance costs at $216 million annually. Other specialty trade contractors rank second at $68 million, followed by building finishing contractors at $50 million, utility system construction at $47 million and nonresidential building construction at $40 million. Fracking companies rank seventh in compliance cost at $29 million.
The proposed rule would cost the fracking industry $1,120 per affected employee and .35 percent of its annual industry revenue of $8.2 billion, according to the analysis.
“The cost as a percentage of revenues might look tiny, but some of the fracking companies may be affected in a very real way,” Bloomberg Government's Garrido said.
In comparison, the rule would cost:
• foundation, structure and building exterior contractors about $390 per employee and 0.14 percent of annual revenue,
• other specialty trade contractors about $250 per employee and .08 percent of annual revenue,
• building finishing contractors $420 per employee and .04 percent of annual revenue,
• utility system construction companies $220 per employee and .05 percent of annual revenue and
• nonresidential building construction companies $230 per employee and .01 percent of annual revenue.
OSHA said that the silica proposal would affect about 200 fracking companies, 450 establishments and 25,000 workers.
Schlumberger Ltd., Halliburton Co. and Baker Hughes Inc. account for approximately 30 percent of the fracking market, according to the Bloomberg Government analysis. Other large companies engaged in fracking include FTS International Inc., Cudd Pressure Control Inc. and Pumpco Energy Services Inc.
OSHA's preliminary economic analysis of the silica proposal estimated that there are:
• 100 fracking companies with 10 to 19 workers operating 100 establishments that earn $2 million per establishment,
• 50 companies with 20 to 99 employees operating 60 establishments that earn $5.2 million per establishment,
• 46 companies with 100 to 499 employees operating 184 establishments that earn $15 million per establishment and
• four companies with more than 500 employees operating 100 establishments earning $24 million per establishment.
Fracking companies may pass the costs of the silica rule along to oil and gas exploration and production companies, which include Exxon Mobil Corp., Occidental Petroleum Corp. and Chesapeake Energy Corp., according to the Bloomberg Government analysis.
The price of complying with the proposed silica rule is front-loaded for the fracking industry. Although OSHA pegged the annual compliance cost over the first 10 years of the rule at $29 million, the first year would cost the fracking industry $103 million and the remaining nine years at $16 million each year.
The first-year costs reflect the equipment that OSHA said companies would need to buy. For example, a “baghouse” that fits over hatches and collects sand costs $45,000, and dust booths for highly exposed workers cost $10,000 each.
The agency said that 88 percent of workers that operate and tend equipment in the central sand-handling area of fracking sites require additional exposure controls. Control methods include using equipment that encloses and ventilates silica emission points, transporting sand with pneumatic systems, suppressing dust with water spray, enclosing workers and substituting silica sand with ceramic or other non-silica proppants.
OSHA estimated that control methods could get 94 percent of the workers in the central sand-handling areas under the proposed 50-microgram permissible exposure limit.
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OSHA's preliminary economic analysis of the silica proposal's impact on the fracking industry is available at http://op.bna.com/env.nsf/r?Open=rdae-9cynls.
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