Fracking Insider Readers: We are pleased to bring you Volume 14 of our State Regulatory Roundup, including updates on Louisiana, Alaska, Maryland, California and a hearing of the Susquehanna River Basin Commission (SRBC), which involves New York, Pennsylvania and Maryland. As we explained in earlier volumes, we designed the Roundup to provide quick overviews on state regulatory activity. If you have any questions on any of these summaries, please do not hesitate to ask.

Louisiana  -    Liquefied Natural Gas, Ltd, an Australian company, is proposing a midscale LNG export project that apparently utilizes a proprietary liquefaction technology that significantly decreases  emissions.   Additionally, the company has a business plan that only relies on customers in the U.S. or in countries with which the U.S. has a free trade agreement.  In doing so, Liquefied Natural Gas, Ltd can avoid the Natural Gas Act analysis that has mired down 17 other applicants.   While the company will have to forgo high-price natural gas markets like Japan, unlike the 17 other applicants, Liquefied Natural Gas, Ltd expects to be fully approved by next year.  

Alaska – The Alaska Oil and Gas Conservation Commission (AOGCC) has put out for public comment sweeping new proposed rules to regulate hydraulic fracturing in the state.   The proposed rules require oil and gas companies to notify all landowners within a quarter mile of a well pad before they hydraulically fracture a well.  Companies will be further required conduct water testing at least 90 days prior to and up to 120 days after hydraulically fracturing a well.   The sampling requires analysis of pH, alkalinity, total dissolved solids, and total petroleum hydrocarbons.  

The proposed regulations also require disclosure of the precise coordinates of the fracture and the pressure anticipated to be necessary to fracture the shale.    Perhaps most significantly, however, AOGCC’s proposed rules require disclosure of the identify and volume of chemicals used in fracturing fluid.   Unlike other state disclosure rules, Alaska’s proposed rule does not provide a disclosure exemption for confidential business information.   This provision will likely be contested at an upcoming hearing.   The comment deadline for the proposed rules ends February 4, 2013.    These rules are significant because the North Slope contains over two billion barrels of shale oil (second only to the Bakkan) and over 80 trillion cubic feet of natural gas.   

Maryland, New York, Pennsylvania – The Susquehanna River Basin Commission (SRBC) will hold a hearing on February 14, 2013 to consider a proposed rule that would restrict water withdrawals from small headwater feeder streams within the basin.  Specifically, the proposal would affect projects that withdraw surface- or groundwater from drainage areas of 10 square miles or less.  The headwater region of the Susquehanna River basin is actively being developed in Pennsylvania and is likely to be the site of some of the first development in New York if the moratorium is lifted. 

Water withdrawal issues are among the most controversial issues faced by interstate compacts such as the SRBC.   Recently, New York unsuccessfully sued the Delaware River Basin Commission for its plans to allow water withdrawals for hydraulic fracturing operations.

Maryland – Maryland’s Marcellus Shale Safe Drilling Advisory Commission, which was commissioned by Gov. O’Malley to determine whether and how to develop oil and gas in Maryland’s western panhandle, recently provided the legislature its first three recommendations to govern natural gas development in the state.  The panel recommended: (1) operator liability provisions to protect landowners from potential damage caused by development; (2) a state-level severance tax that would feed into a fund for environmental projects; and (3) registration of landmen.    These recommendations are far from the most controversial that the panel will face.   Issues such as chemical disclosure, water management, and setbacks are likely to be hotly debated.  Maryland has had a moratorium on gas development since 2011.  Gov. O’Malley is not expected to lift that moratorium until stricter regulations are in place.   It is unclear to what extend drilling would take place in Maryland even if the moratorium were lifted.  Maryland’s portion of the Marcellus formation is not believed to contain natural gas liquids, which are helping to keep natural gas drilling profitable in spite of extremely low natural gas prices.

California – On January 24, 2013, the Center for Biological Diversity sued the California Department of Conservation in California Superior Court alleging a failure to regulate hydraulic fracturing operations.   Specifically, the groups allege that the Division of Oil, Gas, and Geothermal Resources (DOGGR) is required to regulate hydraulic fracturing operations under California Underground Injection Control Program.   Underground injection control programs were designed to regulate the underground storage of substances.   Groups have consistently pushed to apply these regulations to hydraulic fracturing even through hydraulic fracturing pumps the fluid out of the well at the end of operations.    Indeed, Congress specifically directed EPA to exclude most of such operations from the federal UIC program.

This litigation is likely largely a result of these groups’ inflexible anti-hydrocarbon positions.   They filed a similar suit in California in October 2012 alleging regulators violated the California Environmental Quality Act by issuing oil and gas leases without properly examining the impacts of hydraulic fracturing. 

Operators have been using hydraulic fracturing in California for decades, usually to access oil shale.