Environmentally Speaking

As the second Obama administration takes root, the shale gas and oil boom in the United States continues to drive economic resurgence. And, the outlook for energy independence grows brighter. The U.S. Energy Information Administration (EIA) now estimates increased production of shale gas will lead the United States to become a net exporter of natural gas by 2020.

In the energy and mining sphere, the companies fueled by the shale boom, include producers, service companies, pipeline companies, and suppliers of materials like steel, mud, cement, sand and guar. All remain watchful of the federal, state and local policies and regulations that are likely to impact demand as well as the manner in which their goods and services are delivered.

Below is a quick look ahead at the various shale plays and the key environmental issues that are likely to serve as market drivers.

State of Plays

EIA estimates dry gas production in the United States will increase by at least 8 trillion cubic feet in 2013. Some industry projections are much higher, citing potential policy changes relating to climate change and the Obama administration’s commitments to reduce carbon emissions.

Notwithstanding recently low gas prices, production from the Marcellus Shale continues to increase and is estimated at just less than 10 billion cubic feet per day. The U.S. Geological Survey’s updated assessment for the Bakken Shale in April 2013 finds that the formation contains nearly 7.4 billion barrels of undiscovered, technically recoverable oil, which is nearly double its 2008 estimate. In 2012, the EIA estimated that the Monterey Shale, the largest shale oil formation in the United States, held more than 15 billion barrels of technically recoverable oil.

California is beginning to wrestle with the tensions created by its extraordinary demand for reliable, low-cost energy, its politically progressive tendencies, and its maze of regulatory restrictions. Additional technical limitations are present in the Monterrey play due, in part, to the tightness of the formation. Swiftly advancing technologies and industry know how are expected to overcome these obstacles in little time. Other obstacles to expanding development do exist as the California State Office of the BLM announced in early May that it has postponed all California oil and gas lease sales for 2013, citing budget constraints and a shift in focus to conducting inspections and enforcement.

Regulatory Issues

Regulatory developments at the state level have focused primarily on well construction requirements – i.e., requiring various design elements and drilling practices to reduce environmental impacts and enhance the likelihood that well integrity will be maintained over the life of the well. States also have looked at ways to increase the amount of information that producers make publicly available with regard to the chemicals used in their hydraulic fracturing activities.

The website run by the Groundwater Protection Council – FracFocus.org – has proven to be a useful platform for making this information available in a meaningful way and many states have adopted it as their disclosure requirement.

States are continuing to look at water supply and disposal constraints. Operators are increasingly recycling produced water from prior wells to reduce demand on existing supplies. Pennsylvania and West Virginia are considering legislation that would facilitate the use of acid mine drainage, or “mine influenced water, from coal operations as a water supply for hydraulic fracturing operations.

With regard to disposal, operators typically have disposed of water from hydraulic fracturing operations at underground injection wells regulated under the Safe Drinking Water Act Underground Injection Program. Regulation in this area is increasing as states look for ways to impose recycling requirements as well as more stringent standards for the disposal wells.

Chickens and Lizards

Species issues are also something that the shale industry will confront in the years ahead. If a species is listed as “endangered” or “threatened” under the federal Endangered Species Act or a state analog, limitations can be placed on the development of land where those species are located. The presence of the species, or even merely its habitat, can result in restrictions. States and industry have been working together to develop species conservation plans to head off listings at the federal level, and in some instances, e.g. the Lesser Prairie-Chicken, that approach has worked.

That said, as a result of a settlement reached with the Center for Biological Diversity in 2011, the U.S. Department of Fish and Wildlife has published a work plan for expediting listing decisions of more than 450 species over the next several years. Some of these species are very likely to have habitat that overlays with significant shale gas plays. Additional listings will complicate siting decisions for well pads, pipelines and other infrastructure.

EPA’s Study

At the federal level, EPA is spending 2013 collecting more data to support its study of the effects of hydraulic fracturing on drinking water.  EPA is still in the process of honing the scope of the study, and the Agency has already decided to jettison some components of the study’s results, such as the proposed prospective case studies that the Agency originally proposed.

BLM’s Re-Proposed Rule

BLM is also planning its own rule for hydraulic fracturing on federal and tribal lands. BLM originally released its proposed rule in early 2012, but, after receiving significant input from stakeholders, the proposal was withdrawn and a revised draft was promised. Although many states with active shale plays have argued that BLM’s proposal is redundant and duplicative, the new Secretary of the Interior, Sally Jewell, has announced that a re-proposed rule will be released this year.

New Legislation

In federal legislation, the “Frac Act,” a federal chemical disclosure act originally introduced in 2009, was re-introduced as part of the Climate Protection Act of 2013. The Frac Act has never received much traction and is arguably even less relevant in 2013 due to the number of states that already have enacted chemical disclosure regimes. While it is highly unlikely that Congress will move any comprehensive legislation applicable to hydraulic fracturing in the foreseeable future, it is possible that Congress could introduce legislation in 2013 to limit EPA or BLM attempts to promulgate regulations that encroach on the states’ historical regulation of oil and gas development.

Local Influences

Beyond federal and state influences, counties, towns and cities have attempted to control oil and gas development within their jurisdiction by passing moratoriums banning the specific process of hydraulic fracturing.

Thus far, local attempts to pass ordinances governing the specifics of oil and gas operations have generally been struck down based on the doctrine of express preemption – i.e, state level oil and gas regulations expressly preempt this area. Conversely, local government attempts to use their zoning power to outright prohibit oil and gas development have generally been upheld by state courts. This month, an appellate court in New York upheld the town of Dryden’s power to enact a zoning ordinance that banned “all activities related to the exploration for, and the production or storage of, natural gas and petroleum within its borders.” EMI

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Jason Hutt  is a partner and  Michael Weller an associate in Bracewell & Giuliani’s environmental strategies group, assisting clients in managing environmental risks, liabilities, litigation and regulatory compliance issues. Hutt is frequently called upon for input and commentary on policy matters related to shale development, and Weller is a regular contributor to the firm’s award-winning Energy Legal Blog (energylegalblog.com). Jason can be reached at jason.hutt@bgllp.com and Michael at mike.weller@bgllp.com.

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