April 2010 Vol. 237 No. 4


New Congressional Inquiries On Hydraulic Fracturing; EPA Delays Compression Station Rule; GHG Limits Face New Hurdle

Congressional concern about “fracking” took another step forward when the chairman of the House Energy & Commerce Committee sent letters to eight companies asking for details on the chemicals they use during horizontal drilling of shale gas deposits.

Rep. Henry Waxman (D-CA) chairman of the committee, implied in a memorandum to committee members explaining the need for the letters that the “Big Three” of fracking may have violated a voluntary memorandum of agreement (MOA) they signed with the Environmental Protection Agency in 2005. That MOA obligated them to forswear use of diesel fuel in hydraulic fracturing fluids injected into coalbed methane production wells in underground sources of drinking water. The three companies are Halliburton, BJ Services, and Schlumberger. The MOA did not extend to natural gas production. Waxman claimed BJ Services already admitted a violation.

Jeff Smith, a spokesman for BJ Services, admits the company did inadvertently violate the MOA in 2007. He says the company has replaced diesel oil with mineral oil in all fracking liquids it uses for underground water and shale deposit work.

Halliburton calls the implication that it had violated the MOA “completely inaccurate.” In a statement in response to the Waxman letter, it said: “Halliburton is firmly committed to full compliance with the MOA and has, in fact, voluntarily gone further to cease the use of diesel in its liquid gel concentrates regardless of the type of HF job in which they are used.”

Waxman and others in Congress are concerned not just about use of diesel in fracking but other chemicals as well, such as benzene, toluene, ethylbenzene, and xylene which theoretically could contaminate sources of drinking water. “There has been no evidence presented to us that suggests fracking is contaminating the drinking water supply,” states Smith.

Given the potential for shale gas production, Congress is unlikely to limit fracking per se. But legislation called the FRAC Act has already been introduced in Congress which would require developers of shale gas production to disclose the chemicals in fracking fluids. The EPA would control that new reporting requirement. Major natural gas companies told a congressional committee in hearings early this year that they oppose the FRAC Act because they are concerned with how the EPA may administer the law.

Waxman’s investigation could give new steam to the FRAC Act, or defuse it, depending on what he learns. His letters to all eight companies asked about the identity of chemicals they are using in fracking fluids and their total use, potential safety and health issues, documents related to allegations that fracking liquids are dangerous, figures on wastewater disposal and other issues. The other five companies queried are Frac Tech Services, Superior Well Services, Universal Well Services, Sanjel Corporation and Calfrac Well Services.

Under the Emergency Planning and Community Right to Know Act, approximately 22,000 industrial and federal facilities must report to EPA the quantity of toxic chemicals they release, store, or transfer, which is then made public in the annual Toxics Release Inventory (TRI). Oil and gas exploration and production facilities are exempt from this reporting requirement. EPA also does not have authority under the Safe Drinking Water Act (SDWA) to require disclosure of the chemicals injected in hydraulic fracturing operations. Those are two laws Congress could amend to cover fracing disclosure.

The EPA was tasked last October by language in a fiscal year 2010 appropriations bill to conduct a new scientific study of the hydraulic fracturing process. Specifically, Congress told the EPA to “carry out a study of the relationship between hydraulic fracturing and drinking water, using a credible approach that relies on the best available science, as well as independent sources of information.”

Enesta Jones, an EPA spokeswoman, says the study has not begun. The agency has allocated more than $6 million for the study over two years. But apparently Congress needs to allow $1.9 million of that to be spent in the current fiscal year 2010, because that amount was not in the EPA’s final budget for fiscal 2010 approved by Congress in late 2009. Currently, the EPA fiscal 2010 budget has no money for the study.

EPA Delays Compression Station Emissions Rule
The EPA gave the natural gas pipeline industry a six-month reprieve before it publishes new air emission requirements for spark ignition (SI) engines rated less than 500 horsepower at pipeline compression stations. Any new controls required by the agency would affect approximately 290,000 engines used by interstate and intrastate transporters of gas. Any new emission standards for hazardous air pollutants (HAPs) published by August could require pipelines to equip engines with catalytic converters. Patrick Nugent, executive director of the Texas Pipeline Association, contends many existing gas-fired SI engines would have to be replaced.

The EPA decision to delay the SI engine emission requirements was a victory of sorts. INGAA and many natural gas industry players had begged the agency to separate SI engines under 500 hp from the rulemaking setting emission standards for stationary reciprocating internal combustion engines (RICE) under 500 hp, which are diesel powered. On March 3, the EPA announced it was agreeing to handle SI engines separately in a rule which would be published by August 10.

However, the March 3 final rule does, for the first time, set new “malfunction” emission standards for gas-fired compression station engines rated over 500 hp. “The EPA discussion on malfunction emission standards in the final rule lacks clarity,” states Lisa Beal, director, environment and construction policy at INGAA. “So, this requirement remains a concern – both for the March 3 Final Rule and the August 2010 rule for gas-fired engines. In the interim before the August 2010 rule, INGAA plans to continue to work with EPA on this issue and others including gas-fired engines emissions, maintenance practices for gas-fired engines, and test methods.”

Greenhouse Gas Emission Limits Face New Hurdle
Emissions from compression stations are also an issue in the context of potential EPA greenhouse gas (GHG) emission limits, though their concern is methane, not formaldehyde and other HAPs. Fortunately, with regard to GHG emission limits, Congress and the EPA seem to be pulling back considerably. That was evident in the letter Lisa Jackson, the EPA administrator, sent to Sen. Jay Rockefeller (D-WV) in late February, committing to softening some of the provisions the EPA has proposed in its so-called “tailoring rule” That is the rule, which could be finalized any day, that raises a couple of Clean Air permitting levels so that GHG emissions, when added to HAP emissions from the same engines, won’t put a facility over the emission limit, forcing the company to get new permits or replace engines.

After he received the Jackson letter, Rockefeller had specifically raised questions about the tailoring rule’s impact on the natural gas industry. Apparently dissatisfied with Jackson’s reply he subsequently introduced legislation which would prevent the EPA from issuing its tailoring rule for two years. Because that bill (and its House companion) has significant Democratic support, not to mention significant Republican support, it is likely to get a hearing in the Senate and House, and maybe votes there too, which could lead to passage.

Congress Likely To Pass Business Incentive Provisions
Equipment purchase and hiring incentives are included in the HIRE (Hiring Incentives to Restore Employment) Act which should pass Congress. The HIRE Act would allow employers to forego paying their 6.25% share of federal payroll taxes for the rest of 2010 for any new workers they hire, as long as the newbies had been unemployed for at least 60 days. If that employee is still on the books in a year, the business owner would receive an additional $1,000 tax credit.

Another provision would extend 2008 and 2009 section 179 expensing thresholds so that taxpayers may elect to write off up to $250,000 of certain capital expenditures (subject to a phase-out once expenditures exceed $800,000) in 2010 in lieu of depreciating those costs over time. First the Senate passed the bill. Then the House approved those provisions but added two revenue-raising provisions to pay for the tax cuts. The Senate had to approve those and likely will have by the time this is read.

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