NATURAL GAS:

EPA posts frack rules without explanation, and industry cries foul

Forget tedious public comment periods or dry Federal Register notices.

U.S. EPA, it turns out, can change the rules simply by quietly posting new language on a back page of its website.

That is what Matt Armstrong found out. A lawyer who closely follows the issue of "hydraulic fracturing," he was poking around on the EPA website last June and was stunned when he realized the agency had added new language requiring drillers to get permits if they are going to fracture with diesel fuel.

"One day, a new tab appeared that said 'regulation.' Curiosity got the better of me, so I clicked it," said Armstrong, who represents energy companies at the law firm Bracewell & Giuliani. "It was a truly extraordinary moment."

Federal agencies usually change policies with a multistep process that begins with the Federal Register and does not end for a year or more.

But the fracturing permit change happened without so much as a press release.

It was quietly posted amid an increasingly noisy debate about fracturing, a process in which chemical-laced water is injected underground at high pressure to crack rock formations and release oil or gas.

EPA has launched a multiyear study of the safety of fracturing. Hundreds of people showed up last summer at EPA hearings about the practice in New York and Pennsylvania. It has been the subject of a piece on "60 Minutes," an HBO documentary called "Gasland" and even an episode of "CSI: Crime Scene Investigation."

The casual nature of the posting, and the lack of any date, left oil and gas industry attorneys puzzling over what the change applied to and whether it applied only for the future, or retroactively.

Of particular concern was that companies had been ordered to give documentation to Congress about their fracturing practices, and EPA was ordering disclosure, as well.

If they had disclosed that they had used diesel -- legally -- but did not get a specific permit, could they be penalized? Was there any way to get such a permit? What should states, who administer the program, do about regulating fracturing?

"EPA has created no history, no regulatory regime," said Lee Fuller, vice president of government relations for the Independent Petroleum Association of America. "It's been, at best, evasive about its implementation."

It has concerned drillers to the point that IPAA and the U.S. Oil & Gas Association challenged the change before the U.S. Circuit Court of Appeals for the District of Columbia. The case, filed in August, has been referred to a "merit panel" of appellate judges, who will accept briefs and possibly schedule oral argument.

Environmentalists have little sympathy. If oil and gas drillers do not use diesel in their fracturing fluid, as the companies frequently assert, then what are they worried about?

"Everyone has known that fracturing with diesel was subject to the Safe Drinking Water Act since the 2005 Energy Policy Act language spelled it out," said Amy Mall, who handles the fracturing issue for the Natural Resources Defense Council.

An EPA spokesman who learned of the regulation yesterday from a reporter did not respond to a request for comment in time for this article. The U.S. Oil & Gas Association also didn't respond to requests for comment.

Tracing decision to Ala. court ruling

In its court pleadings, EPA does not explain how it reached its decision or why the change was made with so little public notice. But it argues that the agency's change had its roots in a 13-year-old Alabama court ruling and the 2005 Energy Policy Act.

EPA said that it took the specifics of its rules for fracturing permits from its implementation of a 1997 appeals court ruling in an Alabama case that found fracturing did fall under the Underground Injection Control provisions of the Safe Drinking Water Act (Greenwire, May 13, 2005).

Out of fear that the effects of that ruling would spread beyond Alabama, the petroleum industry lobbied Republicans in Congress to exempt fracturing -- then virtually unknown outside of oil and gas circles -- from the safe drinking water law. The industry got its wish in the 2005 law.

Critics now refer to this as the "Halliburton Loophole." Halliburton is a major provider of fracturing services and was the chief company lobbying for the exemption at the time.

Drafters struck an awkward compromise on the use of diesel. In response to criticism from Democrats, drafters put a loophole within the loophole -- fracturing would still be regulated if drillers mixed diesel into the solution.

But the three leading providers of fracturing services had already signed an agreement not to use diesel. Halliburton, BJ Services and Schlumberger then accounted for 95 percent of the "frack jobs" in the country.

Industry representatives at the time frequently stated that diesel use was minimal. Many policymakers took the convoluted patchwork of loopholes and agreements to mean that diesel was banned from fracturing fluid.

It wasn't. The agreement with service providers covered only a narrow set of circumstances -- drilling into underground sources of drinking water to get methane from coal beds.

So a driller could legally mix diesel into the solution for most types of fracturing. The driller just needed to get an "underground injection control" permit from EPA or state regulators if they administer the federal drinking water program.

EPA never took action to regulate the use of diesel. In early January 2008, then-EPA water chief Benjamin Grumbles told congressional Democrats his staff was focusing on what it considered bigger risks to drinking water.

Calls to bar diesel

That is where the debate stood until last year. That's when fracturing started injecting itself into the public consciousness as shale drilling intensified in the Northeast. Fracturing is essential to prying loose gas from the concrete-like shale formations. And new companies got into the fracturing business.

Last January, a report from the nonprofit Environmental Working Group found confusion among state officials about the diesel exemption. The report charged that many wells were being fractured with diesel without anyone getting a permit.

And early last year, then-House Energy and Commerce Chairman Henry Waxman (D-Calif.) let it be known that two of those major fracturing service providers had acknowledged to his committee that they had used diesel. One, BJ Services, said it had done so in violation of the agreement. Halliburton said had not violated the agreement, because its fluid was not poured into a coal bed that was also an underground source of drinking water.

The discovery led to angry calls from environmentalists to step in and block the use of diesel. And grass-roots groups in Pennsylvania and New York, upset with drilling in their communities, saw it as one more reason to ban fracturing.

That is when the change appeared on the EPA's website, with no explanation.

Click here to read IPAA's court filing.

Click here to read EPA's court filing.