Fracking Opens Fissures Among States as Drillers Face Many Rules

By Jim Efstathiou Jr. and Mark Niquette - Dec 23, 2011 12:00 PM GMT+0700

Pennsylvania regulators ordered Chesapeake Energy Corp. (CHK) to install pressure gauges costing as little as $600 on 114 of its wells after natural gas contaminated drinking water last year.

Officials rejected a call from environmental groups to order safety devices for all similar natural-gas wells, a requirement in neighboring Ohio.

A boom in gas production using hydraulic fracturing, or fracking, has led to a patchwork of local drilling standards. Now, several states are revising or formulating rules, and the U.S. Environmental Protection Agency is studying the effects of fracking on drinking water and weighing nationwide regulations.

“What you’re seeing now is the federal government trying to get into the game of regulating hydraulic fracturing for the very first time,” Ken von Schaumburg, a Washington-based attorney and former EPA deputy general counsel in George W. Bush’s administration, said in an interview.

States are moving more aggressively as gas extracted from shale has expanded to a third of total U.S. production, up from 2 percent in 2001.

West Virginia Governor Earl Ray Tomblin backed a bill approved by the state legislature on Dec. 14 that he said “provides clear rules to the natural gas industry.” Colorado regulators on Dec. 13 approved requiring drillers to disclose every chemical used in fracking.

Extracting gas from shale will support 870,000 U.S. jobs and add $118 billion in economic growth in the next four years, according to a Dec. 6 report from IHS Global Insight, a forecaster based in Englewood, Colorado.

Rules Vary

Rules on using gas-pressure gauges vary, as do regulations on the types of cement used for the wells, how close to drinking-water sources companies can drill and how they dispose of the waste after injecting millions of gallons of water and chemicals underground to free the gas.

“Part of it is a matter of commitment,” Scott Anderson, senior policy adviser for the Environmental Defense Fund in Austin, Texas, said in an interview. “Some states are more diligent than others about systematically reviewing all their rules and updating them.”

The disparities led Anderson to join gas producers such as Southwestern Energy Co. (SWN) and groups including the Natural Resources Defense Council and the Sierra Club to develop voluntary state drilling standards.

The collaboration will help the industry “gain the public trust and acceptance,” Mark Boling, executive vice president for Houston-based Southwestern Energy, said in an interview.

Fracking Since 1949

Fracking has been used in states such as Texas and Oklahoma since 1949. Its use has expanded with the adoption of horizontal wells that branch off to tap into more gas.

Producers now are targeting the Marcellus Shale, a formation from New York to Tennessee that may contain enough gas to supply the U.S. for two decades, according to Terry Engelder, a professor of geosciences at Pennsylvania State University in State College.

Pennsylvania was first among northeastern states to embrace the boom. Since 2008, the state issued permits for 8,461 wells and 4,100 have been drilled, according to the website of the state Department of Environmental Protection.

Drilling in Pennsylvania has drawn complaints about drinking-water contamination and drilling wastewater disposal.

Former New York Governor David Paterson put a moratorium on drilling while regulators draft rules planned for completion next year. Ohio is expected to issue rules on well construction early next year, according to Heidi Hetzel-Evans, a department spokeswoman.

’Learned From Pennsylvania’

“What We Learned From Pennsylvania” is the headline on a New York Department of Environmental Conservation website that sets out ways the state plans to avoid its neighbor’s mistakes.

Republican Governor John Kasich said Ohio has “learned from Pennsylvania” about mistakes that led to contamination.

“Pennsylvania has just had trouble keeping up with the rate of expansion,” Hannah Wiseman, assistant professor of law at the University of Tulsa College of Law, said in an interview. “New York has chosen to be more precautionary.”

States have regulated the oil and gas industry for decades and differences are appropriate, said Aubrey K. McClendon, chairman and chief executive officer of Oklahoma City-based Chesapeake Energy, the most active U.S. oil-and-gas driller.

Geological Differences

“Are they inconsistent from state to state? Sure,” McClendon told reporters at an energy conference that Kasich convened in Columbus, Ohio, in September. “But they’re inconsistent in a good way, in the sense that they reflect the differences in local geology that we find from state to state.”

Lobbying also plays a role, said Amy Mall, a senior policy analyst for the Natural Resources Defense Council in Washington. Oil and gas companies constitute “arguably the most politically powerful industry on Earth,” Mall said.

In the past decade, natural-gas companies contributed $20.5 million to current members of Congress and spent $726 million on lobbying at the federal level, according to a Nov. 10 report by Washington-based Common Cause.

In Pennsylvania, the industry gave $2.85 million to candidates from 2001 to March 2010, and spent $4.2 million on lobbying since 2007, according to a May 11, 2010, report from Common Cause Pennsylvania.

State regulations also differ on requiring “baseline testing” before drilling to document whether water quality changes, said Wiseman, who is writing a study to be published in February comparing drilling regulations in 16 states.

New York Tests

New York has proposed testing within 1,000 feet of a well pad, compared with Ohio’s requirement of testing within 300 feet and in urban areas only, the report found. In Pennsylvania, drillers are considered liable if water contamination occurs within 1,000 feet and six months of drilling, which encourages voluntary testing, Wiseman said.

Production in the Marcellus Shale is complicated by layers of gas released while drilling through the ground toward the formation, which runs about 5,000 feet (1,524 meters) deep, according to Fred Baldassare, a former inspector with the Pennsylvania Department of Environmental Protection. In many cases, drillers opt not to produce the shallow, or stray gas, he said.

Pressure gauges, which let operators see if stray gas has seeped into a well, are a “fundamental” safety component, according to Baldassare, who owns Echelon Applied Geoscience Consulting, a Murrysville, Pennsylvania, company that works with homeowners and drillers. Stray gas can escape poorly built wells and enter drinking-water sources, he said.

Gas Complaints

When Bradford County residents complained last year of gas in their water, state regulators determined that Chesapeake wells had failed. Chesapeake agreed to pay a $900,000 fine and to install gauges in the 114 wells in the affected area, according to a settlement.

State differences in standards don’t justify a federal role in fracking rules, according to the University of Tulsa’s Wiseman.

“We do need to ensure that states are justifying these differences and perhaps reconsidering them if it appears that one state has come up with something better,” Wiseman said.

To contact the reporters on this story: Jim Efstathiou Jr. in New York at jefstathiou@bloomberg.net; Mark Niquette in Columbus at mniquette@bloomberg.net

To contact the editor responsible for this story: Larry Liebert at lliebert@bloomberg.net