Death by a Thousand Fracking Rules: An Update

On June 26, 2012 the US Department of the Interior extended the comment period on its proposed rules of hydraulic fracturing on federal lands for sixty days to September 10, 2012 at the request of the Governor of Wyoming and others who said they needed more time to study the implications of the proposed rules.  Governor Matt Mead had asked for ninety days.  Advocates for the rules also wanted more time in order to stiffen the proposed requirements to include forced disclosure of the chemicals used in the fracking solutions to be used.

Interior Secretary Salazar has made clear that he favors Federal rules governing the use of horizontal drilling and hydraulic fracturing rather than rely on a state by state approach.  But the President is campaigning on a strategy of opening up Federal lands to expanded domestic energy production so it seems impolitic to impose new rules than place onerous and expensive burdens for doing so before the election.

Hydraulic fracturing has been regulated largely by the states.  This made sense since it was used in a few states where there was experience with the players and techniques.  State regulation has a vastly different character to it since there has generally been a much better balancing of interests between environmental and economic concerns in protecting the public interest.

Wyoming has had its own rules on hydraulic fracturing in place for more than two years but most drilling in Wyoming is taking place on Federal lands so the Department of the Interior’s Bureau of Land Management rulemaking is effectively a Federal preemption especially across the Western states where the Federal Government is the largest landowner.  But the lack of an environmental problem requiring Federal regulation has not stopped the advocates of rulemaking that seems more interested in achieving a policy goal of slowing the growth of domestic oil and gas production.

With the comment period on the Department of Interior fracking rules extended until September 10th this seems a clear signal that the Obama Administration is unlikely to issue new rules in this area before the election but wants to be action ready to do so after the election no matter what happens.

The Interior Department proposed new rules for hydraulic fracturing on lands controlled by the Bureau of Land Management (BLM). (May 4th –comment period extended to September 10, 2012). The proposed rules impose new well-bore integrity assurance requirements to verify that fluids used do not escape during fracturing operations. Public disclosure of chemicals used during hydraulic fracturing are required to be posted after fracturing operations is done.  Oil and gas operators would also be required to have a water management plan for fracturing fluids that flow back to the surface.

The other issue is the Federal Government preemption of the states— an age old turf war with the states.  The rules proposed and adopted try to avoid raising too much outrage especially before the election.  But the President’s environmental base does not see the states as allies in pursuit of their political agenda.

Federal rulemaking is still seen as a war against domestic energy production pursued by other means.  For the oil and gas industry just trying to do their jobs by developing America’s domestic energy potential, new Federal rules are a mixed blessing.  On the one hand the uncertainty about future rules imposes enormous unquantifiable risk. The estimated costs of the Department of Interior fracking rules proposed range from $60 million to $1.4 billion to implement—-and this is just one rulemaking in what is lining up to be a world series of new rules.  The piling on of Federal rules on top of state rules drives up the costs and undermines the economics of many projects.  But that is precisely the political objective of these rules—to achieve a policy outcome that likely cannot be won in Congress or at the ballot box.

Domestic energy production from shale is the real deal! It is revitalizing our future and our economy.  It is creating jobs.  It is producing tax revenue.  It is improving our energy security and reducing our dependence upon Middle East oil.  Rules that clarify ambiguities and promote best practices are good for the industry and good for the country.  Rules that drive up the costs, delay operations, create conflict and confusion are not helpful.