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Fracking in the Spotlight: What Regulatory Developments Can Be Expected and How Companies Can Best Position Themselves

By Jim Rubin, SNR Denton US LLP and Jennifer Morrissey, SNR Denton US LLP

Hydraulic fracturing, or "fracking," is increasingly making natural gas a major part of the nation's energy portfolio. But the process does not come without risk, impact or controversy. Regulations apply and more is expected as the industry grows. This Emerging Issues Analysis will discuss the controversy surrounding fracking, the future of regulation, and how companies can best position themselves in the new regulatory landscape.

 Hydraulic Fracturing in Marcellus Shale

“Natural gas is increasingly becoming a major source for power generation in the United States. In 2009, natural gas fueled more than 20% of the nation's annual electricity production,” write Jim Rubin and Jennifer Morrissey. “That percentage is expected to rise significantly as older coal plants are retired and coal generation is subject to ever more stringent regulations. The nuclear renaissance in the U.S. appears stalled due to rising construction costs and safety issues in the aftermath of the nuclear crisis in Japan, and widescale dependence on renewables is not yet economic. At the same time, natural gas has become our nation's most cost-effective power generation option in terms of both fuel and construction costs. Natural gas reserves are becoming more plentiful as techniques are developed to reach unconventional shale gas sources, such as found in the Marcellus, Haynesville and Barnett shale deposits. The gas has always been there, up to 10,000 feet underground, but the development and increased use of horizontal drilling and hydraulic fracturing -- or 'fracking' -- has made these large deposits newly accessible.”

“Fracking itself is not a new technology. It has been used in the oil and gas sector for over 60 years,” explain the authors. “Fracking is a well-stimulation technique that employs high pressure fluids -- water, sand and a small mixture of chemicals -- to create and prop open small fissures in shale rock, providing a path for gas entrapped within underground formations to move easily to perforated wellbore for extraction. By combining fracking with new horizontal drilling techniques, companies are now able to reach deep supplies of shale gas that in the past would have not been physically or economically accessible. The process also allows access to far greater quantities of gas with much less surface disruption than with vertical drilling alone.”

“The potential for pollution of drinking water aquifers as well as surface waters has created much of the controversy surrounding fracking, though gas production can also affect air quality through the use of drilling machinery, heavy trucks, and so forth. Added to this concern is the fact that many companies use a variety of chemicals in their fracking fluids that are considered proprietary, leading to a concern that undisclosed toxic chemicals are being released into the environment,” report Rubin and Morrissey. “Concerns over the potential contamination of surface and groundwater have grown exponentially over the last several years as gas drilling has proliferated near urban areas in the northeast that overlie the Marcellus Shale formation. Even though the fracking activity takes place far below potable aquifers, there is still the potential for leaks from improper concrete seals in the well bore and other construction defects. Responding to these concerns, several states and municipalities have recently banned, at least temporarily, further drilling. A handful of lawsuits have been filed in a number of states alleging that fracking activity is responsible for contamination of wells and harm to the health of residents near drilling sites.” subscribers can access the complete commentary, Fracking in the Spotlight: What Regulatory Developments Can Be Expected and How Companies Can Best Position Themselves. Additional fees may be incurred. (approx. 12 pages)

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James Rubin is counsel in the global Energy, Transport and Infrastructure sector. His practice focuses on environmental and natural resources, including climate change law and policy, air pollution, natural resource laws, and federal, state and citizen enforcement matters, particularly related to the energy sector. He also provides counsel to businesses on domestic and international compliance matters in the environmental context. He served for 15 years in the Environment & Natural Resources Division of the U.S. Department of Justice.

Jennifer Morrissey is a member of SNR Denton's Energy and Public Law and Policy Strategies practices. Her practice focuses on providing federal and state energy regulatory advice to, and advocating on behalf of, banks and financial institutions, private equity firms, trade associations, and various corporate clients. She advises clients regarding compliance, legislative and regulatory issues, mergers and acquisitions, and structured transactions. She has extensive experience in drafting compliance filings, FPA §§ 203 and 205 applications, and FERC and state utility regulator comments and interventions.

SNR Denton is one of the 25 largest legal services providers in the world. SNR Denton serves business, government and institutional clients in eight key sectors: Energy, Transport and Infrastructure; Financial Institutions and Funds; Government; Health and Life Sciences; Insurance; Manufacturing; Real Estate, Retail and Hotels; and Technology, Media and Telecommunications.

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