Shale gas renaissance makes governments examine regulatory roles

The rapid growth of unconventional natural gas development and production is forcing governments worldwide to examine not just how to regulate the business, but also to consider which levels of government can do the best job in specific instances, participants at an Aug. 15-16 conference hosted by the National Research Council agreed.

That process is raising new intergovernmental questions that could make federal, state, and local officials reconsider whether existing enforcement responsibilities are still effective for nonoil and gas industries, some participants suggested.

In the US, “the governors, state agencies, legislators, and commissions clearly dictate the relationship, and local governments have to try and work with it,” said Charles Davis, a Colorado State University political science professor.

“Most state oil and gas commissions were established to provide for the orderly development of resources,” he continued during his Aug. 15 presentation at the National Academies of Science in Washington. “Some have been updated since the 1990s. But it’s necessary to look beyond legal definitions to other relationships.”

Some local governments, meanwhile, had to react quickly when wells began to be horizontally drilled and shale formations hydraulically fractured. The first unconventional gas well in Fort Worth was drilled in 2000, when Texas only regulated a well’s distance from residences, recalled Sarah Fullenwider, who works in the city attorney’s office, wrote its first fracing ordinance in 2001, and chaired gas drilling task forces that year and in 2006.

Now, the city regulates hundreds, she noted. “Drilling started north of the city. When it moved downtown, the industry discovered it couldn’t just move in,” Fullenwider said. “It tried to get a bill passed in the legislature to have statewide regulations, but couldn’t because legislators wanted the counties and cities to keep some control.”

State vs. local

The extent to which a state controls local authorities’ powers is only one aspect of domestic shale gas development regulation, according to Charles Lowry, a political science professor at Washington University in St. Louis. Gas’s prominence in a state’s economy matters. So does political partisanship, he observed.

“Unlike the usual perceptions of the two major parties, Republicans tend to prefer centralized state control when it comes to regulating natural gas development, while Democrats want control decentralized to county and local governments,” Lowry said.

Local opposition tends to be stronger in states where oil and gas production is not prominent, he continued. Rural places in the West tend to be more agricultural than in the East, where affluent urban dwellers increasingly have summer homes, other speakers indicated. These part-time residents can join full-time landowners over concerns that shale gas development might crowd other businesses out or disturb previously tranquil spots, they said.

“Almost every revision we’ve made to our ordinances occurred when industry went in and did not pay attention to residents’ concerns,” said Fullenwider. “Without naming names, there were differences in the ways companies approached this. The ones which were more successful were frank about what they were going to do and what they thought might happen, and then tried to work with residents on handling impacts. The ones which came in and said they held subsurface leases and were going ahead with drilling did not do as well.”

Residents’ attitudes toward potential shale energy development can vary from county to county within a single state. Davis said that in Colorado, people on the state’s Western Slope are familiar with acquainted with mining, oil and gas, and other industrial activities. Development of the Nio Brara shale oil play, however, is occurring along the Front Range from Fort Collins to Colorado Springs in places unfamiliar with such activity, he said.

Local inspectors

Davis said Colorado Gov. John Hickenlooper (D) has tried to assuage residents’ concerns that their fears were being overlooked by state officials. The governor worked with the Colorado Oil and Gas Conservation Commission to appoint locally designated inspectors to supplement state oversight of oil and gas activities. “These LDIs get training from COGCC to learn what to look for at the drill site so they can report it to the commission, but they do not have authority to issue citations,” Davis said.

Such supplemental oversight by local residents is increasingly essential, maintained Hannah Wiseman, an assistant law professor at Florida State University whose research has examined environmental quality and its impact on communities. “Where it doesn’t exist yet, it’s imperative that citizens who don’t have access to the sites know what state inspectors are finding,” she said. “Many of those inspectors already have to post their reports on a state website with full public access, but more needs to be done.”

To improve coordination between layers of government officials, local officials facing an enforcement problem they can handle should be get help from their counterparts at the state level, she said. State agencies similarly should recognize there will be instances when the US Environmental Protection Agency and other federal entities have better resources, particularly when interstate impacts are involved, Wiseman suggested.

“Mandatory insurance is essential,” she added. “That’s not the same as bonding. There will be some contamination that will need to be cleaned up, and [the federal Comprehensive Environmental Response, Compensation, and Liability Act] will not cover this. Maryland and some other states are requiring mandatory liability insurance for producers, which will make the insurer monitor the company because it doesn’t want to pay out a claim.

“Several insurance companies have indicated they’re not willing to insure this liability,” Wiseman said. “I think we need to consider better and clearer and scientific information about risks of telling every state it must have mandatory insurance before requiring insurance companies to participate. Just as CERCLA and Superfund shifted the toxic substances cleanup burden to anyone who was associated with a property, we need to properly place similar burdens resulting from shale oil and gas development and manage risk.”

Europe’s challenges

European attitudes toward shale gas development also vary widely, but the European Union has the authority to make policies, said Elizabeth Bomberg, a senior lecturer on politics and international relations at the University of Edinburgh’s School of Social and Political Science. She said it is using four general principles: erring on the side of environmental caution to encourage officials to assess policy risks; trying to increase transparency; creating more consultation not just between governments and the industry, but also between governments and residents who will be affected; and promoting environmental sustainability.

“If you bring the idea of sustainability into the discussion, it might be a more effective way to address opposition in states and localities,” Bomberg said. “When you’re talking about shale development in populated and other vulnerable places, it’s important to convince people that decisions are being made with a goal of long-term sustainability. Frankly, the EU is farther ahead in rhetoric than in action on sustainability.”

Regulations need to be both strong and flexible, she maintained. “Standards are important. Learning from the policies which are developed for shale gas activity could be applied elsewhere,” Bomberg said. “In the EU, it’s been proposed that the firms contribute to monitoring of their activity. They would not hire the monitor itself, but contribute to a pool from which monitors would be paid. If we focus on monitoring implementation, we also can address the government integrity gap.”

“I believe the government could play a bigger role in sharing and collecting data,” said Kate Konschnik, policy director at Harvard Law School’s Environmental Law and Policy Program. “Right now, it’s trying to pull together basic information from universities about shale gas resource formation. It should not just be technical, but also governance data, including best practices not only from the oil and gas but also other industries.”

After calling for better consultation between federal and state governments, she acknowledged that the US Bureau of Land Management held numerous meetings with stakeholders as it developed its proposed hydraulic fracturing regulations.  “I believe that a more public forum where states educate the federal government about their needs and experience would have been worthwhile,” Konschnik said. “Finally, I’d like to see more enforcement training coming not from the oil and gas industry, but from environmental experts. That’s not happening yet.”

Contact Nick Snow at nicks@pennwell.com.

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