Natural gas execs: Regulation of fracturing best left in state hands

Energy company executives argued today that states — not the federal government — should take the lead in regulating the hydraulic fracturing process used to produce natural gas from shale formations in New York, the Midwest and Texas.

Geologic differences among those regions mean that what works in one state might not work in another, said Jack Williams, president of XTO Energy. For instance, in Arkansas and Texas, natural gas developers are finding ways to inject the water they use back into the ground — something that generally can’t be done in a different shale formation in the northeast.

From state to state, “the regulations are different, and they need to be, depending on the local circumstances,” Williams told an Energy Department advisory panel considering whether more needs to be done to protect the public and the environment from hydraulic fracturing operations. “That’s the beauty of having states playing this role. They can tailor their regulations” to unique regional conditions.

The panel is holding two days of hearings in Washington, D.C., to study hydraulic fracturing , with today’s session focused on the views of environmentalists and industry representatives. State regulators, including Texas Railroad Commissioner Elizabeth Ames Jones, are set to speak on Thursday .

President Barack Obama charged the group with developing its recommendations within 90 days, even as separate reviews of hydraulic fracturing are under way at the Environmental Protection Agency and the Interior Department.

Right now, states take the lead role in regulating hydraulic fracturing, the process of injecting mixtures of water, sand and chemicals deep underground and at high pressures to unlock natural gas trapped in shale rock. A big question Wednesday was whether the feds need to get more involved.

Industry leaders stuck to their common argument that regulation should remain in state hands.

“Every state has a right to permit a well, and every state has a right to insist on certain practices,” said James Hackett, CEO of The Woodlands, Texas-based Anadarko Petroleum Corp. “We have to be careful what we do federally. I would just beg you to please consider a state organization, with multiple stakeholders, as the primary way to get your information and insist on enforcement.”

That, Hackett said, is “going to be the most responsive to the actual conditions on the ground.”

But Lauren Pagel, policy director of the environmental group Earthworks Action, argued that the patchwork of sometimes spotty state regulations leaves some landowners and local residents vulnerable when natural gas wells are drilled and stimulated nearby.

“Just because you’re in Pennsylvania doesn’t mean you’re more deserving of public health and safety than someone in Wyoming,” she said. “We need a federal standard that deals with natural gas production in this country. Without that, you’re never going to get the public confidence that is needed to move this industry forward.”

Conservationists have long been concerned about the high water demands of fracturing and about how operators dispose of wastewater. Environmentalists also have warned that natural gas can escape out of poorly designed and secured wells.

But fears about fracturing also have been stoked by the documentary “Gasland” and a series of recent studies that cast doubt on the technique’s environmental soundness.

Today, environmental advocates and industry representatives found some common ground in agreeing that natural gas developers are up against a big image problem.

Even with major technological and environmental advancements in recent years, “that story is not out there in a believable and effective way with the public,” noted John Deutch, the panel chairman.

Chesapeake Energy CEO Aubrey McClendon warned against assuming that there was a “rogue element” and a band of laggards in the industry who eschew best practices. “I don’t think it exists,” he said, even though “you will find weak companies making mistakes from time to time.”

Paul Gallay, executive director of Hudson Riverkeeper, urged the natural gas industry to make a full accounting of problems that have been caused by hydraulic fracturing and poorly designed or managed wells. Industry leaders need to “acknowledge the damage caused and make a firm commitment to a future that does not involve similar damage,” Gallay said. After all, he added, ” you still to this day hear industry representatives . . . say this is all vastly overblown.”

The backdrop for today’s natural gas forum is deep skepticism from the environmental community about the composition of the advisory panel, which includes members with ties to the energy sector. Dusty Horwitt, senior counsel of the Environmental Working Group, said the panel had a pro-industry bias and told Deutch he should step down.

Deutch was on the board of the oilfield services firm Schlumberger for 10 years and is currently on the board of Houston’s Cheniere Energy. According to EWG, six of the seven panel members have financial ties to oil and gas.

“We’re spending $700 thousand in taxpayer dollars to create an industry-dominated panel,” Horwitt said. “We have to have higher standards for impartiality.”

Dave Alberswerth, a senior policy adviser at The Wilderness Society, said there is skepticism about the panel’s makeup and added: “We’re not expecting much useful to come out of this panel” because of it.

Deutch laid out four areas for the panel’s analysis:

  • Whether there should be a national database on shale gas production. Some companies are disclosing information about the contents of their hydraulic fracturing fluids voluntarily on the website FracFocus. But Deutch noted that much of the data is “widely dispersed” and divided by states.
  • Whether an industry organization — with involvement from state regulators and other stakeholders — should be created to establish best engineering and environmental practices for shale gas operations and the chain of companies that supply them. Deutch raised the prospect that, over time, companies who are certified as compliant with those best practices could qualify for fast-track permitting or other incentives.
  • How water issues should be managed — including the composition of frac fluids, whether there should be background research on water quality in areas where shale gas operations are about to begin and the chemical composition of produced water from natural gas wells.
  • Technological advancements in the industry — and how to keep pace with them.

Industry representatives divided over disclosure, with Rodney Nelson of Schlumberger noting that concerns about releasing proprietary information have fed a public perception that the industry is hiding details about the ingredients in fracturing fluids. “Companies are trying to protect their investments . . . so there is some reluctance” to be open in releasing those proprietary details,” Nelson said.

If states clamp down and insist on more detailed disclosure — as envisioned in legislation just passed by the Texas legislature — Nelson said that would force Schlumberger to make tough business decisions about whether to offer some of its fracturing fluids in those regions.

But Gary Luquette, president of Chevron’s North American exploration and production business, called out service providers for hiding behind the intellectual property concerns.

“We have used this IP issue as a convenient excuse to move slow,” Luquette said. “I personally believe there is a space in the middle between protecting the IP and giving the public the information they desire. We can do that in a much more transparent way.”