New York State Faces a Turning Point in Debate Over Natural Gas Fracking

After nearly five years of regulatory paralysis, New York State’s government last week signaled that the controversial drilling practice of fracking could soon be authorized in the Empire State. Since 2008, when then-Gov. David Paterson (D) initially delayed fracking in New York pending an environmental review, the state has put off finalizing fracking regulations. Throughout that period, fracking has remained illegal in New York even as it has boomed across much of the rest of the country, including in neighboring Pennsylvania. During these years, Albany has alternately made pro and anti-fracking noises in response to pressure from business and environmental groups, respectively, while leaving its true intentions unclear. Now, even as the state approaches another deadline to issue regulations for fracking that it is likely to miss, the head of the New York State Department of Environmental Conservation is hinting the state may change tack entirely and, pending a health review and the release of a forthcoming environmental impact statement, instead move toward allowing fracking on a provisional basis prior to the approval of statewide regulations.

Fracking and the Stakes at Play in New York State

Fracking is a type of drilling in which an oil and gas company typically drills first a vertical well to a level of thousands of feet under the ground and the water table, and then extends a horizontal well several thousand more feet into gas-rich shale rock. The driller then injects large amounts of sand, chemicals and water under high pressure into the horizontal well to break up the shale rock, which then releases natural gas up into the well. Fracking opponents have seized principally on the injection of these chemicals deep underground, fearing that they may leach into groundwater and drinking water supplies, while energy interests assert that these concerns are exaggerated or incorrect.

Major economic interests are at play in the New York fracking debate. Much of western and central New York state sits atop the Marcellus Shale, an enormous natural gas deposit underlying large sections of Ohio, West Virginia, Maryland, Pennsylvania and New York whose reserves a Standard & Poor’s study recently placed at equal to roughly half the United States’ entire existing proven natural gas reserves. In addition to the Marcellus Shale, the even deeper Utica Shale lies under broad swaths of New York as well, and petro-geologists see it too as a major natural gas play. While natural gas drilling has taken place in New York state for upwards of 50 years, until about a decade ago the view was that the huge gas deposits in the Marcellus and Utica Shales were virtually unrecoverable because they were trapped in hard-to-access rock deposits. It was only with the rise of advances in fracking and horizontal drilling that tapping these reserves became feasible, with the first fracking in the Marcellus Shale in Pennsylvania occurring just a decade ago.

Fracking has taken off across the country as energy companies have used the technology to access major deposits of oil and natural gas from Wyoming to the Dakotas, Texas, Louisiana and elsewhere in the Marcellus Shale itself such as Pennsylvania, Ohio and West Virginia. The result has been a reversal in a decades-long decline in domestic petroleum production, far lower natural gas prices, and even a plausible path to national energy independence.

Indeed, fracking has already been to a large extent a victim of its own success, as skyrocketing natural gas production has cratered the fuel’s market price, which is currently down about 70 percent from its highs five years ago, leading some gas drillers to take less profitable fracking rigs off-line until prices rise again. Nevertheless, recent studies indicate that the Marcellus Shale natural gas is among the country’s most profitable to produce, thanks to the economies offered by fracking and to the Shale’s proximity to the huge East Coast natural gas markets stretching from the District of Columbia to New York and Boston. Indeed, it is estimated by fracking supporters that opening up fracking in New York state would create 15,000 jobs, which would be concentrated in regions of upstate New York that have been economically depressed for decades.

That prospect of a fracking-led energy boom created an initial landrush to upstate New York in the early 2000’s by energy companies interested in acquiring leases to oil and gas rights on the properties located above the Marcellus and Utica shales. Many of these leases, which were written in such a way that they would expire in the absence of drilling, did in fact expire over the last several years as the fracking moratorium prevented the energy companies that had acquired them from drilling on the land. One of those companies, Norse Energy USA, filed for bankruptcy in December 2012 after having leased 133,000 acres outside Syracuse with the intention of fracking them to access the Utica Shale’s natural gas reserves.

Fracking as Political and Legal Football in New York

The promises and perils of fracking were apparent back in 2008, when New York’s then-Gov. Paterson announced that New York was moving toward approving fracking. But approval was held up pending environmental review by the Department of Environmental Conservation to determine if it could be done safely, and if so, how best to regulate it to make it safe. The Environmental Department’s judgment will be particularly consequential because federal authority to regulate fracking is limited, leaving much of the regulatory field to the states. EPA is prohibited from regulating fracking through the underground injection control program authorized by the Safe Drinking Water Act except where diesel is used. The federal agency under the Clean Water Act can regulate wastewater associated with fracking and is working on regulations governing the pretreatment of wastewater from shale gas wells before the water goes to a publicly owned wastewater treatment plant.

Among the flashpoints in the fracking debate that New York state has had to weigh as it develops fracking regulations include:

•  whether energy companies should be forced to disclose the chemicals they inject into the ground, or whether they can keep them confidential as trade secrets;

•  to what degree wastewater from fracking has to be treated, and under what conditions it can be released;

•  how close to city and town drinking water reservoirs should fracking be permitted; and

•  what health effects, if any, fracking would cause to nearby residents.

Indeed, it is the difficulty of these sorts of questions, which necessarily require scientific and political judgment calls and cost-benefit analyses, that undoubtedly has delayed the release of final fracking regulations.

In response to Gov. Paterson’s 2008 order for a study and rules on fracking, New York’s DEC released its first draft fracking regulations in September 2009 for public comment. That draft proposal was silent on the issue of requiring disclosure of chemical compounds injected into the ground via fracking and also on the issue of public reservoirs, and it drew 13,000 public comments. More than a year after the 2009 draft proposal’s release, in December 2010, public opinion remained restive over the issue, and Gov. Paterson ordered the Department of Environmental Conservation to further study fracking and issue a revised set of fracking regulations.

Ten months later, in September 2011, the Environmental Department released its revised set of draft regulations. ¹See 42 ER 2210, 9/30/11. These draft regulations differed from the prior ones in that they required public disclosure of fracking chemicals and prohibited fracking within the watersheds of the New York City and Syracuse drinking water reservoirs. But the moves to address environmental concerns did not tamp down the controversy. Following the release of the September 2011 draft regulations, 66,000 public comments were received by the close of the comment period in February 2012, a New York state record. Then last September, the Department of Environmental Conservation called on the Department of Health to review what if any effects fracking would have on public health. Also in 2012, a number of municipalities in upstate New York unilaterally banned fracking within their city limits, bans which courts have mostly upheld. Last month, the hamlet of Marcellus, N.Y., after which the eponymous shale formation is named, banned fracking too.

Following the uproar over the September 2011 draft fracking regulations, release of New York’s final regulations was again delayed. Last November, when the draft regulations were scheduled to become final, a move that would have paved the way to the issuance of fracking licenses, the state obtained a 90-day extension to Feb. 27 to issue the final rules. ²See 43 ER 3073, 11/30/12. Importantly, by opting last November to extend its time to approve the current regulatory framework, rather than scrapping that framework altogether and starting from scratch again, the state retained for itself the option of moving quickly to approve fracking as soon as this month. Recognizing that possibility, anti-fracking groups mobilized in the wake of the November 2012 extension to try to forestall any quick approval by submitting what they claimed were more than 200,000 comments to the state before the Jan. 11 cut-off of the comment period. The state is legally required to consider the comments before any final decision.

The environmentalists’ strategy may have paid off, at least in the short term. In mid-February the commissioner of the Department of Environmental Conservation, Joseph Martens, indicated that pending the results of the Department of Health review of fracking’s effects on public health, the state would likely let the Feb. 27 deadline lapse (and with it, the whole framework of the proposed regulations originally formulated back in November 2011, which can no longer be extended under state law). However, in the same announcement, Martens announced that the health review was only weeks away from completion, and that if the review squared with prior findings by the state that fracking could be done safely in New York, the state would then be in a position to release a fracking environmental impact statement and begin issuing fracking licenses shortly thereafter, before the release of final fracking regulations.

Next Steps

Even if the Health Department study comes out in a few weeks’ time and gives a green light to the state to begin issuing licenses, fracking likely would not arrive immediately in New York. Instead, as Gov. Cuomo himself has conceded, lawsuits opposing fracking are sure to materialize and bring further delay. Nevertheless, the state’s approval of fracking would mean a major shift in the balance of power between the pro and anti-fracking forces: Fracking in New York would then become more a question of when, rather than if.