18 February 2014

Sidley Shale and Hydraulic Fracturing Report

Volume 3, No. 7

Federal

EPA Inspector General begins study of agency authority over water resources. In a memorandum to the Environmental Protection Agency’s (“EPA”) Assistant Administrator for Water, the EPA Office of the Inspector General (“OIG”) stated that it is beginning preliminary research on the agency’s “ability to manage potential threats to water resources from hydraulic fracturing.” OIG stated that it will gather information from state agencies, environmental groups, and industry to determine how to improve “preventative and response measures” in responding to “the impacts of hydraulic fracturing.” The memorandum could be the start of EPA developing a strategy to increase its regulation over oil and gas production, which has traditionally been regulated at the state level. </p>gt;

DOE approves new LNG export terminal as applications mount. The Department of Energy’s (“DOE”) Office of Fossil Energy approved the sixth application to export LNG to countries without a free-trade agreement with the United States. The approval allows Sempra Energy’s Cameron LNG to export up to 1.7 billion cubic feet per day from its proposed Cameron, Louisiana terminal, pending approval from the Federal Energy Regulatory Commission. The next project for review is the Jordon Cove Energy Project, which would export up to 2 billion cubic feet per year from a greenfield site in Oregon. Collectively, approved LNG projects are now authorized to sell up to 40 billion cubic feet per day. LNG export proponents, however, continue to urge DOE to move faster on applications. There are currently 25 pending applications seeking authorization to export LNG to countries without free-trade agreements. The latest is a proposal by Texas LNG to construct two floating terminals that would sell 270 million cubic feet per day.

BLM cancels South Park, Colorado oil and gas leases. After protests by environmental groups, BLM agreed to withdraw six oil and gas lease parcels in South Park, Colorado from auction and committed to developing a master leasing plan that would guide where oil and gas may be developed in the area. The groups have argued that the South Park region slated for leasing is untouched wilderness area and that development would harm wildlife habitat pronghorn, mule deer, and elk. The region in question rests atop of the Niobrara Shale formation, which is rich in tight oil and gas. Master leasing plans typically take several years to develop, putting oil and gas leasing off the table for the near future.

States

California raises objections to prior Federal approvals for off-shore hydraulic fracturing. The Bureau of Safety and Environmental Enforcement (“BSEE”) approved three requests to allow hydraulic fracturing at off-shore oil platforms in March 2013. California officials, however, recently questioned whether the approvals were provided with the proper prior notice to the California Coastal Commission even though the Commission had previously raised concerns to the federal government about the potential environmental impacts of off-shore hydraulic fracturing. The Commission is trying to convince BSEE to allow the state more oversight of off-shore hydraulic fracturing, arguing that federal reviews do not collect enough data about the practice and there is little understanding of the potential environmental impacts. Although BSEE regulates off-shore operations occurring more than three miles from the coast, the Commission argues that hydraulic fracturing could raise environmental concerns within the three mile area. The Commission acknowledged, however, that even if it were granted additional oversight authority, it still would lack the authority to ban off-shore use of hydraulic fracturing.

North Dakota likely to create oil pipeline inspection program. The Chairman of the North Dakota Public Service Commission stated it was “very likely” that the Commission will seek a budget from the state’s legislature to create a new oil pipeline inspection program. The Commission already handles siting for all pipelines as well as inspections of natural gas pipelines. The Pipeline and Hazardous Materials Safety Administration (“PHMSA”) already met with the Commission to discuss delegating the inspection of nearly 1,855 miles of crude oil pipeline in North Dakota. As much as 80% of the state’s inspection program can be reimbursed from PHMSA.

International

Poland drops idea of government fund for shale gas licenses. In order to spur foreign investment in Polish shale gas reserves, Prime Minister Donald Tusk announced that the government would scrap plans to create a government owned and operated fund that would hold stakes in all shale gas licenses. Several companies were concerned that the proposed fund would muddy the understanding of the government’s rights in exploration projects. Poland is currently Europe’s most active country in exploring its shale gas potential and its legislature is expected to consider a new law to promote development in the next few weeks.

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