What a Difference a Year Makes

For nearly the past decade, the growing number of earthquakes in Oklahoma has gained widespread attention. As described in the CoreLogic Insights Blog Earthquake Risk: Spotlight on Oklahoma, it has been speculated that this rapid increase in the number of earthquakes correlates with the rate of pumping of wastewater at disposal wells.¹  While increased earthquake activity in Oklahoma has somewhat become the new norm, the story continues to change.

Risk managers spanning various industries including insurance, mortgage/banking and emergency management are eager to understand the immediate and long-term risks associated with this induced seismic activity in Oklahoma. Induced seismicity is often categorized as a transient hazard, because it is expected to be short term.  As such, the U.S. Geological Survey (USGS) sought to quantify the hazard due to the increased rate of induced seismicity with its 2016 report that offered a one-year snapshot of the hazard. It is important to recognize that the one-year view adopted by the USGS is the most relevant way of capturing the hazard and associated risk given the rapidly changing rate of induced earthquakes. As a result, the strategies for managing this risk should also be updated within a similar time frame.

What a Difference a Year Makes

For the first time in recent years, 2016 was the first year in which the number of earthquakes in Oklahoma decreased compared to the previous year. Figure 1, based on earthquake data from the USGS, illustrates the number of earthquakes of magnitude 3 and higher over the past 46 years. Prior to 2009, there were fewer than three earthquakes of magnitude 3 or higher per year. Since 2009 the number of earthquakes has been on the rise year-on-year, reaching a maximum of nearly 850 events in 2015. This peak in activity then dropped by over 200 events in 2016,² demonstrating the high variability in the short term. While there were fewer earthquakes in 2016, the largest earthquake ever recorded in Oklahoma occurred on September 3, 2016 – a magnitude 5.8 near Pawnee, OK.  This event, which resulted in some structural damage, highlights that while risk management strategies need to account for a variable rate in earthquakes in hazard, they must also be inclusive of the increased probability of large and potentially damaging earthquakes. With growing concern of more damaging earthquakes, the Oklahoma Corporation Commission’s Oil & Gas Division issued a new directive for a portion of the State limiting the growth of future disposal rates.³

On March 1, 2017, the USGS released an updated view of hazard, which indicates the hazard due to induced seismicity in the Central U.S. has decreased. This decrease is attributed to the fewer number of earthquakes in 2016 compared to 2015. Speculating the cause of decrease in number of earthquakes, the USGS states: “This may be due to a decrease in wastewater injection resulting from regulatory actions and/or from a decrease in oil and gas production due to lower prices.”⁴ The price of oil began decreasing in 2014, which lead to a decrease in oil production.⁵

How High Is This Hazard?

For comparison, the USGS offers a perspective of this short-term induced seismicity hazard for Oklahoma to California, where earthquakes occurrence is historically more common. This comparison, shown in Figure 2, indicates that there is up to a 12 percent chance of damage in Oklahoma, which is on par with, or more than, the highest hazard areas of California.⁴

Diving a bit deeper into the earthquakes in these two states, the number of events in the magnitude 3-to-4 range are dominantly higher in Oklahoma (Figure 3). Even though California did have a fewer number of total earthquakes in 2016, the state has a greater number of events higher than magnitude 4. The larger events are of greatest concern due to the potential damage that may occur.

Implications for Risk Management

The USGS reports for hazard due to induced seismicity demonstrate that the short-term view of hazard is comparable or higher in Oklahoma than in California. However, risk cannot be assessed with hazard data alone. By definition, risk occurs when a hazard intersects with exposure.

With approximately 38 million people in California and 3.8 million in Oklahoma,⁶ the population and corresponding insurable exposure (i.e. homes, businesses and industrial facilities) at risk to earthquakes are dominantly greater in California. A recent CoreLogic study looking at earthquake risk in California reveals that a very large (magnitude 8.3) earthquake along the San Andreas fault has the potential of damaging 3.5 million homes. This scenario looks at a single event impacting the greatest area exposed to earthquake damage in California and is not a full estimate of all properties at risk to earthquake damage across the state. However, one scenario illustrates how the potential impact in California far exceeds the total residential exposure in Oklahoma.

Over the long term, with its history of large damaging earthquakes and large populations exposed to the hazard, California remains the top-ranked state for overall earthquake risk in the conterminous U.S. However, the short-term view of increased hazard due to induced seismicity in Oklahoma is important to appropriately plan for and consider. Even with fewer events in Oklahoma in 2016 compared to 2015, the September 3 Pawnee earthquake is a stark reminder that the risk is real. The USGS is committed to updating its one-year view of hazard due to induce seismicity on an annual basis and as an industry leader in earthquake risk modeling, CoreLogic remains committed to adding insights on its risk to help guide risk managers across all sectors, including insurance, mortgage/financial, and government so that they can adequately prepare. 

Sources:

1. http://users.clas.ufl.edu/prwaylen/GEO2200%20Readings/Readings/Fracking/Earthquakes%20and%20fracking.pdf
2. https://earthquake.usgs.gov/earthquakes/search/
3. https://www.documentcloud.org/documents/3474644-02-24-17-FUTURE-DISPOSAL.html
4. https://www.usgs.gov/news/new-usgs-maps-identify-potential-ground-shaking-hazards-2017
5. https://www.bloomberg.com/energy
6. http://www.enchantedlearning.com/usa/states/population.shtml

CoreLogic.com