04 September 2013

This Week in Hydraulic Fracturing

Volume 2, No. 35

Federal

Federal safety inspection of crude oil railways. Safety inspectors from the Federal Railroad Administration (“FRA”) and the Pipeline and Hazardous Materials Safety Administration are conducting unannounced safety inspections of railroads carrying Bakken crude oil. The officials cited last month’s railroad explosion in Lac-Megantic, Quebec as the reason for the inspections. Railroads have doubled the carloads of crude oil they carried in the first half of 2013, compared to the same timeframe in 2012, mostly from the Bakken shale play. FRA is also considering proposals to require retrofits to a type of tanker car involved in the Lac Megantic explosion, as well as to require a minimum of two engineers per train.

DOE gets new deputy assistant secretary for oil and natural gas. U.S. Department of Energy Secretary (“DOE”) Ernest Moniz named Paula Gant, formerly of the American Gas Association, a trade association representing gas utilities, as the Deputy Assistant Secretary for Oil and Natural Gas. Working out of the Office of Fossil Energy, Gant will supervise DOE’s research on hydraulic fracturing and will be involved in LNG export policy. The American Gas Association has supported LNG exports.

OSHA proposes new rules for silica dust exposure. The Occupational Safety & Health Administration (“OSHA”) announced proposed rules to reduce the permissible exposure limit for crystalline silica dust. OSHA claims the lower limit would reduce deaths from silicosis, lung cancer, and other diseases. The rule also proposes methods for controlling worker exposure, training for workers on silica-related hazards and recordkeeping measures. Oil and gas service companies that use silica sand as a proppant in hydraulic fracturing fluids would be subject to the new rules under the proposal. Industry groups have opposed aspects of the rule, questioning, among other things, OSHA’s analyses of expected costs and benefits, particularly given the substantial reductions in silica-related deaths and illnesses over the past several decades.

States

New York Court of Appeals to hear appeal of municipal ordinances restricting hydraulic fracturing. New York’s highest court agreed to review two intermediate appellate court decisions upholding the right of municipalities to prohibit hydraulic fracturing within their jurisdictional boundaries. Land owners and developers seeking the right to drill in New York’s portion of the Marcellus Shale play challenged bans on hydraulic fracturing passed by the upstate towns of Dryden and Middlefield. They argued that ordinances prohibiting hydraulic fracturing are preempted by the state’s oil and gas law, but the lower courts rejected those challenges. New York is still effectively under a state-wide moratorium while state officials continue to study the alleged effects of hydraulic fracturing.

Initial approval given for new Pennsylvania regulations. The Pennsylvania Department of Environmental Protection (“PDEP”) announced that the state’s Environmental Quality Board gave its initial approval for new regulations governing Marcellus Shale gas drilling. The new rules include a duty to notify federal agencies when drilling will be near federal lands, require developers to survey an area 1,000 feet from the well pad for abandoned wells, establish contingency plan guidelines, and impose new requirements for the drilling of wastewater from hydraulic fracturing operations, such as pit liner thickness and PDEP approval for storage tanks. The proposed rules still must be reviewed by the Office of the Attorney General, the Governor, a General Assembly committee and the Independent Regulatory Review Commission before they could become final.

Dallas rejects hydraulic fracturing permit within city limits. The Dallas City Council denied Trinity East Energy’s request for a special use permit that would allow it to employ hydraulic fracturing within the city limits. Dallas sits on a portion of the Barnett Shale and Trinity leased the parcel of land from the city for $19 million. The council voted 9-6 in favor of the permit, short of the 12 votes required to overrule the city planning commission, which opposes the permit. Mayor Mike Rawlings urged the council to overrule the planning commission, citing the possibility that Trinity could sue the city for refusing to let it develop the lease. The Dallas City Council is still debating a new set of rules governing hydraulic fracturing and anticipates a vote on the fall.

International

U.S. companies seeking partnerships in Brazil. According to Brazil’s Undersecretary of Commerce for International Trade, several U.S. companies have approached the Brazilian government offering their expertise to help develop the country’s shale gas reserves. Brazil’s National Oil Agency (“ANP”) plans to hold its first shale gas auction in November of this year. ANP has estimated that Brazil has approximately 515 trillion cubic feet of natural gas reserves, although the International Energy Agency has recently published a lower (266 trillion cubic feet) estimate. The Undersecretary welcomed bids by U.S. companies and praised the importance of trade with the U.S. Brazil officials, speaking at a recent energy conference, acknowledged the country may require additional infrastructure to transport equipment, water, and gas before Brazil could experience a natural gas boom similar to that of the United States.

Business

Dow will invest over $1 billion in Louisiana chemical plants. Dow Chemical Company announced that it would spend over $1 billion to build two new ethylene plants in Iberville and West Baton Rouge, Louisiana, as well as make major capital improvements to its Plaquemine Parish ethylene plant. Ethylene is a chemical feedstock refined from natural gas used for plastics manufacturing. The projects are part of a $4 billion investment in the Gulf Coast where Dow can access cheap natural gas from nearby shale plays.

Chesapeake, BHP Billiton settle Arkansas suits. Chesapeake Energy Corporation and BHP Billiton settled suits by five Arkansas residents alleging that the use of underground injection during 2010 and 2011 to dispose of hydraulic fracturing wastewater from Chesapeake and BHP operations caused earthquakes that damaged their homes. The suits were the first to claim damages from the companies that produced the wastewater, despite the fact that neither Chesapeake nor Billiton owned or operated the injection wells at issue. The settlement amounts are confidential. Both companies are defending similar suits in Arkansas federal court and purportedly may face additional suits in state court.

Research

Federal study attributes endangered fish kill to hydraulic fracturing fluid spill. A joint U.S. Geological Survey and U.S. Fish & Wildlife Service study attributed the deaths of endangered Blackside dace in a Kentucky creek to a 2007 release from a gas well site. The agencies reported that samples taken shortly after the release showed the creek’s pH dropped below 6, and asserted that high stream conductivity evidenced that significant concentrations of dissolved metals were present in the creek. Some fish developed gill lesions and liver and spleen damage, according to the study which was published in the journal Southeastern Naturalist.

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