Government Studies May Determine the Future of Fracking Regulation

Fracking—A Short History
Modern-day hydraulic fracturing results from the marriage of two technologies: hydraulic fracturing and horizontal drilling. Although these technologies are not new, it was not until 2002 or 2003 that they were first combined. In a typical fracking operation, pressurized water, sand, and chemicals are injected into shale rock formations to release trapped natural gas. Fracking is now used in thousands of wells. The result has been access to and the production of vast quantities of previously inaccessible natural gas.

As a percentage of total dry-gas production in the lower 48 states, shale-gas production has grown from 6 percent in 2006 to 29 percent in June 2011. This rapid growth is expected to continue, with shale-gas production expected to constitute 46 percent of domestic production by 2035. In the last several years alone, fracking has created thousands of jobs, and the United States has gone from being a net importer of natural gas to essentially self-sufficient. This increased supply has lowered natural-gas prices and boosted government tax revenues. Fracking may also provide environmental benefits—as the use of natural gas emits less carbon dioxide and pollutants than other fossil fuels—as well as national-security benefits—as new supplies of natural gas allow the United States to import less foreign oil.

But the risks of fracking are hotly contested. Critics allege that the chemicals in fracking fluid pollute groundwater, cause cancer, and are responsible for a host of other health maladies, and that fracking operations increase air pollution and overwhelm small communities. Some environmental groups oppose fracking unless its safety can be ensured. The Sierra Club, for example, says that fracking “should not be permitted unless it can be demonstrated that drinking water aquifers and surface waters are adequately protected from contamination.” The group also favors the public disclosure of the chemicals in fracking fluids, compliance with air quality standards, and the development of best management practices. Sierra Club Conservation Policy, Natural Gas Fracturing, December 21, 2009.

States Respond to Fracking
States have responded to the fracking revolution in widely divergent ways. Those with a long history in the oil and gas industry have embraced fracking, subject to a few regulatory changes. Texas, for example, passed a law in June 2011 that requires the public disclosure of the chemicals in fracking fluids with an exception for trade secrets. Other states, like Wyoming and Colorado, have begun regulating air emissions from fracking operations. In contrast, New York and New Jersey—two states not typically associated with the oil and gas industry—have declared moratoriums on fracking. New York’s moratorium was declared in 2010, but may soon end. The New York State Department of Environmental Conservation recently issued a pro-fracking report and draft fracking regulations, both of which are in public comment periods that end in December. New Jersey’s moratorium, meanwhile, is largely symbolic, as no fracking has occurred in or even been proposed for the Garden State. The New Jersey legislature had passed a ban on fracking, but on August 25, 2011, Governor Chris Christie issued a conditional veto that changed the prohibition to a one-year moratorium so that New Jersey could study the safety of fracking.

Federal Government Responds to Fracking
Regardless of what the states do, however, the federal government will have the final say in whether fracking and its associated activities—or at least those that substantially affect interstate commerce—are regulated at the federal or state level. Federal officials have heard the concerns about fracking loud and clear and have initiated efforts to determine whether fracking can be done safely, and, if so, whether additional regulations are needed. These efforts include the formation of the Department of Energy’s Shale Gas Production Subcommittee; proposed rules by the EPA to regulate air emissions and waste-water from fracking operations; a study by the EPA on the impact of fracking on drinking water; and the development of potential fracking regulations by the Department of the Interior (DOI). These efforts will be influential in determining whether and how the federal government regulates fracking and preempts state regulations.

Shale Gas Production Subcommittee
On March 30, 2011, President Obama instructed Secretary of Energy Steven Chu to work with all stakeholders to improve the safety of shale-gas development. Secretary Chu, in turn, created a Shale Gas Production Subcommittee to identify “measures that can be taken to reduce the environmental impact and improve the safety of shale gas production.” On August 18, 2011, the subcommittee issued a 90-day report, and it is expected to issue a 180-day report in November 2011. Shale Gas Production Subcommittee 90-Day Report, August 18, 2011.

The subcommittee’s 90-day report—described as “path-breaking” by an environmental group in "Cleaning up the fracking mess" (Environmental Defense Fund Newsletter, Fall 2011)—endorsed the view that fracking can be done safely and made recommendations related to safety, transparency, and scientific study. The report recommended the adoption of emissions standards for fracking operations. Lamenting that inadequate data was available about how much methane and other pollutants were emitted during fracking, the report recommended that companies be required to measure and disclose emissions data on a publicly available website so that the data can be aggregated and studied.

The report also recommended steps to protect water quality and noted that one challenge was the great geological variation among the shales around the country. Although a commonly perceived risk from fracking was the leakage of fracking fluid into drinking water, the report concluded that, in a properly constructed and operated well, this risk was remote because of the large distance between the water supply and the producing zone. The report recommended that states and localities measure and publicly report water quality before and after fracking occurs to provide a baseline for determining whether fracking has polluted drinking water, and recommended that return water be reused, recycled, or properly treated and that its composition be measured and publicly disclosed throughout the process.

The report also recommended that all chemicals in fracking fluids be publicly disclosed on the website FracFocus.org, with the exception of trade secrets; that all hazardous chemicals be reported, not just MSDS chemicals as currently exists; that FracFocus.org be maintained as a database with tools for searching and aggregating data; and that diesel be eliminated from fracking fluid.

On a broader level, the report recommended that jurisdictions place more emphasis on examining the cumulative impacts of fracking and that jurisdictions develop and implement processes for preventing and mitigating the impacts from production activities. A major theme of the report was the need for more research and development, both to help create best practices for the industry and to guide the development of effective regulations.

In a hearing before the Senate Committee on Energy and Natural Resources on October 4, 2011, the four subcommittee members who testified endorsed the view that the states, and not the federal government, should regulate fracking. Video of Hearing Before the Senate Energy & Natural Resources Committee, October 4, 2011. Dr. Daniel Yergin, subcommittee chairman, said there is a “gap in perception” related to fracking regulation. “I think there’s a gap in perception because I think that there’s this view that oil and gas activities are not regulated, but [we were] very impressed by the quality, focus, and the experience . . . of the states, in terms of regulating oil and gas,” he said. “But I think that there’s a very strong tradition [of state regulation] and that’s really the backbone of it. And I think it’s not as well recognized in fact in some circles. So I think there’s a very strong fabric [of state regulation] there.” Kathleen McGinty, former secretary of the Pennsylvania Department of Environmental Protection, said that the subcommittee does not “recommend that a new entity needs to do it. . . . We didn’t come up with any conclusion that the deck chairs need to be shuffled around.” Dr. Mark Zoback, professor of Geophysics at Stanford University, added that geological differences between the shales put the states in the right position to regulate fracking, and for this reason, he opposed a one-size-fits-all federal solution.

The subcommittee will issue its 180-day report on the progress made since August in November 2011. “The next challenge is to get our recommendations implemented by federal and state government,” said committee member and EDF President Fredd Krupp. “Why I serve on Obama’s gas commission,” Environmental Defense Fund Newsletter, Fall 2011. “These measures won’t solve every problem overnight. But if they are implemented, we’ll have a new level of transparency in the industry that will drive operators toward better environmental performance and allow the public and regulators to really tackle these problems.” “Cleaning up the fracking mess,” Environmental Defense Fund Newsletter, Fall 2011.

Environmental Protection Agency
The EPA has proposed new fracking regulations related to air emissions and wastewater and is currently studying the potential impacts of fracking on drinking water resources. On July 28, 2011, the EPA proposed new regulations related to air emissions from oil and gas operations, including fracking. “EPA proposes air rules for the oil and gas industry,” July 28, 2011. These new regulations require fracking operators to use “green” well completions, which capture methane and other gases and prevent their release into the atmosphere. These proposed regulations, according to the EPA, will be “highly cost-effective,” saving the industry nearly $30 million per year by using technologies and best practices that allow operators to capture and sell natural gas that currently escapes into the air. “Addressing Air Emissions from the Oil & Natural Gas Industry,” EPA Presentation, July 28, 2011. Public hearings on these proposed regulations were held in September 2011, and the EPA is expected to take final action by February 28, 2012.

The EPA’s proposed fracking wastewater regulations were announced on October 20, 2011. Press Release, EPA, “EPA Announces Schedule to Develop Natural Gas Wastewater Standards,” October 20, 2011. “Currently, wastewater associated with shale gas extraction is prohibited from being directly discharged to waterways and other waters of the U.S.,” said the EPA in a statement.

The initial reaction to the EPA’s statement from the industry was negative. “Like all oversight of natural gas development, wastewater disposal is actively regulated at the state level,” said Dan Whitten, spokesman for America’s Natural Gas Alliance (ANGA).

Press Release, ANGA, ANGA Comments on EPA Schedule to Develop Natural Gas Wastewater Standards, October 20, 2011. The EPA expects to develop its proposed wastewater regulations for fracking by 2014.

The 2005 Energy Policy Act stripped the EPA of most authority under the Safe Drinking Water Act to regulate the injection of fracking fluids. See 42 U.S.C. § 300h(d). But in 2010, Congress directed the EPA to study the impact of fracking on drinking water resources, and the EPA initiated a series of seven in-depth case studies that represent a diverse range of regional and geological conditions. The Haynesville Shale in Louisiana and the Marcellus Shale in Pennsylvania were chosen as the two prospective case studies. Five sites were chosen for retrospective studies, including the Bakken Shale in North Dakota, the Barnett Shale in Texas, the Marcellus Shale in Pennsylvania, and the Raton Basin in Colorado. An initial report is due at the end of 2012, and a final report is expected in 2014. This study may determine whether Congress revisits its 2005 decision and grants the EPA authority to regulate certain aspects of fracking, including the chemical composition of fracking fluids.

Department of the Interior
The U.S. Department of Interior is currently studying fracking on federal lands and is expected to propose new regulations in November 2011. These proposed regulations, which are likely to require the disclosure of the chemicals contained in fracking fluids and address requirements for the construction and monitoring of wells, reflect the DOI’s view that fracking can be done safely. “I think hydraulic fracking is very much a necessary part of the future of natural gas because without this new technology the amount of natural gas that we have available here in the country is a very diminished amount,” Interior Secretary Ken Salazar said in an interview on October 5, 2011. “And I think hydraulic fracturing can be done in a safe way, in an environmentally responsible way, and in a way that doesn’t create all the concerns that it’s creating across the country right now.” Interior could unveil gas ‘fracking’ rules within weeks, Video, The Hill, October 5, 2011.

Conclusion
The regulation of fracking is evolving and will come into better focus once these government efforts are further along. Particular attention should be paid to the DOE’s Shale Gas Production Subcommittee, the EPA’s proposed rules for air emissions and wastewater, the EPA’s water quality study, and the DOI’s proposed regulations. The results of these efforts will be influential in determining whether and to what degree the federal government allows the states to regulate fracking. The effects of who regulates fracking and how it is regulated will be felt not only in the natural gas industry, but also in the legal profession. Diligent energy practitioners would serve both their clients and their practices well by paying careful attention to this rapidly evolving field.

Keywords: DOI, EPA, fracking, hydraulic fracking, fracking regulation, shale gas

_{John S. “Jack” Edwards Jr. is an associate at Ajamie LLP in Houston, Texas. Travis Oliver IV is the owner of The Law Offices of Travis Oliver IV, APLC, and a partner in Bayou DeSiard Title Company in Monroe, Louisiana.}

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