By Michael P. Joy, Emily Thomas and L. Poe Leggette, Baker Hostetler, LLP
On December 17, 2014 media outlets across the nation were abuzz with the news that New York governor Andrew Cuomo’s administration had finally made a decision regarding hydraulic fracturing. After six years of study, the Cuomo administration finally ended its statewide de facto moratorium on shale development – by announcing a complete ban on high-volume hydraulic fracturing in New York State.
The Cuomo administration’s statements in its accompanying news conference were limited, but mixed in tone. Gov. Cuomo himself vacillated, stating, “I get very few people who say to me, ‘I love the idea of fracking.’ Basically they say, ‘I have no alternative because there is no other economy.’” Otherwise, the Governor generally avoided voicing any definitive opinions, instead deferring to his experts for the heavier lifting, even going as far as to assert that, “I don’t think I even have a role here.”
In contrast, Howard Zucker, commissioner of the N.Y. Dept. of Health, opted for more dramatic, provocative language guaranteed to grab headlines, e.g.: “[w]ould I live in a community with [hydraulic fracturing] based on the facts I have now? Would I let my child play in a school field nearby or my family drink the water from the tap or grow their vegetables in the soil? After looking at the plethora of reports…my answer is no.” The Health Commissioner received even more attention for this opinion based on the administration’s later admission that he has no children.
While strong on partisan rhetoric, Commissioner Zucker’s statement was short on science and lacking in any meaningful legal basis. The Cuomo administration argues that banning hydraulic fracturing was necessitated by a lack of data proving it could be conducted safely. However, the actual legal standard applicable to generic environmental impact statements is found at 6 NYCRR §617.11, and states in pertinent part:
(d) Findings must:
(1) consider the relevant environmental impacts, facts and conclusions disclosed in the final EIS;
(2) weigh and balance relevant environmental impacts with social, economic and other considerations;
(3) provide a rationale for the agency’s decision;
(4) certify that the requirements of this Part have been met; and
(5) certify that consistent with social, economic and other essential considerations from among the reasonable alternatives available, the action is one that avoids or minimizes adverse environmental impacts to the maximum extent practicable, and that adverse environmental impacts will be avoided or minimized to the maximum extent practicable by incorporating as conditions to the decision those mitigative measures that were identified as practicable.
The governor’s determination based on the suggestion that a lack of data proving hydraulic fracturing could be conducted safely not only ignores the balancing of interests and the necessity of identifying practicable mitigative efforts as required by law, it ignores the substantial weight of evidence that hydraulic fracturing can, and routinely is, conducted safely across the nation. Studies by the US Environmental Protection Agency (EPA), state regulators (note that oil and gas development is the exclusive regulatory domain of state agencies unless the activity takes place on federal lands), industry groups and academia have all determined that hydraulic fracturing does not pose adverse environmental risks. Even the New York Department of Environmental Conservation (DEC), during the Cuomo administration, determined that hydraulic fracturing would not adversely affect the environment in New York.
A few highly credible examples demonstrate that existence and scope of study and analysis available to the Cuomo administration:
A comprehensive study by the Ground Water Protection Council (“GWPC”) in 1998 that surveyed state agencies responsible for regulating hydraulic fracturing and found no evidence that public health is at risk as a result of hydraulic fracturing.[1]
The comprehensive Interstate Oil and Gas Compact Commission (a multi-state agency made up of regulators from the oil and gas producing states, including New York) survey in 2002 that determined that while approximately one million wells had been hydraulically fractured since the 1940s, there were no substantiated claims of ground water contamination from hydraulic fracturing.
The Massachusetts Institute of Technology released study in 2011 on the potential risks of hydraulic fracturing to groundwater aquifers that found “no incidents of direct invasion of shallow water zones by fracture fluids during the fracturing process have been recorded.”
In January, 2013 the U.S. Geological Survey (“USGS”) released a study of groundwater samples from a substantial part of the Fayetteville Shale region and again, found no regional effects on groundwater contamination from activities related to gas production. [2] The Fayetteville Shale is similar to the Marcellus and Utica shale’s in New York in that it is a low permeability, low porosity shale formation that must be hydraulically fractured to be economically productive.
Regulators from Arkansas, Colorado, Louisiana, North Dakota, Ohio, Oklahoma, Pennsylvania and Texas advised the U.S. Government Accountability Office in 2012 that, based on state investigations, hydraulic fracturing has not caused groundwater contamination in any of those states, despite significant volumes of oil and natural gas production resulting from the process of hydraulic fracturing. [3]
The Alaska Oil and Gas Conservation Commission stated in 2011 that “[i]n over fifty years of oil and gas production, Alaska has yet to suffer a single documented instance of subsurface damage to an underground source of drinking water.”
Federal government regulators working in the administration of President Barak Obama have also acknowledged that there is no evidence that the hydraulic fracturing has adversely impacted groundwater. On May 24, 2011, Environmental Protection Agency Administrator Lisa Jackson appeared before the House Committee on Oversight and Government Reform and testified that EPA was “not aware of any water contamination associated with the recent drilling” in the Marcellus Shale. Similarly, Robert Abbey, director of the Bureau of Land Management, stated in Congressional Testimony in 2011 that he had “never seen any evidence of impacts to groundwater from the use of fracing [sic] technology on wells that have been approved by” the BLM.
After extensive study and analysis, the New York DEC released a draft generic environmental impact statement in 2009, concluding that the physical process of hydraulic fracturing of shale formations in New York does not pose any risk to ground water. The DEC conclusions were based in part on evidence gathered from comparable state regulatory agencies in Colorado, New Mexico, Pennsylvania, Ohio, Texas and Wyoming that all concluded that hydraulic fracturing operations did not pose a risk to groundwater contamination.
Notwithstanding the million plus wells that have been safely hydraulically fractured nationwide over a period of more than 60 years, supported by detailed study and analysis by the very state agency in New York charged with having the knowledge and expertise necessary to regulate oil and natural gas development, the Cuomo administration asserts that it lacks evidence that hydraulic fracturing can be done safely.
However, even Commissioner Zucker has admitted that “there is no conclusive research that fracking is harmful. Still, he said there are enough uncertainties about the potential risks to public health and the environment to warrant not moving ahead.”
One could ponder whether the Cuomo administration simply did not look hard enough at the available data and analysis, but the more than six years of delay and the tens-of-thousands of pages thousands pages of data, study, analysis and comments suggest factors other than science underlie the Cuomo administration’s decision.
So what are the actual repercussions of a ban on so-called high-volume hydraulic fracturing in New York? From the standpoint of the oil and gas industry, it is a disheartening development, though in the short term it may be a distinction without a difference. A de facto moratorium on horizontal drilling and high-volume hydraulic fracturing, in effect in New York since 2008, has largely driven producers from New York and into neighboring Pennsylvania, West Virginia and Ohio. Further, various New York municipalities have used zoning authority to add an additional and unduly burdensome layer of local regulation to further stall development – an approach that New York’s highest court upheld as lawful on June 30, 2014.
For the most part, the ban on hydraulic fracturing does not immediately affect the status quo for would-be producers of New York State’s bountiful natural gas deposits. Companies which, on December 16, 2014, were unable to develop their oil and gas leases in New York continued to be unable to do so on December 17, 2014. Over the past six years, the Cuomo administration and certain town boards have taken steps to prevent development of New York’s natural gas resources, thereby creating a climate in New York that was inhospitable to investment in those resources and corresponding technology and infrastructure. The lack of investment in infrastructure has broader consequences as discussed below.
For those interested in developing the prolific unconventional gas reservoirs (e.g. Marcellus Shale, Utica Shale, upper Devonian tight sandstones) underlying much of the southern tier region of New York, it is certainly disappointing to see the Cuomo administration “double down” on its failed natural resources development policies that have already hurt landowners, the southern tier region and truly, the State as a whole. Most producers have already turned their investment dollars and attention to other regions within the vast Appalachian Basin, including drilling some of the nation’s most productive natural gas wells from the Marcellus Shale immediately across New York’s border in Pennsylvania.
Given the current low price environment, protracted legal battles over the ability to use hydraulic fracturing in New York may be unpalatable to companies which might otherwise invest those resources elsewhere. Even with these seeming obstacles to contesting the proposed ban, stakes are certainly still high enough to warrant legal action, such as those that have taken place in New York before.
While the Cuomo administration tried to downplay the economic promise and potential of hydraulic fracturing in New York, its landowners and taxpayers will no doubt realize, and feel, the pain of this decision. Despite the lower price of natural gas at present, Pennsylvania, Ohio and West Virginia continue to benefit from unconventional natural gas production. From a resource extraction perspective – i.e., the objective, geological quality of the “rock” — New York remains very viable.
The US Energy information Administration conservatively estimates that 144Bcf of technically recoverable reserves of natural gas exist in New York State. Even if only 10 percent of the technically recoverable gas were produced over the next 15 years, and even if the price at the wellhead is only $4/MMbtu, that would still represent a staggering $57 billion in gross value. Of that, even if the farmers’ and rural landowners share averaged only one-eighth, that’s still more than $7 billion in lost revenue pulled directly from the pockets of farmers and rural landowners in New York’s southern tier. The lost tax revenue from extraction taxes at the County and School tax level and income tax at the State level are equally significant lost revenues.
Again, the regulations set forth in 6 NYCRR 617 that require the State to weigh and balance relevant environmental impacts with social, economic and other considerations and certify that, consistent with social, economic and other essential considerations, the State action is one that avoids or minimizes adverse environmental impacts to the maximum extent practicable, by incorporating mitigative measures that were identified as practicable. With extensive evidence that the process of hydraulic fracturing does not pose an adverse environmental risk, and clear evidence that the economic output from natural gas development is well into the tens of billions of dollars, the Cuomo administration’s decision does not seem to comport with science – or the law. That the administration could not identify effective mitigation measures for an activity without any known instances of adverse environmental impacts is truly shocking.
Should New York’s portion of the Utica Shale prove to be as prolific as some experts and scientists have predicted, the above numbers would increase dramatically. Thus, the lost revenue to New York’s farmers and rural landowners should itself be reason enough to take on this fight, especially since the Cuomo administration’s intent to ban hydraulic fracturing is based on seemingly unsupportable legal grounds. Additionally, the constitutional implications of the arbitrary taking of private property rights, based on unclear scientific arguments, could open the door to multiple legal battles against the ban.
Hope for industry opposition to the ban is frigid comfort for the many landowners sitting atop New York’s vast natural gas deposits, which can only be exploited through the processes of horizontal drilling and high-volume hydraulic fracturing. The decision is especially harsh to those people who can easily look across the road from the I-86 corridor and actually see the economic benefits that are accruing to neighboring Pennsylvania.
The ripple effects of the decision to ban hydraulic fracturing also solidify the continuing inability for landowners in New York, and the citizens of states further to the north, to benefit from New York’s unconventional energy deposits. That New York has spent years putting out an “unwelcome mat” to the energy industry is a significant missed opportunity to the industry, landowners, consumers, and the state’s coffers. As Neil Vitale, a dairy farmer unable to develop the natural gas deposits beneath his land put it, “‘The amount of shale available is more valuable than the surface of the land will ever be [ New York] state controls the most valuable part of our farm.’”
And the pain does not stop with landowners hamstrung by New York’s years of preventing responsible shale development from taking place. Just three days before the Cuomo administration announced the ban on hydraulic fracturing, the New York Times highlighted the dire straits that New England residents are facing because of unaffordable utilities, especially heating costs. New England states are burdened in large part by the inaccessibility of pipelines sufficient to bring the natural gas produced in Pennsylvania, West Virginia and Ohio up to states north of New York, which have no fossil fuel resources of their own. New York State’s role as an energy producer and pass-through to New England has national consequences.
Although the ban is merely the latest discouragement to an energy industry already unwelcome in Albany, an action so arbitrary, capricious, devoid of scientific basis and legal rationale is dangerous to leave unchecked. The energy industry has invested tremendous amounts of capital in other states, many of which have their own political opposition to hydraulic fracturing. Even if the industry currently has limited resources and a tepid appetite for lawsuits in New York, the landowners deprived of revenue from their land have billions of reasons to fight for their own rights and property.
New York’s decision to not issue permits for shale may have little more than region consequences, a long-expected outcome of an overtly political process, an action of the State that deprives the farmers and rural landowners in the southern tier of billions in revenue from their land and farms. However, it remains possible that the ill-conceived ban in New York highlights the volatile politics of energy development across the United States, and encourages political factions and environmental activists to continue their assault on all forms of essential domestic energy production.
Whether it is the battle over hydraulic fracturing in New York or Colorado, or the Keystone XL pipeline across the U.S. border with Canada, or the Cape Wind project in Massachusetts, it appears that if all politics are local, then local energy production is also highly political, wherever it may occur. If politics continues to trump the sound science behind domestic energy production and infrastructure development, the Courts will play an increasingly important role in protecting property rights and the tremendous gains made in safe and reliable local energy production.