15 September 2014

Sidley Shale Gas and Hydraulic Fracturing Report

Volume 3, No. 37

Federal

Court denies challenge to BLM oil and gas leases. Environmental groups lost their challenge to a U.S. Bureau of Land Management (BLM) oil and gas lease sale for parcels on federal lands in Nevada, including wells that would be developed by hydraulic fracturing. The groups had claimed that BLM violated the National Environmental Policy Act because its environmental assessment for the sale understated the environmental impacts of hydraulic fracturing, especially purported threats to underground sources of drinking water. The court ruled that the proposal was not a final agency action because BLM is still considering four administrative protests filed to block the action. BLM cannot issue the leases until those protests are resolved.

NGOs file suit seeking response to petition asking for rail car ban. The Sierra Club and Forest Ethics filed suit in the U.S. Court of Appeals for the Ninth Circuit claiming that the U.S. Department of Transportation (DOT) failed to respond to its petition asking for an immediate ban on certain rail cars used to ship crude oil from the Bakken Shale play. The groups filed their petition in July 2014, alleging DOT 111 tank cars were too dangerous to ship crude oil by rail. The petition was filed as DOT worked to propose regulations that would phase out the DOT 111 tank cars as new cars become available. In their petition, the NGOs seek a writ of mandamus requiring DOT to make a decision on their proposed ban within 30 days.

Congress examines crude oil rail shipments from Bakken. The House Science, Space, and Technology Committee’s Energy and Oversight subcommittees held hearings last week on the Bakken Shale play, including the controversy over the safety of shipping the play’s light sweet crude by rail. Rail shipments of crude have grown significantly over the past few years, but the increase has come with high profile derailments and explosions involving Bakken crude. Officials from the U.S. Pipeline and Hazardous Materials Safety Administration testified that Bakken crude is more volatile than other types of crude oil, based on a recent sampling effort, while other witnesses pointed out that a similar effort by the North Dakota Petroleum Council found Bakken crude to be typical of other light crudes. Some companies are already experimenting with processes to modify its makeup for shipping purposes. A finding that Bakken crude is more volatile could impact shipping regulations.

States

Groups appeal court decision striking down hydraulic fracturing ban. Environmental activists are appealing a state district court decision ruling that a Colorado town’s ban on hydraulic fracturing was preempted by Colorado state law governing oil and gas regulation. They claim that the July 2014 decision, invalidating Longmont, Colorado’s ban on hydraulic fracturing, overlooked key facts that they claim show the practice to be a threat to human health and the environment and that Colorado law allows for local regulation in cases of mixed state and local concern. The suit was originally filed by the Colorado Oil & Gas Conservation Commission but it agreed to dismiss its action in early August 2014 in exchange for the groups dropping four other ballot initiatives scheduled for this November. The Colorado Oil & Gas Association continued the case.

Business

EIA: Petroleum product exports up. Fueled largely by the Eagle Ford and Permian Basin shale plays, U.S. refiners exported an average of 5.2 million barrels per day of refined petroleum products like gasoline, petcoke, and jet fuel, according to the U.S. Energy Information Agency (EIA). This includes nearly 500,000 barrels per day of gasoline. The total petroleum product exports are up 57% over three years ago. Nearly three quarters of the increase accrued to Gulf Coast refiners with easy access to shale oil. However, industry consultants believe that Gulf Coast refiners are nearing full capacity, meaning that they will have to expand to see continued growth.

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