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Unconventional Oil and Gas Regulations and Policy Relating to Local Environmental Impacts and Climate Change

September 1, 2013

Drill by houseThis piece provides a basic insight into the way climate change in conjunction with environmental and public health concerns have triggered a regulatory response by National, State and Local Governments. It will focus on shale gas regulations and not those pertaining to tight sandstones or coal bed methane.

A key element in the emergence of unconventional oil and gas development in shale formations has been the refinement of cost-effective horizontal drilling and hydraulic fracturing technologies. Both horizontal drilling and hydraulic fracturing are established technologies with a significant track record;  horizontal drilling dates back to the late 1940s, hydraulic fracturing has a history actually going back as far as 1860’s, when nitroglycerine was used to stimulate shallow, hard-rock oil reserves, Figure 1.

Figure 1

Shale gas history

Horizontal drilling and hydraulic fracturing, along with the implementation of “protective” best practices have allowed shale gas development to move into areas that previously were not accessible. Herein lays the problem. Before; shale gas development was essentially sight unseen, and therefore, few had major concerns about its impact on the environment and public health. Today, drilling can literally be in your backyard and because of this the neighboring communities are in an uproar.

The O&G industry employs a battery of 600 standards and best practices that guide the operations of exploration and production companies. This chart shows an overview of 112 API guidance and best practices that support hydraulic fracturing.

Figure 2

API Standards

Figure 2 shows that 61 standards address above ground activities, and 51 below surface activities. Additionally, nearly 200 API standards are cited over 3,300 times in state regulations and more than 100 standards are citied 270 times in federal regulations.

Unconventional oil and gas development is regulated at almost all levels through the entire wells lifecycle from cradle to grave. Figure 3 shows the various shale gas development stages that are covered by regulations; from preconstruction land leasing and seismic testing to end-of-life restoration and abandonment.   Given the wells expected productive that spans many decades the fact of the matter is that pretty much everything anyone does within the conventional and unconventional O&G industry is heavily regulated at the federal, state, and local levels, often at multiple levels simultaneously. Characterizing the industry as “an unregulated free for all” is simply not true.

Figure 3

Shale Gas process flow

Unconventional O&G development brings many socio-economic benefits such as job creation, royalty payments and changes in property values, Figure 4.  However, it can also pose significant and costly environmental and public health risks associated with:
• water contamination,
• water overuse, and
• gas emissions.

Specifically:
• contamination of underground sources of drinking water and surface water resulting from spills, faulty well construction, or by other means;
• adverse impacts from discharges into surface waters or from disposal into underground injection wells;
• stress on surface water and ground water supplies from the withdrawal of large volumes of water used in drilling and hydraulic fracturing; and
• air pollution resulting from the release of volatile organic compounds, hazardous air pollutants, and greenhouse gases.

                                                                                              Figure 4

Socio-economic, environmental and public healthSuccess of unconventional O&G development depends on whether society accepts it as a key contributor to economic growth and development or opposes it, due to apprehension over potential adverse, long-term impacts.  Emerging from the confusion and hostility over the industry’s encroachment into ever more densely populated regions, best practices are continually changing, and industry can anticipate that such practices will be driving regulatory requirements as well as investor and community expectations.

Understanding and applying these practices and requirements will move the industry towards more sustainable project development, capable of entering new markets with an under-developed regulatory framework and more vulnerable populations.

Sometimes it appears that the purpose of regulations is to generate jobs for lawmakers and attorneys.   However, the purpose of legislation is:
• to establish reasonable and uniform limitations, safeguards, and regulations that will serve as a standard for the exploration, development and production of oil and gas resources to protect the health, safety, and general welfare of the public,
• to minimize the potential impact to private and public property and mineral rights owners, and
• to protect the quality of the environment; and encourage the orderly production of available mineral resources.

                                                                                          Figure 5

State, fed, local and regional regulatory landscape.Figure 5 shows the relative degree of control by government.  In the U.S. with respect to who regulates and how, the core involvement is states in nearly every stage of development.

States have historically regulated most aspects of the O&G industry and continue to do so. Even in areas where other governments have important control, states are involved.  So while the Federal Environmental Protection Agency applies certain air and water regulations, the states are responsible to implement those regulations. The EPA administers the regulations, the states figure out how to issue permits under those regulations.

Some states have started to preempt some federal regulations, which they do have the power to do.  States have the police power to regulate the health, safety and welfare of its citizens. States can then choose how much power they want to delegate to local governments. Finally, some regional regulations have emerged that apply to shale gas development and once again the states are highly involved.

In closing, new gas development brings change to the environmental and socio-economic landscape, especially where exploration and production are new activities.   With these changes have come questions about the nature of unconventional oil and gas production, and the ability of the current regulatory structure to protect public health and the environment.

Today, unconventional oil and gas recovery is accomplished within a solid framework of laws and regulations that have been developed over many decades.

Figure 6

People, planet and profits

The challenge is to balance development and regulations between People, Planet and Profits, Figure 6. To this end:
• industry with its responsibility to its shareholders for increased profits; adopted, improved and established best practices and standards, and
• government with its responsibility to protect people and the planet – adopted, improved and establish laws and regulations.

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