March 2010 Vol. 237 No. 3


Natural Gas Companies Wary Of EPA Involvement In Fracturing Regulation; Natural Gas Sectors Nervous About EPA GHG Tailoring Rule

Editor’s note: Due to an internal mistake March’s print edition of P&GJ included an out-of-date Government article. This is the article that was meant to appear.

The ExxonMobil purchase of XTO Energy has sparked new congressional interest in the environmental safety of horizontal shale gas drilling, a concern also lately exhibited by the Environmental Protection Agency (EPA) which has urged New York state to expand its analysis of the impact of shale gas drilling in the Marcellus Shale area. A House energy and environment subcommittee held hearings on the XTO sale Jan. 20 where the heads of both companies – ExxonMobil and XTO – said they had a problem with a new piece of congressional legislation requiring natural gas producers to disclose the chemicals they use when fracturing gas deposits in shale. Both men said they had no problem making the disclosure; however, they would oppose including that disclosure requirement in the Safe Drinking Water Act, a law enforced by the EPA.

That is what the Fracturing Responsibility and Awareness of Chemicals Act (FRAC ACT) would do. It was introduced in both the House and Senate last summer. Both Rex Tillerson, Chairman and CEO, ExxonMobil Corp. and Bob R. Simpson, Chairman of the Board and Founder, XTO Energy Inc., opposed the bill. Tillerson said he opposed EPA’s involvement because “the devil is always in the details.” Pressed by Rep. Diana DeGette (D-CO), one of the key sponsors, on what he meant, Tillerson expanded on his original statement by saying, “It means I don’t know how the EPA is going to enact or implement the regulation that you are promoting in your bill.” Neither the House nor the Senate has held hearings on the FRAC Act, much less has a vote been taken.

The back-and-forth between DeGette and Tillerson is important because ExxonMobil insisted that a clause be put in the contract allowing it to cancel the deal if Congress passes a law making hydraulic fracturing “illegal or commercially impracticable.” Neither Tillerson nor Simpson said the DeGette bill would do that, but Tillerson clearly implied that EPA regulatory involvement in hydraulic fracturing could be a problem.

Any congressional legislation seen as hamstringing new shale gas development would be a crimp in some pipeline expansions, undoubtedly. For example, Texas Eastern has announced two separate projects in anticipation of bountiful Marcellus shale gas. One expansion project could handle 300 MMcf/d, the second 500 MMcf/d. According to Spectra Energy Corp. (which owns Texas Eastern) spokeswoman Wendy Olson, Marcellus gas would account for 80% of the first project’s contracts and “a significant amount” in the second instance.

The production of Marcellus gas in New York state is already a red-hot political issue there.

There are only 15 shale gas wells in New York state, all of them vertical, according to Yancey Roy, spokesman for the NY Department of Environmental Conservation. That is what makes New York’s draft Supplemental Generic Environmental Impact Statement (dSGEIS) for horizontal shale gas fracturing so important. It was published Sept. 30. The comment period closed at the end of December. Roy says the department is going through the 13,000 comments it received, some of them “ganged” signatures on single pieces of correspondence. Once the document becomes final, natural gas companies will be able to drill horizontally in Marcellus, and for the first time. The dSGEIS proposes first-time permitting conditions for horizontal hydraulic fracturing, including disclosure of liquids used.

New York City has already weighed in against drilling in sections of Marcellus containing drinking water sources for the city. Steven Lawitts, the city’s top environmental official, said hydraulic fracturing represented “unacceptable threats to the unfiltered fresh water supply of 9 million New Yorkers.” Roy explains that New York City water sources account for a small portion of the Marcellus area.

Chesapeake Energy, a major producer in New York but not yet in the shale game there, complained that the dSGEIS’s proposed regulatory requirements and mitigation measures “are both costly and, in some cases, unnecessarily onerous…and have left New York with relatively few producers willing to devote scarce capital to New York.” However, the comments went on to say “Chesapeake is prepared to meet the extraordinarily high bar proposed in the dSGEIS.”

Natural Gas Sectors Nervous About EPA GHG Tailoring Rule
Based on comments it recently submitted, the pipeline industry is concerned that the Environmental Protection Agency (EPA) will put tight constraints on methane gas emissions from compressor stations. Last fall, the EPA started the process by publishing a proposed “tailoring” rule that would require all facilities emitting more than 25,000 metric tons of CO-2 equivalent annually to use “best available control technology” to reduce those emissions. About 874 of the nation’s 1,944 natural gas transmission compressor stations emitted 25,000 or more metric tons per year of GHGs – most of it methane – according to government statistics cited by INGAA. But INGAA thinks the numbers are actually much higher.

In comments it and some other gas industry trade groups sent to the EPA, INGAA argued that forcing compressor stations to both obtain operating permits for methane emissions and to, where required, reduce those emissions below 25,000 tons a year, would “severely challenge natural gas production, transmission, storage, and gas distribution facilities, leading to adverse implications for regional and national energy security.”

Making the natural gas sector even more nervous is the fact that some environmental groups think the EPA is going too easy on methane emissions. The Clean Air Task Force says the
EPA should adopt in the final tailoring rule a global warming potential (GWP) that more accurately reflects methane’s threat. Ann Brewster Weeks, Senior Counsel at the group, says the task force has not come out in support of a threshold below 25,000 tons per year for methane.

“It is more complicated than that,” she says. “We are trying to offer EPA some support for what it is doing.” By that she apparently means the group is trying to serve as a counterweight to natural gas groups arguing for a higher threshold. The American Gas Association is asking the EPA to increase the tripwire to 50,000-100,000 metric tons annually.

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