NY Regulators Propose New Shale-Gas Drilling Rules

NEW YORK (Dow Jones), Oct. 1, 2009

New York environmental regulators Wednesday proposed new safety rules for natural-gas drilling in the Marcellus Shale, amid concerns over the safety of the state's water supplies.

Among the recommendations from the state's Department of Environmental Conservation are a proposed requirement for gas drillers to disclose the chemical composition of the fluids used under high pressure to crack the tight rock formations to release the gas, a process known as hydraulic fracturing, or "fracking." The draft report also proposes special requirements and buffer areas for drilling near New York City's water supplies, and guidelines for accounting for and disposing of the fluids throughout the drilling process, according to a summary press release.

Energy companies including Range Resources Corp. (RRC), XTO Energy Inc. (XTO), Chesapeake Energy Corp. (CHK) and Cabot Oil & Gas Corp. (COG) have flocked to the Marcellus Shale, which underlies Pennsylvania, New York and parts of other states, to develop the prolific gas reserves. Geologists have said the Marcellus Shale could contain enough gas to meet U.S. demand for two years. A wider boom in natural gas production from shale plays in Texas, Louisiana and elsewhere has boosted U.S. gas reserves dramatically.

Gov. David Paterson in July, 2008 directed the DEC to review the potential environmental impacts of shale-gas drilling as environmentalists and some local residents feared the fluids used could leach into groundwater supplies, including New York City drinking water. Paterson, at the same time, also signed a bill fast-tracking the permitting for this type of drilling, but activity has been on hold, pending the final outcome of the environmental review.

New York's existing rules governing gas drilling date back to 1992, before new technology made gas production from shale plays commercially viable. The DEC will accept public comments until Nov. 30 on its draft rules before issuing a final report.

A spokesman for Chesapeake Energy said the company would need time to review the draft report, but intends to be an active participant in the review process. Executives from Chesapeake Energy and Range Resources said during an energy conference last week that they support industry-wide disclosure of the chemicals used in hydraulic fracturing.

Alex Matthiessen, president of Tarrytown, N.Y., environmental group Riverkeeper, declined to comment in detail before closely examining the 809-page report, but said the DEC "has made a good faith effort to impose serious requirements on drilling in watersheds." He added, however, that he was skeptical hydraulic fracturing could be done safely near a watershed providing drinking water for New York City.

To address concerns over the city's water supplies, the DEC proposed specific rules to protect the watershed, including requiring special approval for wells proposed within a 1,000-foot corridor of water tunnels or aqueducts.

Release of the draft report comes just a week after Pennsylvania regulators ordered Cabot Oil & Gas to halt fracking work in Susquehanna County following three spills totaling about 8,000 gallons of fluid at one of the company's wells. The company said it was complying with the regulator's order and noted neither drilling nor production were affected, adding it expects third-quarter gas output above its previous estimates.  

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