14 February 2017

Sidley Shale and Hydraulic Fracturing Report

Vol. 6, No. 7

Topics discussed in this week’s Report include:

  • Corps approved Dakota Access Pipeline
  • FERC authorized gas pipelines before losing its quorum
  • NGOs appealed ruling in BLM lease auction suit
  • Pennsylvania issued draft methane regulations for gas production units
  • Pennsylvania Governor re-introduced shale gas tax proposal

Federal

Corps approves Dakota Access Pipeline. On Feb. 8, the U.S. Army Corps of Engineers (Corps) issued an easement for the Dakota Access Pipeline to cross under Lake Oahe, a portion of the Missouri River. The easement is the last authorization required for the pipeline to re-start construction. The Obama administration had ordered work stopped while it reconsidered the permits granted for the project and began work on a new Environmental Impact Statement (EIS). The EIS, now abandoned by the Corps, could have delayed the pipeline for years. President Donald Trump issued a memorandum requiring the Corps to quickly reconsider the withdrawal of approvals and granting the required easement. The Standing Rock Sioux Tribe and Cheyenne River Sioux Tribe previously filed a suit in the U.S. District Court for the District of Columbia to enjoin construction of the pipeline and that case remains pending. The tribes quickly moved for a preliminary injunction and temporary restraining order to stop construction. The court is also considering a motion by the Cheyenne River Sioux to add a Religious Freedom Restoration Act claim, alleging that construction across Lake Oahe would violate tribal religious rights and desecrate sacred grounds. The Standing Rock Sioux stated that they will add a claim that an EIS is required for the project. Construction, however, may continue while the case is pending. Pipeline opponents are urging government investors to divest from institutions financing Dakota Access. They persuaded the Seattle City Council to divest its investments from one bank financing the pipeline and are pressuring the California Public Employees’ Retirement System to follow suit.

FERC authorizes gas pipelines before losing its quorum. The Federal Energy Regulatory Commission (FERC) issued Certificates of Public Convenience and Necessity for three pipelines intended to move natural gas out of the Marcellus shale play. FERC issued the certificates just before the former Chairman, Norman Bay, left the Commission. In a separate opinion to one of those orders, Bay urged FERC to study the environmental effects of shale gas development. Environmental groups have continuously demanded a comprehensive environmental study of shale gas drilling and downstream uses of natural gas in comments and court challenges to several FERC certificates. FERC maintains that the National Environmental Policy Act does not require such a study, a position upheld by the D.C. Circuit. Bay acknowledged FERC’s position but noted that such a study would be both possible and useful to the Commission. Bay’s departure leaves only two commissioners, Acting Chair Cheryl LaFleur and Commissioner Collette Honorable. By statute, FERC must have at least three of its five commissioners to do business. FERC now lacks a quorum for the first time in its history. Commissioner Honorable’s term expires June 30, meaning that FERC will require at least two new commissioners by mid-summer. Before Bay’s departure, FERC delegated authority to Commission staff, although the extent of that authority is limited. Until then, FERC cannot issue contested enforcement settlements or make major decisions, such as authorizing the construction of natural gas pipelines or liquefied natural gas terminals. Some actions, such as certain rate changes, become effective automatically if FERC takes no action. Requests for rehearing are automatically denied if FERC does not act within 30 days of filing but that time may be tolled by FERC staff. FERC may still conduct environmental reviews for proposed projects. The Trump administration has not nominated any commissioners, who would require Senate confirmation.

NGOs appeal ruling in BLM lease auction suit. Environmental groups were permitted to take an interlocutory appeal of a federal judge’s order denying their motion to intervene in an oil and gas trade association suit against the U.S. Bureau of Land Management (BLM). The Western Energy Alliance sued BLM, alleging that it illegally failed to hold oil and gas lease auctions for federal lands in several states despite being required to do so four times per year under the Mineral Leasing Act. The court denied a motion by three environmental groups to intervene in the suit, holding that they would not be harmed by the suit and that BLM already represented their interests. The court permitted the environmental groups to appeal the denial of their intervention motion, as well as its ruling that Western Energy Alliance had standing to challenge BLM’s failure to hold lease auctions. The environmental groups have also moved the court to stay the action until the Tenth Circuit decides the interlocutory appeal. Western Energy Alliance opposes the proposed stay, saying that delaying a decision would further injure their members’ interests.

States

Pennsylvania issues draft methane regulations for gas production units. A new draft regulation would establish best available technology requirements to reduce methane emissions from shale gas wells and natural gas compressor stations. Other aspects of the draft rule would impose emission limits, leak detection and repair requirements, and a new record-keeping and reporting scheme. These new regulations would be enacted through a new general permit for shale gas wells, GP-5A, and revisions to the existing GP-5 for compressor stations. Under the draft rule, the existing exemption from air permitting requirements for shale gas wells, wellheads and associated equipment, known as Exemption 38, would be eliminated. The draft regulations are subject to a 45-day public comment period. The Pennsylvania legislature is considering a bill that would bar the Pennsylvania Department of Environmental Protection from issuing greenhouse gas regulations differing from federal requirements.

Pennsylvania Governor re-introduces shale gas tax proposal. Gov. Tom Wolf has proposed a tax on shale gas production similar to the one he offered during last year’s budget negotiations with the Pennsylvania legislature. Under the Governor’s proposal, the Commonwealth would impose a 6.5 percent severance tax on natural gas production, which would be partially offset by the cost of impact fees gas producers already pay on each well. He estimated that the new tax could raise over $290 million in the next fiscal year. Impact fees fell to $174,000 for 2016 due to significant reductions in new shale gas wells. Gov. Wolf believes the new severance tax is needed to chip away at a $700 million revenue shortfall. Legislative leaders and Pennsylvania gas trade associations predicted that the proposal would fail this year as well. They said the proposal both overstates the potential revenue to be gained and would harm an industry that has been cutting back its operations within the Commonwealth in response to low gas prices. Gov. Wolf, however, pointed out that Pennsylvania is the only major gas-producing state without a severance tax on production, meaning that it would not hurt Pennsylvania’s competitive position when compared with other shale gas states.

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