LNG Global Impacts Not FERC’s Problem

Posted on July 11, 2016 by Rick Glick

In companion cases, on June 28 the DC Circuit Court of Appeals held that the Federal Energy Regulatory Commission, in its environmental impacts analysis of two Gulf Coast LNG terminals, need not assess the potential for increased natural gas extraction and use, or market effects.  The first case deals with the Freeport project in Texas, and the second the Sabine Pass project in Louisiana; the court considered these cases in parallel with each other, and the Sabine Pass case follows the reasoning in the Freeport case.

 The Sierra Club and other national NGOs have attacked LNG facilities (1) for their potential to cause an increase in fracking to extract natural gas and the attendant emission of greenhouse gases, and (2) for increasing the use of U.S.- produced natural gas in world markets, which they assert will drive up the price of natural gas domestically, thus making coal more competitive and its use more prevalent in the U.S.  On this basis the Freeport and Sabine Pass plaintiffs argued that FERC’s failure to consider these potential effects violates the National Environmental Policy Act.  The court disagreed, finding that these effects are too attenuated for FERC to have to evaluate. 

Central to the cases is the fact that the Natural Gas Act confers exclusive authority over the export of natural gas on the Department of Energy, whereas FERC is only responsible for the siting of LNG facilities.  The court reasoned that FERC’s approval of LNG facilities are not the proximate cause of gas exports, which only DOE can approve.  Therefore, FERC need not consider environmental impacts related to market forces that could increase domestic production of gas and the use of gas outside of the United States.

 These same projects face challenges brought by the same NGOs against DOE in which the issue is whether DOE complied with NEPA in authorizing exports of LNG.  The Freeport and Sabine Pass courts “express no opinion” on the merits of the DOE cases.  Still, it seems that the relationship between export approvals and operation of global gas markets is at least as attenuated as FERC’s authorization to construct facilities.  My sense is that DOE will likely prevail there as well.

HEY, JUDGE SKAVDAHL - DON’T THE INTERESTS OF THE UNITED STATES INCLUDE PROTECTING GROUNDWATER ON ITS OWN LAND?

Posted on July 6, 2016 by Karl Coplan

The Mined Lands Act directs the Bureau of Land Management to issue regulations governing mining on public lands for, inter alia, “the protection of the interests of the United States, . . . and for the safeguarding of the public welfare.” More recently, the Federal Lands Policy Management Act specifically directs the BLM to take environmental issues into account in promulgating regulations governing the use of federal lands, that is, to manage federal lands in a way,

That will protect the quality of scientific, scenic, historical, ecological, environmental, air and atmospheric, water resource, and archeological values,

Last year, acting under these statutory authorities, the BLM issued regulations governing fracking on federal lands, which required federal lessees to disclose chemicals in their fracking fluids and to take measures to prevent well leakage.  This week, the Federal District Court for the District of Wyoming struck down these regulations as exceeding BLM’s authority to regulate mining on public lands. The Court purported to find this result under the Chevron step I analysis, i.e., finding specific congressional intent that the Bureau of Land Management does not have authority to protect groundwater on public lands.  Despite the broad statutory authorities cited above, the Court found that the Energy Policy Act of 2005, which specifically exempted fracking from EPA regulation under the Safe Drinking Water Act, evidenced Congressional intent that no federal agency has jurisdiction to regulate fracking activities, even on federal lands.

This ruling ignores the obvious difference between EPA regulation to protect groundwater generally under the Safe Drinking Water Act and actions by the BLM to protect the United States’ own properties that are subject to federal leases.  FLPMA specifically directs BLM to take measures to protect ecological interests in managing federal lands, and it seems inappropriate for a federal court to second guess BLM’s balance between resource extraction and groundwater protection.  The United States in general has very broad authority to regulate activities on its own land, and Congress’ decision to exempt fracking on private lands from EPA regulation can’t possibly be read as specific Congressional intent to preclude BLM from protecting groundwater on lands owned by the United States. On another level, this decision reflects a concerning trend towards judicial activism tearing down the Obama administration’s invocation of statutory authorities to advance environmental protection in the face of a hostile Congress – witness the Supreme Court’s stay of EPA’s Clean Power Plan, and the Sixth Circuit’s stay of the Clean Water Rule.              

Environmental law got its start when courts, like the Second Circuit in Scenic Hudson Preservation Conference v. Federal Power Commission, read broad statutory grants of regulatory authority to include environmental protection.  This decision by the District of Wyoming departs from that tradition.  The BLM plans to appeal.

Fracking Ban Banned

Posted on June 24, 2015 by Jeff Civins

The State of Texas took swift action to block a municipality seeking to limit fracking.  In response to a 59 to 41% vote of its citizens, in November 2014, the City of Denton adopted an ordinance banning the well completion activity of hydraulic fracturing or fracking, which involves the high pressure injection of water, with proppants and small amounts of chemicals, into tight formations thousands of feet below surface to create and prop open fractures that facilitate the flow of oil and gas. 

Hours after the ordinance’s adoption, the Texas General Land Office and Texas Oil & Gas Association filed suit in Denton County district court, seeking to declare the ban invalid.  They argued that the ordinance intruded on powers granted by the legislature to the Railroad Commission of Texas and the Texas Commission on Environmental Quality and thus was preempted by state law.  On May 18, 2015, before the court could rule on the law suit, Texas Governor Greg Abbott signed into law House Bill 40, which removes the authority of Denton and all other Texas municipalities to regulate not only fracking, but also all other oil and gas operations.  On June 17, 2015, in recognition of House Bill 40, Denton’s City Council voted to amend its ordinance by repealing it in its entirety.  

In seeking to reconcile the interests of those concerned with state government intruding on local rule with the interests of mineral owners and their lessees concerned with intrusive governmental restrictions on the use of their property, House Bill 40’s approach arguably was solomonesque.  In just 3 pages, the bill allowed cities, under certain circumstances, to regulate above ground activities related to oil and gas operations, but barred them from regulating oil and gas operations per se, reserving that regulation to the state. 

House Bill 40 declares that oil and gas activities are subject to the exclusive jurisdiction of the state, but clarifies that municipalities may adopt an ordinance that regulates above ground activities related to oil and gas operations, including ordinances governing fire and emergency response, traffic, lights, or noise, or imposing reasonable setback requirements.  The statute requires, however, that such an ordinance be “commercially reasonable,” not effectively prohibit an “oil and gas operation” conducted by a reasonably prudent operator, and not otherwise be preempted by state or federal law.  The statute defines the quoted terms.  It also creates a presumption that an ordinance is considered prima facie to be commercially reasonable if it has been in effect for 5-years and has allowed oil and gas operations to continue during that period.  

The stated concerns of the Denton ordinance generally related not to fracking, but rather to the above ground impacts of the oil and gas activities it facilitated, that is, things like traffic, lights, noise, and safety concerns.  The Denton ordinance did express concern with the potential for contamination of drinking water aquifers, but studies, including EPA’s recently released draft assessment on fracking, generally have shown that concern to be related more to oil and gas activities generally than to the subsurface migration of contaminants associated with fracking per se.  

Even in fossil energy friendly Texas, fracking can be controversial.  The new state statute allows municipalities to address above ground effects related to oil and gas operations, subject to certain limits to be more fully fleshed out, but reserves to the state the power to regulate oil and gas operations per se.  This approach preserves local authority over things that arguably mattered most to the citizens of Denton, while preserving regulation of oil and gas development by the agencies that have historically regulated them.

To Frack or Not to Frack – Who Should Answer the Question?

Posted on January 27, 2015 by Catherine R. McCabe

On December 17, 2014, New York State’s Department of Environmental Conservation (DEC) announced that high volume hydraulic fracturing to recover natural gas (a/k/a “fracking”) will be banned on a state-wide basis.  Is this good law, good science, good policy (or politics)?  Perhaps the most important question is who should decide – states or local governments?  

The DEC’s decision to ban fracking is based on the recommendation of the state’s Department of Health (DOH), which just completed a two-year study of the state of the science on the environmental and public health risks posed by fracking. DEC requested this study after it received over 13,000 public comments on its 2009 draft programmatic environmental impact statement (EIS) for a proposed fracking permit program in New York State.

The DOH study concluded that the cumulative body of scientific information demonstrates that there are “significant uncertainties” about the environmental and public health risks of fracking --- including air pollution, drinking water contamination, surface water contamination, earthquakes, and community impacts such as increased vehicle traffic, noise and odor problems.  The DOH concluded that “it would be reckless to proceed in New York until more authoritative research is done.” 

In accepting DOH’s recommendation, DEC noted that its own review had identified dozens of potentially significant adverse impacts from fracking, and concluded that “the risks substantially outweigh any potential economic benefits” from fracking.  The Commissioner of DEC directed staff to complete the final programmatic EIS for fracking early this year, after which the fracking ban will be put into place.  (No fracking has been permitted in New York State in the interim.)

The DEC decision follows a June 2014 ruling by the New York’s highest court affirming local governments’ authority under the state’s constitution and statutes to use zoning laws to ban fracking in their jurisdictions.

There are good policy reasons for leaving the decision of whether to allow fracking up to local communities.  After all, they bear most of the environmental and potential public health risks that fracking poses. Local communities may be in the best position to decide whether those risks, or even perceived risks, are worth the economic benefits that fracking development can bring to local economies.  The Town of Dryden and Cooperstown cases make it clear that citizens and neighbors do not always agree on the right outcome for their communities.

But many of the local controversies seem to be based, at least in part, on citizens’ differing perceptions of the nature and level of risk that fracking poses to their environment and health.  Surely, the scientists in the state departments of health and environmental conservation are in a better position to evaluate that risk than local governments or individual citizens.  By making this science-based decision on behalf of all its citizens (whether you agree with it or not), New York State should be given credit for stepping up to perform one of the most basic responsibilities of state government – protecting the public health.   

Ozone, Oil and the Uintah Basin

Posted on November 6, 2014 by James Holtkamp

Ozone is the quintessential ambient pollutant.  It is the result of complicated chemical reactions involving NOx and VOCs, sunlight, humidity and temperature.  It is primarily an urban pollutant, because that is where most of the NOx and VOCs are emitted, but it is also a regional challenge particularly in the eastern U.S. 

The Uintah Basin of eastern Utah is the quintessential Western U.S. Empty Quarter.  It is sparsely populated and windswept, and is a high-altitude desert.  It is home to the Ute Indian Tribe, and the greater part of the Basin is Indian Country for purposes of environmental regulation, meaning EPA – not the State of Utah – has regulatory authority.  The Basin is home to extensive reserves of oil, gas, oil shale and oil sands.

If the Basin is a dry, windy environment, then why have ambient ozone levels spiked dramatically in the Basin the last few years, during the winter, no less?  It turns out that ozone is not only created during hot muggy summer days, but when VOCs build up during winter inversions with a lot of sun and snow.  Periodic winter high pressure systems trap the VOCs and the ozone appears.  EPA has classified the Basin as “unclassifiable” for ozone and has denied an administrative petition to classify the area as nonattainment.  That denial is currently under review at the D.C. Circuit.

So where is this aberrant ozone coming from?  Although oil and gas has been produced in the Basin for decades, the fracking boom has swept into Eastern Utah with a vengeance, and the number of wells and associated facilities has mushroomed.  Utah DEQ, EPA Region 8, the counties, the Tribe, NGOs and the operators are jointly working on strategies to mitigate the problem, including newly promulgated state rules requiring retrofit of existing wells with equipment to reduce VOCs.  These efforts are complicated, however, by the jurisdictional differences over air issues as between Utah DEQ and EPA and the results are sometimes a bit clumsy.  But all of the stakeholders see the need to address the ozone issue proactively, and the end result will hopefully be a model for addressing similar issues in North Dakota, western Wyoming and Western Colorado.

Texas Railroad Commission finalizes proposal to require seismic surveys

Posted on November 4, 2014 by Jeff Civins

Over 30 earthquakes jolted the area in and around the City of Azle, Texas —20 miles north of Fort Worth—last November through January. In response to citizen concerns, the Texas House Committee on Energy Resources created a Subcommittee on Seismic Activity to investigate whether there was a link between earthquakes and increased oil and gas production and disposal wells.  On August 12, the Railroad Commission of Texas, with support from both  the Texas oil and gas industry and environmental groups, proposed rules that would require companies to do a seismic survey before obtaining permits for new oil and gas disposal wells—so-called Class II injection wells.  On October 28, 2014, the Railroad Commission unanimously voted to finalize that proposal.

Presently, the state has more than 3600 active commercial injection wells used for the disposal of oil and gas wastes. The rules require applicants for new oil and gas disposal wells to provide additional information, including logs, geologic cross-sections, and structure maps for injection well in an area where conditions exist that may increase the risk that fluids will not be confined to the injection interval. Those conditions include, among other things, complex geology, proximity of the base rock to the injection interval, transmissive faults, and a history of seismic events in the area as demonstrated by information available from the USGS. The rules also clarify that the Railroad Commission may modify, suspend, or terminate a permit if fluids are not confined to the injection interval, that is, if it poses a risk of seismic activity. The effect of these rules will be not only to regulate oil and gas disposal activities to address potential seismic effects, but also to generate data that may be useful in determining whether and to what extent to further regulate those activities.  The rules also may serve as a model for other states concerned about the seismic effects of oil and gas waste disposal.

Texas Railroad Commission on track to address quakes

Posted on August 28, 2014 by Jeff Civins

Over 30 earthquakes jolted the area in and around the City of Azle, Texas —20 miles north of Fort Worth—last November through January.  In response to citizen concerns, the Texas House Committee on Energy Resources created a Subcommittee on Seismic Activity, to investigate whether there was a link between earthquakes and increased oil and gas production and disposal wells.  In addition, the Railroad Commission of Texas—the agency with jurisdiction over oil and gas activities in Texas--hired a state seismologist and, on August 12, approved a draft of proposed rules that would require companies to do a seismic survey before obtaining permits for new oil and gas disposal wells—so-called Class II injection wells.  Representatives of both the Texas oil and gas industry and environmental groups are supportive of this proposal.

Texas, in particular, has been part of the tremendous increase in oil and gas exploration and production activity nationwide through hydraulic fracturing and horizontal drilling.  Although “fracking” per se does not appear to result in quakes, there is a concern that related disposal well injection might.  The Railroad Commission proposal is intended to address this concern.  Some have suggested the Texas proposal could be a model for other states.

The proposal would require applicants for oil and gas injection wells used for disposal to provide additional information, including logs, geologic cross-sections, and structure maps for injection well in an area where conditions exist that may increase the risk that fluids will not be confined to the injection interval.  Those conditions include, among other things, complex geology, proximity of the base rock to the injection interval, transmissive faults, and a history of seismic events in the area as demonstrated by information available from the USGS.  The proposal also would clarify that the Commission may modify, suspend, or terminate a permit if fluids are not confined to the injection interval, that is, if it poses a risk of seismic activity.  Presumably, the effect of the proposal, if promulgated, will be not only to regulate oil and gas disposal activities to address potential seismic effects, but also to generate data that may be useful in determining whether and to what extent further regulation is needed.

Strange Bedfellows: Environmental Defense Fund Collaborating with Energy Companies!

Posted on October 31, 2013 by LeAnne Burnett

Just like claims of fire from garden hoses and water contamination from hydraulic fracturing (“frack”) fluids, engineering estimates of the magnitude of methane emissions from natural gas production have varied widely, leading natural gas production opponents to face-off with energy companies.  Fortunately concrete steps are now being taken to bring science to bear to help narrow the gap between the two sides.  These steps come in the form of a joint project that actually measures methane emissions.  Imagine! Cooperation, collaboration, and ditching polarizing polemics to find out what is really going on! 

The first of 16 planned studies directly measured methane emissions at natural gas production sites in the United States.  The Proceedings of the National Academy of Sciences has recently published the first results.  These studies represent an organized effort among the Environmental Defense Fund, nine participating energy companies (Anadarko Petroleum Corporation; BG Group plc; Chevron; Encana Oil & Gas (USA) Inc.; Pioneer Natural Resources Company; SWEPI LP (Shell); Southwestern Energy; Talisman Energy USA; and XTO Energy, a subsidiary of ExxonMobil), an independent Scientific Advisory Panel and a study team from University of Texas, Cockrell School of Engineering.  Dr. David Allen of the University of Texas at Austin led the study effort.  Previous greenhouse gas emission analyses have been based on either engineering estimates or measurements made 100 meters to a kilometer downwind of the well site.  The studied methane emissions are associated with 190 sites where unconventional natural gas production, specifically fracking, is used. 

Uncommon features of this study are first and foremost the unique and perhaps anomalous partnership between the Environmental Defense Fund and energy companies, particularly given the adversarial relationship that has historically characterized the relationship between the environmental community and the energy industry.   Second, the energy companies provided the study team direct access to 190 natural gas production sites so measurements could be taken directly at the source.  Third, for several source categories, such as well completion operations, these data are the first reported direct, on-site methane emission measurements.  The full data set, along with significant additional information, is now available online.

As an idea of one metric, the Environmental Protection Agency (“EPA”) current national inventory estimates well completion emission reductions at roughly one-half of potential emissions.  This new study shows net or measured emissions for the total of 27 completions were 98% less than potential emissions.  The large difference between the net emissions measured by the study and the net emissions estimated in the national inventory is due to several factors, including that emerging regulatory requirements and improved operating practices meant 67% of the wells sent methane to sales or control devices.  For those wells with methane capture or control, 99% of the potential emissions were captured or controlled.  And the wells with uncontrolled venting of methane had much lower than average potential to emit (0.55% of the average potential to emit in the national inventory).

Pragmatic environmentalists should welcome the studies as an aid to balanced decisions about energy choices facing the United States.  Both gas boom critics and advocates now have rigorous scientific analysis to work with when considering regulation.  Armed with knowledge rather than speculation, what a novel way to approach policy and regulation!

DOE Conditionally Approves Second Natural Gas Export License

Posted on May 30, 2013 by Deborah Jennings

On Friday, May 17, the Department of Energy (DOE) announced it had conditionally authorized Freeport LNG Expansion, L.P. and FLNG Liquefaction, LLC (collectively Freeport) to export domestically produced liquefied natural gas (LNG) to countries that do not have a Free Trade Agreement (FTA) with the United States from the Freeport LNG Terminal on Quintana Island, Texas.  This marks only the second time that the DOE has granted a natural gas export license to non-FTA countries, and only the first after DOE ceased action on all applications pending a study of the economic impacts of LNG exports.  The Freeport approval marks a noticeable, but likely incremental shift in US policy towards increased export of natural gas to non-FTA nations, opening up new markets for the boom in domestic natural gas production.

The DOE rejected opponents’ arguments that the project would be inconsistent with the public interest.  Among other reasons, the DOE found that the proposed exports are likely to yield net economic benefits to the US, would enhance energy security for the US and its allies, and were unlikely to affect adversely domestic gas availability, prices or volatility. Accordingly, DOE conditionally granted Freeport’s Application, subject to satisfactory completion of an environmental review pursuant to the National Environmental Policy Act (NEPA) by the Federal Energy Regulatory Commission (FERC) and DOE.  FERC will serve as the lead NEPA review agency. DOE will subsequently reconsider the conditional order in light of the NEPA analysis led by FERC and include the results in any final opinion and order.

Environmental issues will now take center stage as interested stakeholders seek to influence the government’s conclusions in the NEPA review.  In support of its application, Freeport extolled the following environmental benefits of the project:

•    Natural gas, the cleanest burning fossil fuel, would replace coal-fired power resulting in substantial reductions in greenhouse gas and traditional air pollutants. 
•    Compared to the average coal-fired plant, natural gas fired plants emit half as much carbon dioxide (CO2), less than a third of the nitrogen oxides, and one percent of the sulfur oxides. 
•    Natural gas, if used as a transportation fuel, also produces approximately 25 to 30 percent less CO2 than gasoline or diesel when used in vehicles, and is not a significant contributor to acid rain or smog formation.

Opponents of the project, however, are less convinced of its environmental benefits.  These include the Sierra Club, the Delaware Riverkeeper Network (consisting of 80 organizations), NRDC, among others.  Specifically, they assert that LNG exports will increase demand for natural gas, thereby increasing negative environmental and economic consequences associated with fracking, the process used for shale gas production.  They argue that the DOE’s two-part study of the economic impacts of LNG exports, upon which DOE relied in conditionally granting Freeport’s application, failed to consider the cost of the environmental externalities that would follow such exports, which include:

•    Environmental costs associated with producing more shale gas to support LNG exports;
•    Opportunity costs associated with the construction of natural gas production, transport, and export facilities, as opposed to investing in renewable or sustainable energy infrastructure;
•    Costs and implications associated with eminent domain necessary to build new pipelines to transport natural gas; and
•    Potential for switching from natural gas-fired electric generation to coal-fired generation, if higher domestic prices cause domestic electric generation to favor coal-fired generation at the margins.

Sierra Club and other organizations have previously challenged the adequacy of FERC’s and DOE’s NEPA determinations in other LNG export applications.  In the first LNG export license approval for Sabine Pass Liquefaction, LLC (DOE Docket. No. 10-111-LNG), Sierra Club, as an intervener in the FERC proceeding, challenged the adequacy of FERC’s NEPA compliance, and the lawfulness of the FERC’s determination to authorize the Project facilities. The FERC addressed these concerns and found that if a series of 55 enumerated conditions were met, the Project would not constitute a major Federal action significantly affecting the quality of the human environment. 

After FERC authorized the Liquefaction project, Sierra Club filed a motion to intervene out of time before DOE , again challenging FERC’s NEPA determinations.  DOE rejected Sierra Club’s motion, and granted the final order approving the LNG export on August 7, 2012.  Sierra Club subsequently sought a rehearing on the final order which was also rejected by the DOE in a January 25, 2013 order

Similarly, earlier this month, Sierra Club and other environmental organizations objected to the proposed Dominion Cove Point LNG export terminal in Maryland, arguing the project would harm the Chesapeake Bay’s economy and ecology, increase air pollution, and hasten fracking and drilling in neighboring states.  On May 3, 2013, the coalition filed public comments and a timely motion to intervene in the proceedings calling on FERC to conduct a thorough environmental review, or prepare an EIS, of the project.  The proposed terminal will be the only LNG export facility in the east coast, providing foreign markets with access to natural gas from the Marcellus Shale.

Energy Resources Exports: Good for America? Good for the Environment?

Posted on May 10, 2013 by Sheila Slocum Hollis

Proposals to export liquefied natural gas (“LNG”) produced in large part from shale gas recovered by hydraulic fracturing techniques or “fracing” continue the public debate about the desirability of exports of other energy resources.  This political, regulatory, environmental and trade debate engages powerful politicians, lobbyists, environmental groups, trade associations, developers, producers, state regulatory authorities, consultants, academics, and landowners, and a broad spectrum of the press and public. 

On its face, the notion of substantial exports of LNG to both countries with which the U.S. has free trade agreements (FTA) in place and those it does not, seems highly attractive.  Such exports would improve the balance of trade deficits, create new jobs associated with the production; and produce tax revenue.  And, from the broad environmental perspective, LNG exports would lower greenhouse gas emissions (GHG) in countries with heavy reliance now and in the future on coal or oil for electric generation, or in countries with need for replacement of nuclear facilities.

Query then, what are the factors that engender the impassioned debate on energy resource export policy?  Key are:  (1) fears of massive development of “frac” gas, freighted with concern over impacts on water, air, and use.  Analogous to the Keystone XL battle, another concern is development of the unconventional gas for the benefit of foreign interests, particularly those without an FTA in place with the U.S. (export to those countries with FTA agreements with the U.S. is deemed by law to be in the public interest).  (2) A second issue in contention on LNG is the impact on domestic energy prices if significant LNG exports limit availability of natural gas for domestic industrial and other uses.  (This issue harkens back to the energy crises of the 1970s when natural gas availability was tight and energy prices sky high.) 

So, although not explicitly an environmental-based objection, such opponents of LNG exports  find friendly bedfellows with the environmental objectors and the commercial interests concerned about their ability to rely upon and benefit from increased gas supply.  Industrial interests argue that stopping exports to non-FTA countries, particularly the insatiable Asian markets, will result in an industrial renaissance with jobs and development growing significantly.  And, some opponents of LNG exports to non-FTA countries ironically, (to this blogger at least) express little regard for overall environmental benefit to potential importing countries and thus the globe.  Rather, the impact on the United States from development of unconventionally sourced gas supply has been their focus point.  Yet, LNG is only part of the energy export debate.

Further complicating this analysis is the parallel potential increase in the export of U.S. coal to energy hungry nations, particularly in Asia.  As noted above, there is a broader questioning on the entire topic of U.S. energy resources exports: LNG, oil or refined products and coal.  In addition to the Keystone XL pipeline standoff, many environmentally oriented players (e.g., the Sierra Club) and political leaders have expressed reservations about the export of U.S. coal for two primary reasons – the impact on the U.S. of new infrastructure for storage, transportation and increased mining activities, and the increase in GHG emissions worldwide as a result of heavier coal-fired electric generation.  And in the past months, several proposed coal export projects have been scrapped. This energy export issue makes for a complicated stew of federal, local and regional politics.  What makes the entire public war of words (and the behind the scenes maneuvering) so fascinating is the question of who or what decides where and with what restrictions U.S. energy resources are to be marketed to the world – the federal agencies, the state and local governmental entities, or the market?  The next few months may provide guidance on LNG and perhaps the Keystone XL pipeline, however, the national and international implications of these decisions are so important that it is unlikely that peace will settle on these matters for decades.

Hydraulic Fracturing Fluid Balancing Act: Disclosure Versus Protection of Trade Secrets

Posted on March 7, 2013 by Linda Bullen

One of the many controversies surrounding hydraulic fracturing involves the protection of trade secrets in an evolving regulatory environment hungry for more information about every aspect of operations.  Regulators, litigants and the public press for disclosure of the composition of hydraulic fracturing fluids while manufacturers and operators resist full disclosure to protect proprietary formulas believed to be valuable secrets.  
 
In a pre-rulemaking decision draft of hydraulic fracturing regulations released on December 18, 2012, California addressed the tension between protecting trade secrets and the public's right to obtain information under California's Public Records Act ("Act").   Under the draft regulations, operators are not required to disclose the chemical composition of hydraulic fracturing fluid prior to drilling.  After fracking, operators must disclose the chemicals in their fracturing fluid by chemical family and by percent of the fluid.  Disclosure of precise chemicals and formulas is not required.  Operators must also provide contact information for the person or entity that possesses the information withheld as a trade secret.
 
The California draft regulations reflect a national trend.  Alaska, however, bucks this trend with draft regulations released in December which require full disclosure of each fluid additive type by chemical name, CAS registry number and concentration.  The issue is far from resolved and we can certainly expect more regulation and litigation.

FRACKING FRACAS IN A LOCAL LABYRINTH

Posted on February 19, 2013 by David Buente

Oil and gas development has traditionally been regulated by the states, and the majority of the states with viable shale reserves have adopted laws or regulations that directly address hydraulic fracturing.  However, several local governments have responded to concerns over potential health and environmental impacts by banning hydraulic fracturing within their jurisdictions.  To date, local bans have been enacted in Colorado, Maryland, New Jersey, New York, North Carolina, Ohio, Pennsylvania, and West Virginia.  In several cases these local bans have been challenged as being preempted by comprehensive state regulation of oil and gas development.  While there is very little appellate case law addressing the legality of local bans, two preemption cases are currently on appeal in New York.  Norse Energy Corp. USA v. Town of Dryden, No. 2012-1015 (N.Y. App. Div.); Cooperstown Holstein Corp. v. Town of Middlefield, No. 2012-1010 (N.Y. App. Div.).  In each case, the local trial court upheld a local ban on hydraulic fracturing, finding that preemption language in the state’s Oil, Gas, and Solution Mining Law (“OGSML”) did not apply to local land use regulations. 

Appellant natural gas developers rely primarily on the OGSML’s preemption provision, arguing that its broad language was intended to preempt all local ordinances and regulations related to oil and gas development unless they are directed toward local roads or real property taxes.  They also emphasize the broad scope of DEC’s oil and gas regulations which go beyond regulating how oil and gas development is conducted and also address spacing requirements and other limitations on where oil and gas development can occur.  Thus, they assert that any local ordinance that limits where hydraulic fracturing can occur is superseded by the OGSML.  The natural gas developers also argue that under implied preemption principles and New York’s constitutional limits on home rule authority, local governments cannot prohibit hydraulic fracturing because such regulations are in direct conflict with the OGSML’s provisions that dictate where oil and gas development can occur.  Finally, the natural gas developers argue that the trial court’s reliance on supersedure provisions from other statutes was misplaced due to key differences in the language of the supersedure provisions as well as the relatively broader scope of DEC’s regulatory authority under the OGSML.   

In contrast, the towns of Dryden and Middlefield assert that local prohibitions on hydraulic fracturing can be harmonized with the OGSML and its preemption provision.  They argue that the local bans on hydraulic fracturing were not enacted for the purpose of regulating natural gas development, but instead are part of comprehensive land use plans designed to protect the public health, safety, and general welfare of the local community.  Because the purpose of the prohibitions are not to “regulate” natural gas development, the towns contend that the prohibitions are not subject to the OGSML’s preemption provision.  Instead, they argue that such local bans can be harmonized with the OGSML by limiting the OGSML’s well spacing and setback provisions to those areas where oil and gas development is otherwise permitted.  Further, the towns argue that the trial court properly relied on earlier cases interpreting the supersedure provisions of the Mined Lands Reclamation Law (“MLRL”).  The towns assert that the supersedure provisions in the MLRL and OGSML are substantially similar and, therefore, should be given similar effect.  Thus, the towns assert that the prior cases that upheld local ordinances banning mining practices that were subject to regulation under the MLRL are binding precedent here. 

Oral argument has been scheduled for March 21, 2013 and a final decision is not expected for several months, at the earliest.  However, these cases will be closely watched in other jurisdictions where local bans on hydraulic fracturing have been enacted and where additional litigation is expected.  Given the diversity among state laws addressing both home rule authority and oil and gas development, the legality of local bans on hydraulic fracturing is likely to remain a hotly debated issue for several years to come, particularly as oil and gas development using hydraulic fracturing continues to expand to new shale reserves around the country.

EVOLVING CONCERNS OVER THE PRODIGIOUS VOLUMES OF WATER USED IN HYDRAULIC FRACTURING

Posted on October 31, 2012 by Michael Hardy

When hydraulic fracturing “exploded” in Pennsylvania and Ohio to unlock the huge reservoirs of natural gas buried thousands of feet below surface in the deep shale formations, the initial environmental concerns focused on the potential for contamination of drinking water supplies from the “fracking” fluids and methane, and from the induced seismicity from the disposal of the waste brines into the underground injection wells.

While those concerns remain, new issues have surfaced.  In Ohio’s Utica shale play, the deep wells typically consume 5,000,000 or more million gallons of water for the hydraulic fracturing and well completion.  Beginning in June, a number of political subdivisions and water districts saw the energy industry’s needs for water as a wonderful business opportunity.  For example, the Muskingum Watershed Conservancy District, whose eighteen counties cover 20 percent of Ohio, reportedly contracted with one exploration and production company to sell millions of gallons of water from one of its reservoirs in eastern Ohio.  The City of Steubenville signed a five year contract to supply as much as 700,000 gallons a day from a reservoir that holds water from the Ohio River.  Newspaper reports at the time mentioned monthly payments to Steubenville on the order of $120,000.  The Buckeye Water District enjoyed a seven-month windfall of $24,000 per month for sales of water to a large drilling firm. Even the Ohio Department of Natural Resources weighed possible plans to grant drilling companies access to state-held reservoirs, lakes and streams.

But the public announcement of these water supply contracts produced significant public backlash.  The reaction to the plans of the Muskingum Watershed Conservancy District, for example, prompted a reversal of the sales, and lead to a moratorium pending completion of an independent water availability study by the U.S. Geological Survey and an updating of the District’s water supply plan with input from the new study.  Low stream flows in the Susquehanna River watershed in Pennsylvania lead the Susquehanna River Basin Commission to suspend 57 approved water withdrawals by gas drillers and other industrial users.

Perhaps in response to the public outcry over the potential impact on water resources, the Ohio General Assembly passed wide-ranging legislation to deal with the growth of shale gas exploration in Ohio.  One of the features of that bill requires drillers to disclose their water source and the likely volume of water for well completion.

The link to that legislation is here: 
http://www.legislature.state.oh.us/bills.cfm?ID=129_SB_315

In another piece of legislation, the Ohio General Assembly adopted a measure to regulate the withdrawal of water from the Lake Erie watershed, effectively precluding the use of Lake Erie watershed waters for hydraulic fracturing in the counties where the drilling is occuring because they are outside the watershed.

The legislation on the use of Lake Erie water can be found at this link:
http://www.legislature.state.oh.us/bills.cfm?ID=129_HB_473

Even with these safeguards, groups like the National Wildlife Federation urge the adoption of even stronger rules on the use of water for hydraulic fracturing.  With the projected exponential growth of shale gas drilling, there will be continuing efforts to regulate the use of water, and the encouragement for water recycle and reuse, for hydraulic fracturing.

Fracking on Election Eve

Posted on October 23, 2012 by Robert Kirsch

The technique known as hydraulic fracturing (“fracking”), especially in the context of developing natural gas, continues to generate controversy, legal fees and emotion.  The question remains as to whether the technique itself presents any unusual risk to the environment or natural resources.  What is clear, however, is the political significance of fracturing and the challenges that our polarized, political dialog presents to achieving a rational result in or from  the fracturing debate.

On the federal side, the Administration has taken steps in order to represent to voters that the President has done what he could to see that hydraulic fracturing occurs in a manner that does not threaten the environment.  Concrete steps are taking place in three Agencies.

-    BLM has issued draft regulations relating to fracturing activities taking place on federal lands.  The proposal drew thousands of comments and no action is likely until well after the election.

-    EPA issued draft guidance proposing to regulate hydraulic fracturing under the UIC program.  This proposal also resulted in thousands of comments, all but precluding any chance that EPA will be in a position to act until well after the election.

-    EPA is continuing its study into the possible connection between hydraulic fracturing and underground sources of drinking water.  A partial report reflecting some retrospective analysis is due before year end, but the meat of the report will not be available until 2014.

-    EPA continues to pursue its general investigation into the way fracturing occurs through its investigation into 9 fracturing companies.  EPA has proposed to publish information reflecting well densities and chemical use relatively soon. 

-    EPA has reviewed and is continuing to review petitions filed by environmental organizations seeking to force the Agency to take steps to regulate fracturing under various regulatory programs, including TSCA.  EPA has denied some of the relief sought, but is collecting information under some and beginning its evaluation of others.

-    At the regional level, EPA has engaged in studies when citizen pressure has suggested a connection between fracturing and contaminated drinking water.  This has proven to be an area where EPA has not maintained consistency or scientific integrity.  The agency’s work at Dimmock, Pavillion and elsewhere has resulted principally in controversy and criticism, and has done little to advance the state of knowledge about fracturing.

-    DOE Secretary Chu has been an Administration spokesman for White House efforts to coordinate the many federal entities that seem to be working on fracturing issues.  His role has been above the weeds and the fact that a Secretary charged with overseeing national energy policy, if there is one,  is the Administration’s front man, appears to be a bone to those suggesting the sole interest of the President is in making energy development more difficult.

-    Within DOA, the Forest Service has sent mixed signals with respect to whether fracturing is viewed as posing risks to other resources.  While several forests have adopted plans anticipating the development of resources within their jurisdiction, including by fracturing, the George Washington National Forest plan remains under review, having proposed to ban fracturing in its initial draft release.

-    The USGS recently has entered the fray in connections with published concerns linking fracturing and increased seismic activity.  Preliminary indications suggest the true focus of such efforts may be long term injection wells, rather than transient fracturing activities, but there is more to follow on this topic.

The federal role in the fracturing debate also has occurred in courts.  Environmental interest groups recently have begun to raise fracturing activities in a number of lawsuits challenging the adequacy of the environmental reviews conducted in connection with federal leases.  Many  such cases are making their way through the courts, and are being watched for the decisions..

In his public statements, the President, of course, has been careful to promote the safe development of natural gas resources, including by fracturing.  He has offered what generally have been viewed as favorable statements in his state of the union address, and more recently in his remarks at the Democratic National Convention.  Of course none of those favorable comments has slowed any of the developments noted above, nor were the President’s remarks necessarily inconsistent with such action.

There is much resistance to the above federal efforts from states, and from industry which has had decades of experience accommodating state regulators in connection with drilling and developing wells.  States too have been active, to varying degrees, with some devising thoughtful programs balancing the needs of developers with the concerns of some members of the public.  The politicization of the issue also has reached the states, however, and nowhere is it more in evidence than in the glacial SGEIS process that has been under way for years, with no regulations on the horizon. There also have been intrastate efforts directed at fracturing by the Susquehanna River and Delaware River Basin Commissions, with the former moving forward with water management programs while the latter has, by default, banned fracturing until a compromise is agreed upon among the member sovereign constituencies.

And – don’t expect the controversy and misunderstandings surrounding fracturing to disappear soon.  In addition to a small scale advocacy film last year, Hollywood is entering the fray with a major film slated for release in the not-too-distant future.  Television already has managed to capitalize on the drama fracturing offers in more than one series.

Things will change after the election.  Stay tuned to find out how.

FOUR CENTURIES OF FUEL FORAGING IN PENNSYLVANIA

Posted on October 4, 2012 by Joseph Manko

For four centuries Pennsylvania has been at the epicenter of America’s search for growth-sustaining fuel, but not without paying an environmental price.  In the 18th century, Pennsylvania’s (literally “Penn’s Woods”) abundant forests supplied wood to fuel America’s expansive westward development.  In denuding its forests, however, Pennsylvania experienced enhanced erosion and sedimentation and other environmental detriments.

In the 19th century, 1859 specifically, oil was discovered in Oil City. Pennsylvania (and America) turned its attention from wood to oil.  Although primary oil production shifted eventually to the Gulf states, nevertheless, Pennsylvania, as an oil producer, enjoyed the benefits and suffered the environmental detriments created by laissez faire, unregulated drilling and transportation of petroleum.

By the 20th century, coal was king in Pennsylvania.  The residual impacts from coal mining, especially strip mining, remain to this day in the form of scarred landscapes, acid mine drainage and air emissions, albeit the impacts are now monitored amid a focus on environmental enforcement efforts.

In the 21st century coal remains a force in energy production in Pennsylvania, but again nature has put the state in the national discussion over domestic fuel protection as it has become a national leader in developing the natural gas entrapped in the Marcellus Shale underlying large portions of southwest, north central and northeastern Pennsylvania.  Natural gas extracted from the Marcellus Shale has become Pennsylvania’s (and increasingly, America’s) fuel of choice for the 21st century.  Will the environmental legacy be different this time?

In February, 2012, Pennsylvania enacted The Oil and Gas Act Amendments of 2012, known as Act 13, in an attempt to adapt Pennsylvania’s longstanding Oil and Gas Act to issues unique to the technique used to fracture layers of shale and release natural gas, commonly known as “fracking.”  The Amendments raise a number of new legal issues:

1.    By offering shale gas fees to host municipalities who are willing to accept them, the Act preempts accepting municipalities from enacting zoning ordinances to regulate fracking.  A recent Commonwealth Court decision held such preemption unconstitutional.  An appeal by the State is pending before the Pennsylvania Supreme Court.  Briefs have been filed and oral argument is scheduled for October 17 in Pittsburgh.

2.    Despite mandatory setback distances from wells, required by the Amendments, instances of citizens claiming that or suing because their water supply was contaminated as a result of the recovery of shale gas, either through leakage, spillage, or other events will need to be resolved.

3.    Pennsylvania’s Department of Environmental Protection has differed with EPA and the Delaware River Basin Commission regarding how much authority these agencies should have to regulate operations associated with Marcellus Shale gas production. 

4.    In a victory for the shale gas industry, the District Court for the Western District of Pennsylvania invalidated a 2009 U.S. Forest Services Agreement with environmental groups that would have required the preparation of a NEPA environmental assessment prior to drilling in U.S. forests. 

5.    Some property owners who have leased their subsurface drilling rights for Marcellus Shale gas recovery have found themselves unable to refinance their mortgages.  Although the property owners argue that their land has become more valuable because of the potential recovery of fees from the Marcellus Shale gas recovery, some banks have refused to refinance claiming that the fracking lowers the value of the property because of the potential of pollution and/or the location of drilling rigs and other heavy equipment on the property, thereby making foreclosure more difficult. 

6.    Pennsylvania’s Public Utility Commission (PUC) is the collector under Act 13 of the “impact fees” from natural gas well operators – which have to date exceeded $200 million and will be distributed in large part to “accepting” host municipalities.  In accordance with Act 13, the PUC has also begun issuing advisory opinions on the legality of local zoning ordinances.  The Pennsylvania Supreme Court’s decision on the Commonwealth Court’s invalidation of the preemption issue could affect how the PUC approaches these matters going forward. 

While the sources of fuel and the techniques for obtaining it have changed much over the centuries in Pennsylvania, fuel production from forests, coal mines, oil rigs and fracking wells share a common legacy, initially attracting often environmentally insensitive wild catters, raising issues of local control versus the need for statewide uniformity, and creating the risk of potentially permanent environmental impacts if state-of-the-art environmental protections are not implemented.  In sum, notwithstanding changes in preferred fuel sources over the past four centuries, the issues, impacts and challenges remain similar; the need to balance energy production and environmental protection, or, as they say – “the more things change, the more they remain the same”.  Rather than be resigned to repeating history, however, the Commonwealth should rise to the challenge and use its acquired knowledge to inform our discussion as to how to utilize its resources, including natural gas, to provide energy solutions going forward.

SHALE GAS FRACKING: PREVENTING THE NEXT DEEPWATER HORIZON

Posted on May 23, 2012 by David Ullrich

There has been a dramatic increase in shale gas and oil extraction over the past several years that is presenting an interesting mix of technical, legal, policy, and environmental issues.  These appear to be playing out differently in each state, and with additional twists in Canada relative to the oil sands in Alberta and shale gas in Quebec.  Although the flow of gas and oil has increased dramatically during this time, there appear to be continuing questions about the impacts on groundwater, the relationship to earthquakes, the nature of the chemicals used in the water injected, how the residual water should be treated, and many more.  The matter of the Keystone pipeline has generated significant controversy between the United States and Canada, and the role of non-government organizations in this process has drawn the attention and concern of the Government of Canada.  If this practice is not managed and regulated effectively, we are likely asking for serious environmental consequences like those we have experienced in the past when we have not thought through carefully what could happen as a result of our actions.

With the many issues to address, one in particular is the focus of this discussion, and that is the appropriate roles of federal, state, local, provincial, tribal, and first nation governments in the process of approving the siting, construction, and operation of the wells, in addition to the handling of the residues and the product.  It appears a bulk of the responsibility is in the hands of state and provincial governments, but that may not be the best allocation of jurisdiction.  Local governments have the primary responsibility of providing safe drinking water to their populations, and may be adversely affected by the fracking operations.  Also, local wastewater management facilities are being looked to for treatment of the residual water from the process, which includes unknown chemicals and contaminants from the product.  In some instances, local governments are being excluded from the approval process.  It does not appear that tribal and first nation governments have been consulted to any great extent.  On the federal level, U.S. EPA is not regulating the activity, although it is doing an extensive study of the potential impacts of fracking and related activities.  Environment Canada has been engaged in the oil sands matter primarily through the evaluation of the environmental monitoring program undertaken by Alberta and the companies involved.

The very successful model used in the U.S. for air, water, toxics, and hazardous waste since 1970 that has a strong Federal presence that establishes a legal framework and minimum protective standards across the county, with the option for states to receive delegation and implement programs with more stringent requirements if they wish, should be used for shale gas and oil extraction.  In addition, there need to be specific opportunities for local and tribal governments to participate in the process in a way that protects their interests.  Also, there must be ample opportunity for public participation.  This is the best way to reduce the likelihood of another very costly disaster down the road.

Resource extraction has always presented significant challenges to finding the right economic, social, and environmental balance in managing an activity for the broader good of the country.  In the context of the continuing concern about serving the energy needs of the United States, Canada, and the rest of the world, the question is what makes sense and is good public policy?  Perhaps we are still early enough in the history of this issue to make  changes to help prevent  serious and expensive  problems in the future.