Many people consider natural gas to be the most important energy source of the future. Not only does natural gas produce less carbon dioxide – the principal greenhouse gas contributing to climate change – than traditional energy sources, but new discoveries of natural gas deposits locked in shale formations throughout the United States suggest that natural gas is also relatively abundant. The seeming abundance and relative environmental safety of natural gas place it at the forefront of meeting increasing energy demands in the United States.  

Nonetheless, the process of unlocking natural gas from shale formations, which is known as hydraulic fracturing or “fracking,” has its share of critics. Fracking ultimately involves injecting fluids at high pressure into tight reservoirs, causing the rock to break apart and allowing oil or gas to flow more freely. This injection process requires the use of certain chemicals that can include, but are not limited to, kerosene, benzene, toluene, xylene, formaldehyde, and diesel fuel. The presence of potential contaminants used in the injection process has generated numerous environmental and health and safety concerns among environmental and citizens groups. These concerns have recently been amplified as the rate of fracking has increased; the U.S. Environmental Protection Agency (“EPA”) estimates that 11,400 new wells are fractured each year, and another 14,000 are re-fractured to stimulate production or to produce natural gas from a different production zone. Additionally, a recent Department of Energy (“DOE”) report indicated that the percentage of natural gas development from shale gas formations has increased from less than 2% of total natural gas production in 2001 to almost 30% today.  

Potential Environmental Impacts

Increased public awareness of and attention to potential environmental and safety risks associated with fracking has led to a recent scramble by U.S. EPA and other governmental entities, such as the DOE, to better understand the fracking process and its potential impacts on the environment, and to determine the value of and how best to regulate, the fracking process.  

DOE Makes Recommendations to Reduce Environmental Impacts from Fracking

In March 2011, President Obama charged Secretary of Energy Steven Chu with forming a subcommittee of the DOE’s Secretary of Energy Advisory Board (“SEAB”) “to make recommendations to address the safety and environmental performance of shale gas production.” Secretary Chu handed this task to the existing Natural Gas Subcommittee (originally established in January 2011), which consisted of Subcommittee Chair John Deutch, an MIT professor; Daniel Yergin, Chairman, IHS Cambridge Energy Research Associates; and Susan Tierney, currently an energy and economics consultant, former Assistant Secretary of Energy for Policy in the Clinton Administration, and a member of the Obama DOE transitional team. Secretary Chu also appointed four new members to the Natural Gas Subcommittee including, Fred Krupp, President of the Environmental Defense Fund; Kathleen McGinty, former Secretary of the Pennsylvania Department of Environmental Protection; Stephen Holditch, Head of the Department of Petroleum Engineering, Texas A&M University; and Mark Zoback, Professor of Geophysics, Stanford University. Many environmental groups and scientists have criticized the makeup of the Natural Gas Subcommittee, complaining that its members have significant oil and gas industry ties. In particular, Subcommittee Chair Deutch has been criticized for his current position on the board of Cheniere Energy, a liquefied natural gas company, and his previous service on the board of Schlumberger Ltd., a hydraulic fracturing service company. Conversely, Republican politicians and the oil and gas industry have criticized the DOE for not including sufficient oil and gas industry representatives on the Natural Gas Subcommittee.

The President’s March 2011 charge resulted in a draft report issued by the Natural Gas Subcommittee on August 11, 2011, which identified the four most significant areas of environmental concern associated with fracking as: 1) the pollution of drinking water supplies from chemicals used in fracking fluids; 2) air pollution; 3) community disruption; and 4) cumulative adverse impacts on communities and ecosystems. The draft report also makes recommendations to reduce the potential impact that fracking may have on the environment. These recommendations are as follows:

  • Making shale gas information available to the public
    • The Natural Gas Subcommittee recommends creation of a national database that links all the information generated over the past 10 years by state and federal agencies about shale gas development and production. The Natural Gas Subcommittee does not recommend new reporting requirements, but rather that the information and data that has been and is being collected be made publicly available on a national database.
  • Improving communication among state and federal regulators
    • The Natural Gas Subcommittee recommends governmental funding support ($5 million/year) be provided to two existing organizations, the State Review of Oil and Natural Gas Environmental Regulation (“STRONGER”) and the Ground Water Protection Council (for its Risk Based Data Management System). The Natural Gas Subcommittee suggests that governmental encouragement of such multi-stakeholder mechanisms will strengthen regulation and improve the efficiency of shale gas production.
  • Improving air quality
    • Te Natural Gas Subcommittee notes that significant air quality impacts from oil and gas operations have been documented in several states. U.S. EPA has recently proposed rules related to air emissions from oil and gas operations (which are discussed in further detail below), but the Natural Gas Subcommittee noted that U.S. EPA’s proposed rules do not address many existing sources in the natural gas production sector, with the notable exception of hydraulically fractured well re-completions at which equipment that will capture methane and other air contaminants must be used. The Natural Gas Subcommittee supports emission standards for new and existing sources of methane, air toxics, ozone-forming pollutants, and other airborne contaminants from natural gas exploration, production, transportation, and distribution activities. The Natural Gas Subcommittee also stated that companies should be required to measure and disclose air pollution emissions from shale gas activities as soon as practicable.  

The Natural Gas Subcommittee specifically recommends three actions to address the air emissions issue

  • enlisting a subset of producers in different basins, on a voluntary basis, to immediately launch projects to design and rapidly implement measurement systems to collect comprehensive methane and other air emissions data;
  • designing and executing a comprehensive greenhouse gas footprint study of shale gas operations; and
  • encouraging efforts by industry and regulators to immediately expand efforts to reduce air emissions using proven technologies and practices.
  • Protecting water supply and quality
    • The Subcommittee recommends that the following actions be taken by shale gas companies and regulators:
      • conducting field studies to confirm: (1) the validity of a study documenting higher concentrations of methane (originating in shale gas deposits) migrating into water wells that surrounded a producing shale production site in northern Pennsylvania; and (2) the extent of methane migration that may take place from shale gas deposits to water reservoirs in areas of shale gas production;
      • adopting a life cycle approach to water management from the beginning of the production process (acquisition) to the end (disposal);
      • measuring and publicly reporting the composition of water stocks and flow throughout the shale gas production process;
      • manifesting all water transfers among locations;
      • adopting best practices in well development and construction;
      • measuring and reporting background water quality before shale gas production activities; and
      • reviewing and updating of rules and enforcement practices by appropriate governmental agencies to protect drinking and surface waters.
    • Disclosing all chemical components and composition of fracking fluids
    • Reducing the use of diesel for equipment fuel and eliminating the use of diesel as an additive to fracking fluid
    • Managing short-term and cumulative impacts on communities, land use, wildlife, and ecologies through various mechanisms
    • Creating a shale gas industry production organization dedicated to continuous improvement of best practices and assessing compliance among its members
    • Support and funding by federal government for longer-term research and development and analytical studies.
  • Notably, the Natural Gas Subcommittee acknowledged that it did not conduct any cost-benefit analysis in making its recommendations.  
  • A public meeting via conference call to discuss the draft report was held by the SEAB on August 15, 2011. During the conference call, many grass roots environmental and citizen advocacy groups voiced concerns about the accuracy of the report, with some commenters even requesting that the process be started anew. In contrast, industry trade group commenters were generally supportive of the 90-day report, and commended the Natural Gas Subcommittee for recognizing the tremendous economic potential of shale gas development. However, industry commenters noted that the report overlooked important regulatory developments that have occurred at the state level (discussed further below). The Natural Gas Subcommittee is currently accepting public comments on the draft report, and the final report is expected to be issued on November 18, 2011.  

U.S. EPA Fracking Study

  • Environmental and citizens groups have been the most vocal about potential impacts the fracking injection process may have on ground and surface water. Such concerns have been amplified by complaints of drinking water well contamination, although none of these complaints have been, as of yet, unequivocally attributed to fracking. Increased public concern over the potential of groundwater contamination led Congress, in its FY2010 Appropriations Committee Conference Report, to direct U.S. EPA to study the potential impacts of fracking on drinking water supplies and groundwater. In accordance with the Congressional directive, U.S. EPA has issued a draft study plan indicating that its study will seek to answer the following five fundamental research questions regarding the full lifecycle of water in the fracking process:
  • Wter Acquisition – How do large-volume water withdrawals impact drinking water resources?
  • Chemical Mixing – What are the possible impacts of fracking fluid releases on drinking water resources?
  • Well Injection – What are the possible impacts of the injection and fracking process on drinking water resources?
  • Flowback and Produced Water – What are the possible impacts of releases of flowback and produced water on drinking water resources?
  • Wastewater Treatment and Disposal – What are the possible impacts of inadequate wastewater treatment on drinking water resources?  

For its study, U.S. EPA will also analyze existing data on fracking activities, carry out hypothetical scenario evaluations, and conduct case studies in the Bakken Shale in Killdeer and Dunn Counties, North Dakota; the Barnett Shale in Wise and Denton Counties, Texas; the Marcellus Shale in Bradford and Susquehanna Counties, Pennsylvania; the Marcellus Shale in Washington County, Pennsylvania; and the Raton Basin in Los Animas County, Colorado. U.S. EPA will also monitor the fracking process at future fracking sites in the Haynesville Shale, DeSoto Parish, Louisiana, and the Marcellus Shale, Washington County, Pennsylvania. Additionally, U.S. EPA requested that nine fracking service providers1 voluntarily submit documents and data, verified under the signature of a responsible corporate officer, containing information on, among other things, the chemical composition of fracking fluids, the impacts of fracking chemicals on human health and the environment, and standard operating procedures. U.S. EPA is currently reviewing information submitted in relation to its request. U.S. EPA has indicated initial study results will be available by the end of 2012, and that the final study report will be issued in 2014.

Regulating Fracking

Fracking operations are not currently comprehensively regulated at the federal level, and at the state level there exists what has been described as a “hodgepodge” of rules. Indeed, some states have regulations specifically addressing fracking, such as West Virginia, which on August 22, saw the release of an emergency rule by the West Virginia Department of Environmental Protection (“WVDEP”) outlining several new requirements governing shale gas development activities in the Marcellus Shale. The emergency rule increases the WVDEP’s regulatory oversight of horizontal drilling of oil and natural gas wells, adding additional permit and operational requirements focused on fracking. Others states have regulations only addressing certain aspects of fracking, such as wastewater removal, and several states have no regulations addressing fracking operations.

Some states, such as New York, North Carolina, and New Jersey, have even banned or sought to ban fracking activities altogether. New York instituted a moratorium on fracking last year, which is now in the process of being lifted by Governor Andrew Cuomo.2 North Carolina currently has a fracking ban in place, although North Carolina Governor Bev Perdue has recently signed into law a bill requiring that state agencies study the potential economic and environmental impacts of shale gas exploration and production. The agencies then must develop, based on these studies, a regulatory framework that would allow fracking to take place in North Carolina. While New York and North Carolina are in the process of lifting their fracking bans, the New Jersey legislature is working to put a ban in place. In June 2011, the New Jersey legislature passed a bill that would completely ban fracking in the state; however, Governor Christie has recently sent the bill back with a conditional veto, recommending that the ban be lifted in a year.  

Ultimately, many environmental and citizens groups have clamored for, at the very least, a federal regulatory “baseline” for fracking activities that all states must meet in order to not only ensure some consistency among fracking operations across state lines, but to provide at least minimum protection to the environment and public health. In partial response to increased public concern over the unknowns of fracking, the regulatory landscape for fracking is changing rapidly.  

Safe Water Drinking Act

Given the focus on water quality associated with the fracking injection process, the logical statute for federal regulation would seem to be the Safe Drinking Water Act (“SDWA”). However, in 2005, the Energy Policy Act generally exempted “the underground injection of fluids or propping agents pursuant to hydraulic fracturing operations” from any SDWA requirements. While the SDWA may not, therefore, currently be used as a source of regulation for fracking operations generally, the Energy Policy Act ultimately excluded diesel fuels from those “fluids or propping agents” covered by the fracking exemption; this diesel fuel exclusion has provided U.S. EPA with some leeway to address under the SDWA, at the very least, those operations that use diesel fuel during fracking injection processes.

Accordingly, U.S. EPA is in the process of developing Underground Injection Control (“UIC”) Class II permitting guidance under the SDWA for fracking activities that use diesel fuels in fracturing fluids. U.S. EPA states that its guidance cannot and will not set new or change existing UIC permitting regulations under the SDWA, which generally requires that State UIC programs prohibit underground injection not authorized by a permit (or permitted by rule). Rather, U.S. EPA’s guidance will make recommendations for permit writers to consider including within UIC Class II permits when writing and issuing permits under the SDWA to entities engaging in fracking using diesel fuel during underground injection activities.

In order to determine what types of recommendations would ultimately be appropriate, U.S. EPA, in May 2011, held four technical meetings with specific expert stakeholder groups and a public webinar on June 15, during which U.S. EPA posed a number of questions on those topics that will be covered by the guidance. These questions included:

  • What should be considered as “diesel fuels”?
  • What are important siting considerations?
  • What should the permit duration be, considering the intermittent nature of fracking and Class II plugging and abandonment provisions?
  • What well construction requirements should apply to wells fractured using diesel fuels?
  • What well monitoring and reporting requirements should apply to wells fractured using diesel fuels?
  • What information should be submitted with the permit application?  

U.S. EPA initially stated that draft guidance would be issued this summer, but to-date, the draft guidance has not been released. Once the draft is issued, it will go to the Office of Management and Budget (“OMB”) for review, and will then be open for additional public comment. U.S. EPA has not provided an estimate as to the date of final publication of any UIC Class II permitting guidance.  

Toxic Substances Control Act

Given that the SDWA, as it is currently written, cannot serve as a comprehensive source of federal regulation for fracking activities, environmental groups have begun seeking out other federal laws to address fracking issues. On August 4, 2011, Earthjustice petitioned U.S. EPA on behalf of a group of environmental organizations to promulgate rules under sections 4 and 8 of the Toxic Substances Control Act (“TSCA”) that would require manufacturers and processors of oil and gas exploration and production chemicals to identify and conduct toxicity testing, and submit all non-public health and safety studies on such chemicals.  

In the petition, Earthjustice acknowledges U.S. EPA’s study of the possible effects of hydraulic fracturing on drinking water supplies, but argues that a TSCA rulemaking is required because the study will not require manufacturers to conduct testing or develop data to evaluate potential health and environmental risks, and oil and gas exploration and production wastes are exempt from several other federal environmental statutes, including the SDWA and the Resource Conservation and Recovery Act. Earthjustice also argues that TSCA rules are necessary despite the existence of a voluntary online registry, FracFocus, which was launched by the Ground Water Protection Council and Interstate Oil & Gas Conservation Commission, and on which several companies have identified certain fracking chemicals that are required to be disclosed on a material data safety sheet under the Occupational Safety & Health Act. The rules sought by the environmental organizations would require not only the disclosure and testing of chemicals used in fracturing fluids, but all chemical substances used in oil and gas exploration and production, including the chemicals used in drilling muds.  

Clean Air Act

Although it has not yet developed rules or regulations specifically and explicitly aimed at fracking operations, U.S. EPA is addressing certain aspects of fracking through rules proposed for the oil and gas industry generally. On August 23, 2011, U.S. EPA published proposed New Source Performance Standards (“NSPS”) under the Clean Air Act (“CAA”) for the oil and gas production industry that address Volatile Organic Compounds (“VOCs”) emissions directly associated with fracking. According to U.S. EPA, fracking activities are a significant source of VOCs, which are generated during a stage of well completion known as “flowback,” where fracturing fluids, water, and reservoir gas come to the ground surface at a high velocity and volume. This flowback mixture includes a high volume of VOCs and methane, along with air toxics such as benzene, ethylbenzene, and n-hexane.

The newly proposed NSPS standards, which U.S. EPA states are based upon the use of proven technology and best practices already in place in some states, would require VOC reductions using “green completions” from completions of new hydraulically fractured natural gas wells and re-completions of existing natural gas wells that are fractured or re-fractured. In a “green completion,” which is already required in Wyoming and Colorado, special equipment separates gas and liquid hydrocarbons from the flowback that comes from the well as it is being prepared for production. The gas and hydrocarbons can then be treated and sold. U.S. EPA estimates that use of this green completion equipment for the three- to ten-day flowback period reduces VOC emissions from completions and re-completions of hydraulically fractured wells by 95%. The green completion requirements would not apply to exploratory wells or wells used to define the borders of a natural gas reservoir; such wells must use pit flaring to burn off air emissions, unless it is a safety hazard.

U.S. EPA is currently accepting comment on the proposed NSPS standards. U.S. EPA also will hold three public hearings on the proposal in the Pittsburgh, Denver, and Arlington, Texas areas on September 27, 28, and 29, respectively. Pursuant to a court-ordered deadline, U.S. EPA must take final action on this proposed rule by February 28, 2012.  

Conclusion

The regulatory landscape related to fracking activities is currently in flux. There does not exist much bipartisan support for any comprehensive federal legislation addressing fracking, but with the issue receiving such significant public attention, it is likely that U.S. EPA will continue to propose rules that, like the new oil and gas industry NSPS standards, regulate specific aspects of fracking. Additionally, we expect the states to continue to implement a patchwork system of widely varying fracking regulations depending on each state’s underlying political and social conditions.