This series of blog entries is extracted from a presentation developed for The Center for American and International Law’s 65th Annual Oil and Gas Law Conference held in Houston, TX February 19-20, 2014. The paper was presented by Kevin Ewing of & Giuliani LLP and by D. Nathan Meehan of Baker Hughes Incorporated. In parts I and II we discuss the current Federal and State outlooks (respectively) for regulatory issues. In parts III and IV we address water management issues.
Some refer to it as the shale boom, a short-term jolt to the economy. Others see it as the harbinger of an oil and gas renaissance that will deliver long-term energy independence to the United States. No matter how it is described, the rapid expansion of exploration and production of unconventional resources in the U.S. is the greatest energy story over the past 25 years. The story’s arc has provided enough dramatic tension to warrant a Nielsen rating.
Investigations, rulemakings, legislative proposals, lawsuits, and an endless array of articles, films, books and blogs have kept the nation spellbound. The public initially struggled to understand the key players in the narrative (especially the technology) and remains skeptical of the energy industry’s role and motivations. The federal and state governments have also labored to “read into” their emerging roles as regulator and enforcer while trying to regain public credibility as defenders of science. Now, as the story enters its seventh or eighth or maybe tenth season, the roles and responsibilities are clearer and the narrative may be smoothing out. What follows is a peek at future chapters in the developing story.
This blog entry reviews the key federal developments that will likely shape the years ahead and the next entry will address state issues. Subsequent entries will focus on the particular challenge of water management, where operational and technological advances are poised to overcome regulatory constraints and other limitations.
EPA’s Hydraulic Fracturing Study
Major federal developments remain on the table for 2014. EPA continues to work on its study of the relationship between hydraulic fracturing and drinking water resources. EPA’s investigation is focused on identifying possible exposure pathways and hazards as well as assessing the potential risks to drinking water resources from hydraulic fracturing. EPA spent much of 2013 collecting more data to support the study, hosting technical roundtables, meeting with the Science Advisory Board, and extending the time period for which stakeholders could submit to the Agency relevant technical documents and studies. EPA is currently working through the collected data and anticipates releasing a preliminary report towards the end of 2014. In June 2013, an EPA official indicated that the public would not see a final report until 2016.
While the results of EPA’s study remain uncertain, it seems likely that any risk of impact to drinking water would be tied to the typical issues experienced by traditional oil and gas operations, such as surface spills, poor cementing, or other well integrity issues, and not to the migration of hydraulic fracturing fluids from induced fractures through naturally occurring faults into drinking water aquifers. To date, several EPA officials have publicly stated that there are no proven cases where the hydraulic fracturing process has resulted in contamination of aquifers or drinking water supplies.
EPA Diesel Guidance
In September 2013, it was reported that the White House Office of Management and Budget (OMB) had received EPA’s final Underground Injection Control (UIC) permitting guidance applicable to the use of diesel in hydraulic fracturing operations. While industry has repeatedly indicated that diesel is typically no longer used in hydraulic fracturing treatments, some members of Congress have called this into question, citing instances of diesel use reported to FracFocus.org. Based on that information, some in Congress are requesting that OMB expedite its review of the final guidance.
The final diesel guidance will likely be released in the first half of 2014. In a letter to the Natural Resources Defense Council (NRDC) on January 14, 2014, EPA indicated that the final diesel guidance would be released in February or March 2014. While a broad definition of “diesel” may theoretically cover more operations, it appears that diesel is now used so rarely that the final guidance will have much less impact than it might have a decade ago. From a policy perspective, the existence of the diesel guidance indicates EPA’s belief that any hydraulic fracturing operations that use diesel should first be permitted under the UIC program. While EPA is aware that wells have been hydraulic fractured with diesel since the amendments to the Safe Drinking Water Act by the Energy Policy Act of 2005, the agency has not indicated any plans to undertake retroactive enforcement actions.
BLM Final HF Rule
In 2013, the U.S. Bureau of Land Management reissued a proposed rule applicable to hydraulic fracturing on federal and tribal lands. According to the BLM, its proposed rule would include the minimum standards for drilling on federal land. While the comment period for the BLM’s rule officially closed in August 2013, several Congressional hearings held since that time have seen additional comments made by members of Congress and representatives from state governments questioning the need for another layer of regulation on top of a state’s regulation of oil and gas operations. It is not clear when BLM will issue a final rule; however, it is likely that we will see additional Congressional hearings in 2014 where BLM officials will be questioned on the utility of this rule. In EPA’s letter to NRDC on January 14, 2014, the Agency indicated that it was working with BLM on developing this rule.
New Clean Water Act Effluent Limitation Guidelines
EPA has indicated that in 2014 it will issue a proposed rule to revise current Clean Water Act wastewater regulations in order to better control discharges from shale gas extraction activities. The federal Clean Water Act authorizes EPA to promulgate water quality and technology based effluent limitations. Technology-based effluent limitations are based on currently available technologies for controlling industrial wastewater discharges and are implemented by states that are authorized to administer the Clean Water Act’s National Pollutant Discharge Elimination System (NPDES) permit program or by EPA if a state is not authorized. The effluent guidelines are incorporated into permits issued under the NPDES program.
EPA decided to amend the Effluent Limitation Guidelines (ELGs) for the Oil and Gas Extraction Category, under 40 CFR Part 435, based on the significant increase in unconventional wastewater tied to the rapid expansion of unconventional oil and gas operations. EPA has noted that the treatment technologies employed by private centralized waste treatment facilities (CWTs) that might treat unconventional wastewater “are not designed to treat high levels of total dissolved solids (TDS), naturally occurring radioactive materials (NORM), or high levels of metals.” EPA has also indicated that the pollutants found in unconventional wastewater are not getting adequate treatment by CWTs and that there are rising concerns of pass-through or interference at the publicly owned treatment works (POTWs) that accept CWT discharges.
Toxic Substances Control Act (TSCA)
In response to petitions regarding data reporting of chemical substances and health and safety under the Toxic Substances Control Act (TSCA) from several non-government organizations (NGOs), the EPA has initiated a rulemaking proceeding under TSCA Sections 8(a) and 8(d). The rulemaking proceeding is in the pre-proposal stage and the EPA indicates that they will actively engage the public and stakeholders in the design and scope of the reporting requirements. The EPA projects that it will issue an Advance Notice of Proposed Rulemaking (ANPRM) under the aforementioned sections in TSCA in the second half of 2014.