NATURAL GAS:

Frack panel to industry: Fix environmental problems

Although President Obama's "fracking" panel offered few specifics today on how to make shale gas drilling safer, it delivered a warning to the shale gas drilling industry: Clean up your act or your business could suffer.

"Overall, the impact on the environment has to go down," said John Deutch, the Massachusetts Institute of Technology professor who leads the panel. "If the public is not comfortable that these environmental issues are not being rigorously managed by regulators and industry, there is a threat to production."

The panel's report, released this morning, offers a series of recommendations for amassing more information on the effects of drilling and sharing that information with the public. It suggests no changes in specific laws, regulations or enforcement.

In an interview, Deutch acknowledged the lack of policy specifics. The main reason, he said, is that there is no "silver bullet" -- no single bill, rule or agency that can fix the problem.

Instead, the report's strongest statement may be that there is, indeed, a problem.

That narrative drew praise from environmentalists. But it was dismissed by at least one major industry group, which said the panel lacked the necessary knowledge of the oil and gas business.

The report hails the surge in domestic natural gas production. It says the boom creates jobs, fosters energy independence and helps the environment by providing a cleaner-burning fuel.

But the panel rejected some longstanding industry talking points -- that hydraulic fracturing of shale formations is a time-tested technology, that drilling is a highly regulated industry and that drilling companies are doing everything they can to protect human health and the environment.

"An industry response that hydraulic fracturing has been performed safely for decades, rather than engaging the range of issues concerning the public, will not succeed," the report concludes.

The panel says the advances in fracturing that have made shale drilling feasible have emerged only in the past decade and present a host of new challenges. And the effectiveness of current regulations, it says, "is far from clear."

So, if the industry and regulators cannot assure the public that drilling is safe, the report says, business will suffer.

"Absent effective control, public opposition will grow, thus putting continued production at risk," the report says. As an example, Deutch cited the nuclear accidents of the 1970s that stalled nuclear power expansion for a generation.

The panel backs some elements of state regulation and voluntary compliance, such as a program called STRONGER (State Review of Oil and Natural Gas Environmental Regulations), in which environmentalists, industry representatives and fellow regulators examine the regulatory programs of states that volunteer for review. But the report says too few states volunteer and recommends more government financial support.

It criticizes "FracFocus," industry's chief example of how well voluntary compliance works. FracFocus is a website that allows companies to voluntarily report the chemicals it uses in fracturing, so that the public can see what has been injected.

The report says the effort is "off to a good start." But it says the site, administered by the nonprofit Ground Water Protection Council, excludes information relevant to groundwater contamination concerns and is presented in a manner that precludes broad analysis of the chemicals.

The report takes drilling critics and opponents to task for blaming problems on fracturing that actually occur during other parts of the drilling process. It also dismisses the widely stated fear that fracturing chemicals could travel upward through miles of rock to contaminate groundwater. Nonetheless, it lists plenty of other threats to water, air and quality of life.

Reactions

"It legitimizes the concerns that more and more citizens are having about production," said Dave Alberswerth of the Wilderness Society. "This does a good job of articulating genuine issues with shale gas."

Industry's response to the report varied. The American Petroleum Institute, whose members include the integrated global oil giants, complained that Energy Secretary Steven Chu should have placed an industry representative on the panel, officially known as the Natural Gas Subcommittee of the Secretary of Energy Advisory Board.

"DOE's recommendations should be informed by an understanding, first, that shale oil and gas development is already well regulated and safe," said Erik Milito, upstream director at API.

The Independent Petroleum Association of America, which represents smaller, independent companies, praised the report, saying it shows that drilling is -- "on balance" -- well regulated.

"While the report makes a number of recommendations, these recommendations are largely directed at improving public knowledge about development and enhancing the effectiveness of the current management of shale gas development environmental risks," said IPAA President and CEO Barry Russell.

And America's Natural Gas Alliance, an industry group dedicated to expanding the use of natural gas and extolling its benefits as a clean fuel, applauded its support for STRONGER and the praise of FracFocus.

Environmentalists had dismissed the panel's work almost from the start, saying that the effort was duplicative of a U.S. EPA study and undermined by conflicts of interest. But they sounded cautiously pleased as details of the report surfaced. Alberswerth, who had told subcommittee members at a hearing that the environmental community had very low expectations, said he was "pleasantly surprised."

In a statement, the Natural Resources Defense Council said the report includes "some important calls to action."

Recommendations

The panel's report pushes several broad themes, such as "continuous improvement" and "best practices." And it offers ideas that could serve as the underpinnings of legislative or regulatory changes. Among them:

  • It recommends that the oil and gas industry establish an organization devoted to developing best practices for drilling.
  • It says agencies should join together to investigate the total amount of greenhouse gases emitted by shale gas drilling. Gas has long been considered much cleaner than coal, but shale gas drilling emits more methane and requires much more diesel truck traffic than conventional drilling. But there are conflicting studies on how natural gas stacks up to coal in terms of emissions.
  • It supports fees and severance taxes as a means to properly fund regulatory agencies. The Bureau of Land Management has sought unsuccessfully to raise fees on drillers to pay for permitting and inspections. And Pennsylvania, one of the main shale boom states, has an ongoing debate about whether to impose a severance tax on gas.

The report does lay down a couple of specific markers on funding. It recommends $20 million to create a national database of information to pull together data from 100 or so different places, and $5 million a year to maintain it. And it recommends $5 million a year for STRONGER.

One of the panel's most specific recommendations -- public disclosure of fracturing chemicals -- is also deemed more of a symbolic way to assure the public than a means of protecting the environment. The report finds little chance that high-pressure fracturing injections of chemical-laced water are likely to force toxic chemicals through miles of rock to the surface.

But it brushes aside arguments against public disclosure. Industry's opposition to such disclosure has waned during the past year or so, but there is still some concern about protecting trade secrets.

"The subcommittee believes there is no economic or technical reason to prevent public disclosure of all chemicals in fracturing fluids," the report states, "with an exception for genuinely proprietary information."

Deutch said what is needed is a change in mind-set, not an act of Congress or a new federal program.

"The fact that there's no silver bullet is the reality here," Deutch said. "There needs to be more ways to track progress. We need to make it more environmentally benign over time. That's how we're going to get to success."

Task force

Chu charged the subcommittee in May with fulfilling President Obama's promise -- part of his energy "blueprint" -- to "make sure that we're extracting natural gas safely, without polluting our water supply." In testimony before the panel, one witness summed up its mission as "Fix fracking. We need the gas."

The group's next task is a report due in three months that Deutch said will delve more deeply into "two or three" of its recommendations. What those suggestions are going to be will be determined from the reaction to the report from DOE, the White House and other agencies, he said.

Both industry and environmentalists criticized Chu's picks for the panel. Industry and congressional Republicans said the panel was stacked with former Democratic appointees hostile to drilling. Environmentalists and Democrats, by contrast, complained that six of the seven members had financial ties to the oil and gas industry.

Deutch, for example, previously served on the board of Schlumberger Ltd., a major provider of hydraulic fracturing services, and now serves on the board of Cheniere Energy Inc., a Houston liquefied natural gas company. The Environmental Working Group led an effort calling on Deutch to step down.

Deutch, who has a doctorate in physical chemistry from MIT, has been on the faculty there since 1970. He worked at DOE during the Carter administration and ran the CIA during the Clinton administration. He also sits on the board of the liberal Center for American Progress.

In an interview, Deutch said he had the blend of experience that the administration was seeking.

"All of my industry associations, of which there are a lot, are fully disclosed," Deutch said. "I have no reason to resign or be embarrassed by them."

Click here to read the report.

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