Texas Urges U.S. to Leave Gas Fracking Oversight to States

http://www.bloomberg.com/news/2011-06-02/texas-urges-u-s-to-leave-gas-fracking-oversight-to-states.html

By Joe Carroll

Rex Tillerson, chief executive officer of Exxon Mobil, called last week for the federal government to leave fracking oversight to the states.

The top energy regulator in the biggest natural-gas producing state urged federal officials to keep their hands off drilling techniques that environmental groups say contaminate drinking water.

Texas Railroad Commission Chairman Elizabeth Ames Jones said in an interview today that states are better-equipped than the federal government to regulate hydraulic fracturing, the practice of injecting high-pressure jets of water, sand and chemicals into rock formations to release gas and oil. Jones said yesterday that Texas won’t require drillers to disclose ingredients they regard as trade secrets.

“It would be a big mistake” for federal regulators to assume oversight of drilling for natural gas, Jones, 54, said today on the sidelines of a U.S. Energy Department meeting in Washington. She said she’s “hopeful” the panel “will come to the understanding that the one-size-fits-all federal oversight practice does not merit further attention.”

Jones, a Republican who has announced her candidacy for U.S. Senate, told a federal panel studying the risks of hydraulic fracturing that the practice, known as fracking, never has contaminated groundwater in Texas. She made her comments during a meeting of the seven-person task force established by Energy Secretary Steven Chu last month at the behest of President Barack Obama.

“It’s geologically impossible for frack fluid to migrate into the water table” because the process occurs too far underground, Jones said today.

‘Huge Gaps’

The task force includes former Central Intelligence Agency Director John Deutch, Environmental Defense Fund President Fred Krupp and Daniel Yergin, co-founder of Cambridge Energy Research Associates, a unit of IHS Inc. (IHS)

Texas and other gas-rich states such as Michigan, Arkansas and Wyoming are adopting fracking rules that “leave open huge gaps” that prevent landowners from discovering what substances are being injected into wells on their property, said Kate Sinding, a New York-based senior attorney at the Natural Resources Defense Council.

“The industry and some states are looking at the increasing concern about this practice at a national level and they want to find a way to forestall federal regulation,” Sinding said.

State vs. Federal

Anadarko Petroleum Corp. (APC) Chief Executive Officer James T. Hackett told the panel yesterday that states should take the lead in regulating gas drilling, rather than the federal government. His comments echoed Exxon Mobil Corp. (XOM) CEO Rex Tillerson’s call last week for the federal government to leave fracking oversight to the states.

“Every state has a right to permit a well, and every state has a right to insist on certain practices,” Hackett said during yesterday’s testimony.

Jones said the railroad commission, which oversees oil and gas exploration in the state, will begin formulating fracking- fluid rules in the next few months. The agency was directed to establish a disclosure process in a bill approved by a vote of 137-8 in the Texas legislature on May 29. The bill is awaiting Governor Rick Perry’s signature.

New York has temporarily banned fracking while it develops new rules to ensure the safety of water and air. In France, senators yesterday began discussing a proposed fracking ban. The debate follows a May 11 vote in the National Assembly to penalize drillers who use the technique with fines, jail time and cancellation of exploration permits.

Exxon’s Campaign

Exxon, the largest U.S. gas producer, is mounting an advertising campaign to defend fracking as environmentally safe, Tillerson told reporters May 25.

Michigan’s Department of Environmental Quality last week adopted fracking disclosure rules that allow drillers and service companies to shield proprietary mixtures from public view, Brad Wurfel, a spokesman for the agency, said in a phone interview from Lansing. Wyoming and Arkansas approved similar rules last year that also preclude disclosure of proprietary recipes.

Regulators in states that rely on oil and gas royalties and fees for a substantial portion of state revenue may feel too beholden to the energy industry to strictly enforce fracking rules, said Kenneth Green, the interim director of the center for regulatory studies at the American Enterprise Institute.

“Some states are going to be better at it than others,” Green said. “Those that derive a lot of revenue from the gas industry may be too lax.”

Gas Output Surges

U.S. gas output expanded 20 percent in the past five years as fracking enabled energy explorers to extract the fuel from shale formations in Texas, Louisiana, Arkansas and Pennsylvania previously considered impenetrable. In 2010, gas production from U.S. wells reached a level last seen in 1973, Energy Department figures showed.

Texas is experiencing a drilling boom as explorers including Exxon, Occidental Petroleum Corp. (OXY), Chesapeake Energy Corp. (CHK), Marathon Oil Corp. (MRO), Anadarko and Southwestern Energy Co. (SWN) expand the search for oil and gas. The number of rigs drilling wells in Texas jumped 27 percent in May from a year earlier, according to Baker Hughes Inc., an oilfield service provider that tracks rig usage.

Texas pumped 587 billion cubic feet of gas in March, or 31 percent of U.S. production, according to the Energy Department in Washington.

Shale formations have the potential to more than double the world’s gas reserves, the Energy Department said in an April 5 assessment. By 2035, gas trapped in shale may account for almost half the nation’s supply, the department said.

To contact the reporter on this story: Joe Carroll in Chicago at jcarroll8@bloomberg.net.

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net.