JICL

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VOLUME
1:1
JUNE 2014
326-559
  • Regulation of Hydraulic Fracturing

    David L. Callies and Chynna Stone
Abstract

Recent technological advancements in hydraulic fracturing have enabled the oil and gas industry to access shale gas. While it is estimated that shale gas, a clean source of energy, will account for 20% of the total U.S. gas supply by 2020, there have been serious concerns about potential adverse impacts of fracking on the environment and public health. Consequently, a patchwork of regulations has evolved in the United States to cope with the competing concerns of environmentalists and the oil and gas industry. After an overview of the technical aspects of the fracking process and environmental concerns, this article examines the successes and shortcomings of the statecentric regulatory system and the potential application of America’s regulatory scheme as a model for entrants into fracking. It reviews federal regulation of fracking and the comprehensive regulatory systems that vary from state-to-state.

Keywords
Constitutional demarcation of state and municipal compe tence; environmental protection; federal legislation; fracking; hydraulic fracturing; land use regulation; natural gas; preemption of municipal legislation; regulation
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Introduction

Hydraulic fracturing has transformed the United States’ energy outlook in recent years. President Obama dubbed the United States the “Saudi Arabia of natural gas” because “[w]e’ve got a lot of it”. In fact, the US Department of Energy’s (DOE) Energy Information Administration (EIA) estimated that the US has over 2,214 trillion cubic feet (tcf) of recoverable shale gas reserves. By 2020, the EIA projects that shale gas will comprise over 20 per cent of the total US gas supply. Thus, the “fracking” process has been touted in the US as the key to a clean energy future and to end dependence on foreign oil. Hydraulic fracturing is a process where fracturing fluids — a combination of sand, water and chemical additives — are pumped into wells under high pressure to generate fractures in underground formations. Recent technological advancements in hydraulic fracturing have enabled the oil and gas industry to access “shale gas” — natural gas produced from hydrocarbon-rich shale formations.

Despite the many potential benefits of fracking, many have raised concerns about the impact of fracking on underground water resources, public health and other environmental effects in the locale of these shale gas extraction facilities. The sudden pervasiveness of fracking, in conjunction with communities and environmentalists’ concerns, has raised the issue of who regulates fracking. Because fracking is not regulated under federal law, legal battles ensued between state and local governments over who has the power to regulate fracking. A patchwork of regulations evolved in various states across the nation as legislators and municipalities struggled to cope with the competing concerns of environmentalists and the oil and gas industry.

A cursory investigation into hydraulic fracturing outside the US leads to two conclusions: (1) There is more fracking in the US than in most other countries combined, some of which categorically prohibit it altogether, and (2) United States’ regulation of fracking is more varied (by state) and generally more comprehensive. What follows is a random sampling of fracking practice and regulation in other, primarily European, countries and China.

That there are considerable shale natural gas reserves in Europe appears to be a given. The International Energy Agency estimates that there is sufficient natural gas locked in shale formations to meet Europe’s needs for at least half a century. Given that the European Union (EU) is collectively one of the world’s largest importers of natural gas, it would appear logical to assume that Europe as a whole would welcome hydraulic fracturing to capture such a large reserve of natural gas. Not necessarily so. The region’s shale gas reserve is largely untapped. The EU is expected to release a unified policy on fracking to manage a multiplicity of sometimes conflicting laws and permitting requirements throughout EU countries. Although the EU refused to enact a complete moratorium on fracking, in October 2013, it voted to require energy companies to conduct environmental audits before fracking. With the unified EU policy still in the early stages of development, several EU countries are adopting their own approaches in the interim.

Poland appears to have the largest of such shale gas reserves in western Europe. While there are indications that the Polish government would like to develop its own gas supplies both to decrease use of fossil fuels and to decrease its reliance on natural gas from Russia, exploitation is hampered by legal obstacles such as the generic need for environmental impact assessment together with amendments to current laws directed specifically at hydraulic fracturing. Nevertheless, the trend appears to be toward the regulation of hydraulic fracturing rather than its outright prohibition.

France appears to be at the other extreme. Although private industry secured some fracking permits, in 2011, the French Parliament issued a complete moratorium on both explorations for shale gas and hydraulic fracturing. Both appear to be the result of public concerns over environmental effects of fracking, including water pollution from toxic chemicals allegedly used in the injection part of the fracking process, contamination from waste byproduct from fracking, and induced seismic activity (earthquakes). In October 2013, the French Constitutional Court upheld the ban as constitutional.

In England, by contrast, the relevant governmental agencies initially gave hydraulic fracturing “a clean bill of health”, noting that the process was subject to “robust controls”. However, in 2011, two earthquakes in hydraulic fracturing extraction areas resulted in a Parliamentary call for an investigation into “the safety and environmental impacts of drilling for shale gas”. A kneejerk reaction initially hindered the United Kingdom’s exploitation of natural gas resources in 2011, when a temporary moratorium was issued after unusual seismic activity was recorded in an area containing the only well-utilizing fracking. In 2012, the moratorium was lifted and regulations currently require a review of seismic activity and faults in the area before the U.K. will issue a license for a fracking operation. Now the U.K. seems eager to exploit its natural gas reserves, estimated to contain 1,300 tcf of gas — enough to provide energy to the U.K. for the next 50 years. After a 2013 British Geological Survey revealed that there was twice as much shale gas in the north of England than previously thought, a new shale gas allowance was released halving the tax due on income from production in order to encourage exploration.

Hydraulic fracturing has become controversial in Germany as well. Germany is estimated to contain 1.3 trillion cubic meters of recoverable shale gas. Popular opposition in German cities where fracking was planned has resulted in plans for popular referenda on moratoria for both test drilling and shale extraction.

Finally, several Baltic countries have responded to the anticipated commencement of hydraulic fracturing by banning or placing moratoria on the process. Thus, for example, responding to public protest, Bulgaria has reportedly banned fracking altogether. Romania has reportedly imposed a moratorium on both shale exploration and extraction.

China is estimated to have the largest reserve of technically recoverable shale gas in the world (1,115 tcf) — more than the US and Canada combined. With stifling levels of pollution and being the largest importer of energy worldwide, there is little doubt that China would benefit from a shale revolution. To further this agenda, China’s National Energy Administration released ambitious targets for shale gas development by 2020 (60–100 billion cubic meters). Although China has set vigorous natural gas collection goals, it faces obstacles to fostering a successful natural gas industry. First, China’s shale formations, in comparison to US shale formations, are older, deeper (sometimes 4,000 meters deep) and composed of more compact clay, posing barriers to economic retrieval. Second, most of China’s shale is on rough or inaccessible terrain and also happen to be located in China’s most arid regions that often struggle with water shortages. Third, China has little experience with domestic drilling and does not have the infrastructure necessary to transport natural gas, such as natural gas pipelines. Finally, one of the largest shale formations, the Sichuan basin, also happens to be highly vulnerable to seismic activity.

Under-regulation of fracking by China also raises concern. Six different government bodies in China regulate oil and gas, yet there are only 2–3 rules pertaining to fracking. In addition, China currently has no rules on groundwater protection. Also, because China’s air pollution standards do not regulate methane, there is no legal limit on methane emissions or mechanism to regulate methane emissions at fracking wells.

This article briefly reviews the hydraulic fracturing process and summarizes the regulatory regimes applicable or potentially applicable to hydraulic fracturing in the US and analyzes relevant case law. Section I of this article gives an overview of shale gas, the technical process of shale gas extraction and the environmental concerns surrounding fracking operations. Section II summarizes the various laws that comprise the Federal fracking regulatory framework. Finally, Section III examines the regulation of fracking by the states and examines how courts across the US treat fracking regulations at the state and local level.