22 December 2014

Sidley Shale Gas and Hydraulic Fracturing Report

Volume 3, No. 51

Federal

EPA issues clarifying rules for air emissions from oil and gas sector. On December 19, 2014, EPA issued a series of regulations to clarify and revise portions of the new source performance standards that will take effect on January 1, 2015. Among the amendments are clarifications on how gases and liquids should be handled during the well completion process as well as changes to the requirements for storage vessels. The changes were made, in part, in response to requests from the oil and gas industry to ensure that EPA’s regulations were consistent with current industry practices. EPA also used the rulemaking to remove the affirmative defense for malfunction from the new source performance standards as part of a broader agency initiative to remove the affirmative defense from all Clean Air Act regulations.

States

New York: State announces plan to ban hydraulic fracturing. After more than six years of debate, New York announced plans to ban hydraulic fracturing. The ban would officially keep 12 million resource-rich acres in the Marcellus Shale from being developed – and cost New York untold billions in economic benefits. In Pennsylvania, energy companies have generated $2.1 billion in state and local taxes and thousands of high paying jobs. In a long-awaited report, the state Department of Health (DOH) recommended the ban, finding there are scientific uncertainties about the risk of adverse health effects from hydraulic fracturing and the effectiveness of mitigation measures in reducing or preventing the potential environmental impacts which could produce those effects. In response the state Department of Environmental Conservation (DEC) announced that it would issue a final Supplemental Generic Environmental Impact Statement (SGEIS) and related documents to officially ban hydraulic fracturing early next year. New York has been operating under a de facto ban since DEC began an SGEIS to evaluate hydraulic fracturing in 2008. State officials tried to downplay the economic impact of the ban, claiming that less than half of the Marcellus Shale would be available for development under any circumstances due to other state and local restrictions.

North Dakota: New regulations and low oil prices slow oil production. Oil production in North Dakota showed a slight month-over-month decline in October in response to a combination of low oil prices and increased regulatory requirements. The 4,000 barrel a day reduction is small in comparison to the daily production of more than 1 million barrels per day, but also reflects a shift from virtually continuous growth over the past half-decade. The reduction in oil prices has coincided with new regulations that limit the amount of natural gas that can be flared at oil wells. Thus far, the regulations have produced a 22% reduction in flared natural gas. Even at today’s prices, significant portions of the Bakken shale can be developed economically, and state regulators project that growth will continue as oil prices rebound.

Colorado: State to sue the Department of Interior over Gunnison sage grouse listing. On December 12, 2014, the state of Colorado submitted to the U.S. Department of the Interior (DOI) a 60-day notice of intent to sue regarding DOI’s decision to list the Gunnison sage grouse as threatened under the Endangered Species Act (ESA). The notice letter is a necessary prerequisite to bringing suit to challenge the listing decision. In the letter, Colorado argues that DOI failed to analyze the required factors under the ESA and did not rely on the best available science. In particular, the notice alleges that DOI failed to account for conservation efforts that state and local governments, as well as private individuals, have taken to protect the Gunnison sage grouse and its habitat. In light of those voluntary initiatives, Colorado argues that additional federal protection is not necessary.

New York: Inspection of crude-by-rail uncovers defects in tank cars and infrastructure. A recent joint inspection conducted by state and federal workers in New York identified defects in a number of tank cars and in track infrastructure. New York has become a rail hub for shale oil from the Bakken formation, as well as from other sources. The inspections, which took place at rail yards in Buffalo, Albany and Chatauqua County, were part of a broader inspection initiative that has been ongoing for most of the year. Thus far, New York has inspected 7,368 rail cars and 2,659 miles of track, identifying 840 defects. In the most recent inspection, the inspectors classified eight defects as requiring immediate action; the remaining defects must be corrected within 30 days.

Studies

Study finds variations in methane leaks across shale plays. In a recent study presented at an American Geophysical Union, researchers reported lower than expected methane leaks at oil and gas wells in Wyoming. The research, which was conducted in collaboration with the Clean Air Task Force, was intended to compare methane leaks from the Wyoming oil and gas fields to similar fields in Utah and Colorado. Despite the similarities in location, reservoir depth, gathering techniques and other features, the Wyoming fields showed methane leakage rates 0.4 percent or less, which is an order of magnitude lower than methane leakage rates previously reported for Utah and Colorado. The report did not offer an explanation for the variations in methane leaks.

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