Hydraulic fracturing and the shale gas boom

Hydraulic fracturing operations in the Woodford Shale.
Photo courtesy of Halliburton

Daniel M. Steinway and Thomas C. Jackson, Baker Botts LLP, Washington, D.C.

Recent technological advances have unlocked vast sources of natural gas trapped in shale formations deep underground. The ability to economically produce these reservoirs has turned the United States into the "Saudi Arabia of natural gas," changing the energy outlook for the nation and offering the potential for significant impacts on America's energy security and climate change initiatives.

The key to unlocking existing shale gas and other unconventional gas reserves in the US is hydraulic fracturing, a technology that has been used over the past 60 years to enhance production from oil and gas wells in a wide variety of formations and that is increasingly critical to oil and gas production. Hydraulic fracturing involves pumping fluids down a well bore at high pressures into a targeted subsurface formation. These pressures are designed to create cracks or fissures in the rock formation containing oil and gas reserves and improve the flow characteristics of the formation. Hydraulic fracturing fluids are primarily water-based and contain small concentrations of certain chemical additives which make the fluid viscous and improve the fluid's performance.

Despite a long history of successful regulation of hydraulic fracturing operations by the states and the safe and effective use of the technology in the US, increased production of shale gas has given rise to concerns among environmental and citizen groups. Notwithstanding the absence of any hard evidence that hydraulic fracturing has impacted drinking water resources, regulators and legislators at both the federal and state levels have taken steps to address these concerns by imposing additional regulatory requirements on hydraulic fracturing. These new requirements could significantly impact the nation's energy security.

Known and essential technology

Domestic energy production depends upon the effective and economic use of hydraulic fracturing technology. Experts have estimated that over 90% of all oil and gas wells in the US today are hydraulically fractured. Without hydraulic fracturing, production of domestic unconventional oil and gas would be significantly limited. For example, the American Petroleum Institute has indicated that domestic production of natural gas would decrease by 57% over 10 years and domestic oil production would decline by 23% if hydraulic fracturing technology could not be utilized.

The combination of hydraulic fracturing and horizontal drilling techniques has played a particularly key role in making gas trapped in shale formations accessible. In 2009, the Potential Gas Committee reported a 35% increase in estimated domestic reserves of natural gas, primarily due to the increased viability and production capabilities in shale plays around the country. Similarly, the US Energy Information Administration (EIA) recently released its Annual Energy Outlook 2011, which includes an estimate of technically recoverable, domestic shale gas resources that is 480 trillion cubic feet greater than the estimate issued by EIA only a year earlier. These abundant supplies of natural gas can only be accessed and effectively produced with hydraulic fracturing.

The basic fracturing technology being used today in the shale plays remains the same as that which the oil- and gas-producing states have been regulating for over 60 years. State regulatory programs typically include provisions setting well construction standards that are designed to protect surface and subsurface water resources from contamination. These well construction requirements include well casing and cementing standards that ensure isolation of the well bore from nearby shallow formations that may contain drinking water aquifers. State permitting requirements also provide state regulators an opportunity to review proposed drilling plans and ensure that water sources will be protected during hydraulic fracturing activities. These state programs have been highly effective in preventing contamination and protecting drinking water sources, particularly in light of the fact that there have been no confirmed instances of adverse impacts on drinking water supplies associated with hydraulic fracturing operations.

Federal, state initiatives aimed at regulation

Notwithstanding the many years of effective regulation of hydraulic fracturing by state oil and gas programs, regulators and legislators at the federal, state and local level have increasingly undertaken initiatives over the last few years to impose additional restrictions and requirements on hydraulic fracturing activities. These initiatives have come in response to allegations – which have not been scientifically confirmed – by environmental groups and others about drinking water well contamination and other purported impacts of hydraulic fracturing operations.

At the federal level, legislation proposed in the last Congress – commonly known as the FRAC Act – would require the regulation of hydraulic fracturing under the federal Safe Drinking Water Act (SDWA). As proposed at that time, the FRAC Act would have imposed additional permitting requirements and other restrictions on fracturing operations that could have resulted in significant, additional administrative burdens, delays and costs for well operators. This proposed legislation also would have required service companies to publicly disclose the chemical constituents of all fracturing fluids, a requirement that goes beyond any existing chemical disclosure requirement under any other applicable federal programs. The principal sponsors of this bill have recently announced that they will reintroduce it in this session of Congress and have renewed efforts to gain support for the bill, even calling on Hollywood activists to bring attention to the issue.

In addition, the US Environmental Protection Agency (EPA) recently took some proposed steps to increase its oversight and regulation of hydraulic fracturing. Sometime in the spring or early summer of 2010, EPA posted statements on its website indicating that the Agency would now be attempting to regulate hydraulic fracturing using diesel or diesel-based additives as part of the federal Underground Injection Control program under the SDWA. This website posting marked the first time EPA had suggested that it was attempting to implement the authority provided to the Agency under the Energy Policy Act of 2005 to regulate hydraulic fracturing operations involving the use of diesel. Industry groups have challenged this website "rulemaking" for several key reasons; namely, (1) in attempting to add additional new regulatory requirements on hydraulic fracturing, the Agency failed to comply with the key rulemaking requirements under the federal Administrative Procedure Act, and (2) EPA's proposal to regulate wells being hydraulically fractured as Class II UIC wells was inconsistent with the Agency's prior position that the regulations applicable to these wells are not well suited to hydraulic fracturing operations.

State regulators and legislators also have undertaken efforts to impose new or additional requirements on hydraulic fracturing. For example, Colorado has recently amended its oil and gas regulations to specifically address hydraulic fracturing operations. After initially considering broad hydraulic fracturing chemical disclosure requirements, the Colorado Oil and Gas Conservation Commission eventually adopted a more tailored disclosure provision that provides regulators with the necessary information about fracturing fluids when it is needed but at the same time protects trade secret information.

A number of other states have taken steps to address the regulation of hydraulic fracturing in the past year. For example, last year both Wyoming and Pennsylvania updated and amended their oil and gas regulatory programs to more specifically address hydraulic fracturing operations. Most recently, the Arkansas Oil and Gas Commission has enacted new regulations specifically requiring service companies to maintain master lists of chemicals used in hydraulic fracturing operations in the state and provide those lists to the Commission. However, Arkansas regulators recognized that trade secret information warranted protection from public disclosure and provided alternative reporting options for the identity of any chemical that constituted a trade secret.

At the same time, the New York State Department of Environmental Conservation (NYSDEC) continues to consider revisions to its regulations to address high-volume hydraulic fracturing operations in horizontal wells drilled in the Marcellus Shale. Acting in response to an executive order issued by former New York Governor David Paterson, the NYSDEC prepared a draft Supplemental Generic Environmental Impact Statement (draft SGEIS) to assess the potential environmental impacts of these activities in which it proposed to impose a number of new requirements on drilling and hydraulic fracturing of Marcellus Shale wells. In late 2010, former Governor Paterson directed NYSDEC to prepare a revised draft SGEIS and provide an additional public comment period for a minimum of 30 days — effectively extending a de facto moratorium on Marcellus Shale gas development in the state.

Additional regulatory requirements at the federal, state and local levels could significantly disrupt hydraulic fracturing operations and dramatically impact domestic gas production. For example, the Department of Energy has estimated that regulation of hydraulic fracturing under the SDWA would add over $100,000 to the cost of drilling and operating a natural gas well. These added costs could render some wells uneconomical for future development.

Moreover, some of the restrictions proposed at the state and local level could further slow or prevent viable production of domestic oil and gas resources. At the same time, proposed rules requiring the full disclosure of the formulas of proprietary products used in hydraulic fracturing would jeopardize service companies' trade secrets. The risk posed by this type of required disclosure creates substantial disincentives for service companies to engage in the necessary research and development of hydraulic fracturing fluids and to use their state-of-the-art technologies which have proved critical to the economic development of US domestic energy resources.

Little, no threat to drinking water

While federal, state and local governments have taken steps to impose new requirements on hydraulic fracturing operations, the need for these added measures certainly remains subject to question. Contrary to popular allegations, there is no evidence that hydraulic fracturing has resulted in the contamination of any drinking water supplies. In fact, state regulators have repeatedly affirmed that they are not aware of any instances of contamination of drinking water aquifers as a result of hydraulic fracturing operations.

A number of studies have confirmed that hydraulic fracturing poses little to no risk to drinking water aquifers. In 2004 EPA conducted an extensive study of the potential impacts of hydraulic fracturing in coalbed methane (CBM) wells on drinking water supplies. EPA concluded that hydraulic fracturing of CBM wells poses little or no threat to underground sources of drinking water. Other studies commissioned by or conducted by state governments (such as the NYSDEC) and others have similarly concluded that there is no evidence that hydraulic fracturing operations have contaminated or could plausibly contaminate drinking water supplies.

These conclusions are logical given the nature of hydraulic fracturing activities and the various geological and technical factors that prevent any significant migration of fracturing fluids upward from targeted production formations and into shallow drinking water wells thousands of feet above. In addition, industry well construction practices and zonal isolation techniques such as casing and cementing help ensure that fluids in the well bore will not come in contact with groundwater at shallow depths that may serve as a source of drinking water.

Despite an established lack of risk, EPA has begun a new study of hydraulic fracturing at the direction of Congress. The Agency recently released a proposed Study Plan that lays out a broad approach to EPA's study of hydraulic fracturing and its potential impacts on drinking water sources. The initial results of EPA's study are expected by the end of 2012, with a final report due in 2014.

Conclusion

With the shale gas boom continuing to gather steam, hydraulic fracturing is expected to be the subject of ongoing scrutiny. Hydraulic fracturing will likely remain a focus for environmental and citizen groups concerned about the potential environmental impacts associated with shale gas development. While the prospects for federal legislative activity in the near future are slight, EPA will proceed with its study of hydraulic fracturing and may continue to explore its regulatory authority over hydraulic fracturing operations. State regulators and legislators will likely continue to undertake efforts to impose increased regulatory requirements on hydraulic fracturing operations regardless of whether those additional requirements actually serve to mitigate any real risk. Ultimately, where we end up on both the federal and state regulatory front will impact the extent to which the nation can economically access and produce the vast natural gas supplies that could significantly affect the US's energy security and lower greenhouse gas emissions generated by America's energy use. OGFJ

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