Despite a gathering storm of environmental concerns over the use of extreme hydraulic drilling techniques, or ‘fracking’, Van Eck Global recently launched the first U.S.-listed exchange-traded frack fund. FRAK offers “pure-play exposure” to companies such as Chesapeake Energy Corp., Devon Energy Corp., Eog Resources, Noble Energy, and Occidental Petroleum Corp., all of which use these unconventional methods to tap methane, oil and natural gas. The fund essentially is a bet that the nation’s energy needs will trump concerns over the environmental impact of fracking, or at least that such concerns will be relatively easy to manage.

Hydraulic drilling bores at a diagonal angle to hit the horizontal reservoirs — as opposed to sending a drill straight down — which greatly increases the chances of hitting the targeted deposits, say proponents. But the process also entails drilling through miles of rock and fracturing the shale with a voluminous cocktail of locally drawn water, sand and chemicals, some toxic, injected under extreme pressure to release the gases. And that has contaminated local drinking water and air and allegedly produced other public hazards, including earthquakes.  

Van Eck’s Market Vectors Unconventional Oil & Gas ETF (FRAK) takes these concerns more or less in stride. Fracking is considered “a quantum leap” from historic methods of gas and oil drilling that makes extraction from hard to reach deposits much more feasible, says Shawn Reynolds, a senior energy analyst for Van Eck. “It allows you to access resources from areas that haven’t been profitable in volumes that made sense economically,” Reynolds explains.

Yet a political backlash is clearly brewing. In 2005 the Bush administration created what critics call the Halliburton loophole, a last minute exemption inserted into an energy bill at the request of then-vice president and former Halliburton CEO Dick Cheney. This stripped the EPA’s authority over injection wells used in hydraulic fracturing, a process invented by Halliburton in the 1940s.

But after reports of air and water contamination near fracking operations, the EPA last year verified that fracking chemicals, including benzine, had appeared in a Wyoming aquifer, that methane gas was found in Pennsylvania drinking water and that fracking chemicals were detected in air quality tests in Texas.

“Until these loopholes are filled the natural gas industry will continue to put our environment and health at risk,” says Deb Nardone, director of the Sierra Club’s Natural Gas Reform Campaign. Sure enough, the air and water contamination findings have spawned state and federal legislation aimed at curtailing the use of fracking.