Fracking Insider - Key Insights Into Federal Policy and Regulatory Developments

Today the President issued an Executive Order establishing an inter-agency working group to “facilitate coordinated Administration policy efforts to support safe and responsible unconventional domestic natural gas development.” This is a welcomed respite from a series of otherwise misguided federal efforts to over-regulate hydrologic fracturing. By coordinating under the direction of the White House Domestic Policy Council the efforts of 13 federal agencies seeking to study, review or regulate unconventional gas development, and fracking in particular, the White House appears to be backing up the President’s promise in his State of the Union speech to support domestic energy production and particularly development of unconventional natural gas resources.

While long on promises of coordination and consultation, the new Executive Order is short on details. Nevertheless, any efforts to help ensure that the U.S. speaks with one voice on this issue should be welcomed by industry as a means of reducing or eliminating overlapping and superfluous federal regulation. Indeed the American Petroleum Institute was very quick to jump in support of the Executive Order.

Earlier this week, the American Chemistry Council, in testimony at a Congressional field hearing in West Virginia, noted that the ethane-rich shale gas deposits found in portions of the Marcellus Shale could be a game changer for future economic growth in the U.S. ACC projects that a 25% boost in ethane supplies could generate 400,000 U.S. jobs, $132 billion in U.S. economic output and $4.4 billion in local state and tax revenue every year (read the American Chemistry Council's press release here).

Most stakeholders seem to agree that the abundant domestic natural gas supplies made available as a result of unconventional gas resources and hydraulic fracturing techniques may be a “golden goose” for America’s energy future. President Obama’s Executive Order may help ensure that federal over-regulation does not inadvertently kill it.

The Ohio Department of Natural Resources (ODNR) has announced it will be strengthening requirements for Class II injection wells [PDF] as a result of recent earthquakes in the Youngstown area. ODNR has proposed a suite of new seismic requirements to be imposed on Class II injection well permits through specialized attached permit conditions until proposed changes to state regulations can be codified.

Critics of hydraulic fracturing have used the recent earthquakes as part of a broader push for additional regulation over the oil and gas industry. It is critical, however, to separate hydraulic fracturing from the disposal of brine associated with oil and gas extraction into Class II injection wells (see here for a good example of how the two issues often are conflated). Indeed, EPA noted in its draft hydraulic fracturing study plan [PDF] that the two most recent studies, one by the University of Texas and one by Southern Methodist University, linked seismic risk with well injection but found no link between hydraulic fracturing and seismic risk. It is injection well disposal—and not hydraulic fracturing—which the new ODNR rules will address.

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Last week, two lower courts in New York upheld municipal bans (one enacted by the Town of Middlefield, the other by the Town of Dryden) on oil and gas exploration and production within town limits. The bans were prompted by concerns over hydraulic fracturing, which is a process used to stimulate oil and gas production. As with much of the events surrounding this issue, these municipal bans have evoked emotional responses and are being closely watched across the country for their precedent setting effect. It is almost certain both decisions will be appealed.

The drilling bans highlight the tension inherent in a home rule system of government—i.e., balancing the scope of a municipality’s legislatively-granted authority in the face of central governing state law. On the one hand, municipalities have certain police power and zoning authority to pass laws and ordinances for the well-being of their citizens. These powers, however, are not unbounded. The state has a substantial interest, not only in the regulation of certain industries, but in ensuring consistency and efficiency in the regulation of those industries. Often, the state legislature will see fit to “preempt” local or municipal regulation over certain activities. With regard to oil and gas activity in New York, the State legislature drafted the preemption language as follows (ECL 23-0303[2]):

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The controversy over hydraulic fracturing has ushered in an unprecedented wave of scrutiny over the oil and gas industry from nearly every angle—new lawsuits, more state regulations, constant press (often misleading as captured well in this recent Forbes article), local protests, and city council moratoriums. At the same time the President has reeled off a series of positive statements about the future of natural gas (the most recent being his support for tax credits and other incentives to spur natural gas truck fleets), other factions in the administration are undermining the message. Companies trying to make intelligent business decisions and major capital investments—in addition to trying to gauge the whims of the market and project future demand—are being forced to navigate what is quickly becoming an increasingly uncertain and unclear regulatory environment. To try and make sense of what’s going on in Washington D.C., here are four key federal initiatives every company should be watching.

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Michele Hallowell contributed to this post.

Recent earthquakes near Youngstown, Ohio are alleged to have been caused by the increased underground injection of wastewater produced in the hydraulic fracturing boom in the Marcellus and Utica region. After reports that the wells may have been sited on a geologic fault line, environmentalists have been quick to use the quakes to call for broader federal regulation and drilling moratoriums.

Like other oil and gas drilling techniques, hydraulic fracturing produces brine wastewater that must be treated and appropriately disposed. Publicly owned treatment works (POTW) treat many kinds of wastewater, but concerns have been raised about the POTWs’ ability to adequately treat wastewater from fracking operations. In response, certain states, like Pennsylvania, have imposed moratoriums on the treatment of fracking wastewater at POTW’s. The alternative, and EPA-preferred method of disposal, has long been injection into underground wells.

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