Zero Carbon Natural Gas Would Support More Fracking and More Natural Gas Power Plants

One of the arguments against fracking, and the natural gas industry in general, is that burning gas releases carbon dioxide, which contributes to global warming.i What if burning natural gas resulted in no CO2 emissions? In the next three to five years that may be true.

MIT Technology Review has identified “zero carbon natural gas” as one of ten breakthrough technologies for 2018. NET Power, LLC is currently testing the concept with a 50-megawatt demonstration power plant in LaPorte, Texas. “The plant puts the carbon dioxide released from burning natural gas under high pressure and heat, using the resulting supercritical CO2 as the ‘working fluid’ that drives a specially built turbine. Much of the carbon dioxide can be continuously recycled; the rest can be captured cheaply.”ii NET Power plans to sell or use the remaining CO2 for enhanced oil recovery and manufacturing cement and plastics. 8 Rivers Capital invented and is advancing the Allam Cycle technology behind the project.

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BLM Fracking Rule Dead—For Now

It was an interesting week for BLM’s hydraulic fracturing rule first finalized and then immediately challenged on March 26, 2015. On Monday (June 20, 2016), the BLM filed its final brief in the Tenth Circuit arguing that the Wyoming Federal District Court erred when it issued a nationwide injunction of the rule on September 30, 2015. On Tuesday (June 21, 2016), the Wyoming Federal District Court set aside the BLM’s fracking rule, finding "The BLM has attempted an end-run around the 2005 EPAct; however, regulation of an activity must be by congressional authority, not administrative fiat.”

The central question the court addressed was did Congress give BLM the authority to regulate fracking?

In addressing this question, the court examined the broad management authority granted to BLM/Interior in the several statutes relied on by BLM – Mineral Leasing Act (MLA), Federal Land Policy and Management Act (FLPMA) and two Indian mineral statutes—and then analyzed the more narrow authority granted to EPA in the Safe Drinking Water Act (SDWA) to regulate underground injections into drinking water and the specific exemption from the SDWA for non-diesel hydraulic fracturing in the Energy Policy Act of 2005 (EPAct 2005). Judge Skavdahl concluded that neither the MLA nor FLPMA give BLM specific authority to regulate fracking and that, further, neither statute gives BLM environmental regulatory authority.

In examining the MLA, the court found the statute was focused on protecting oil and gas formations—not groundwater— and “surface-disturbing” activities—not downhole activities. The court also rejected BLM’s argument that fracking falls directly within its “regulatory sphere” and that the Bureau had long-regulated fracking. “BLM’s only regulation addressing hydraulic fracturing worked to prevent any additional surface disturbance and impose reporting requirements and did not regulate the fracturing process itself.” The court next examined FLPMA and concluded the statute is a land use planning law and not an environmental law. “Congress delegated regulatory authority for environmental protection of underground water sources to the [EPA], not the BLM.”

Finally, the court looked to SDWA and EPAct 2005. CRS Report on SDWA/fracking. The court determined it was clear that “Congress intended to remove hydraulic fracturing operations (not involving diesel fuels) from EPA regulation under the SDWA’s UIC program.” The court’s decision to invalidate BLM’s fracking rule rested on the rationale that “it makes no sense to interpret the more general authority granted by the MLA and FLPMA as providing the BLM authority to regulate fracking when Congress has directly spoken to the ‘topic at hand’ in the 2005 EPAct.”

The decision is widely expected to be appealed by the BLM and the environmental group intervenors have already declared they will appeal. The BLM’s Tenth Circuit brief on overturning the preliminary injunction of the fracking rule is a likely preview of what those arguments will be. BLM understandably argues that the MLA and FLPMA have been read too narrowly by the court and that, rather, these federal statutes contain “capacious delegations” to BLM to regulate “all operations on federal leases.” BLM adds that, “FLPMA further enhances BLM’s authority to protect natural resources and the environment” and that authority is not limited to planning. Finally, in addressing the crux of the court’s analysis that the SDWA and the EPAct 2005 non-diesel fracking exemption are evidence of a congressional decision to exclude BLM from the regulation of fracking, the government points to legislative history of the SDWA that states, “The committee intends . . . that EPA will not duplicate efforts of the USGS [BLM’s regulatory predecessor] to prevent groundwater contamination under the Mineral Leasing Act.”  Good discussion of legal issues on appeal.

The government has 60 days to file an appeal, but given the importance of this rule, don’t be surprised if an appeal is filed in advance of 60 days.

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2012 and 2013 Local Fracking Regulations Held Invalid and Preempted by State Law

In companion decisions issued May 2, 2016, the Colorado Supreme Court (Gabriel, J.) affirmed district court summary judgment orders invalidating home-rule oil and gas regulations concerned with hydraulic fracturing (“fracking”). The Court relied on the intent and scope of state-wide oil and gas legislation as reflected in the Colorado Oil and Gas Conservation Act, §§ 34-60-101 to -103, CRS (2015) (“the state Act”), and principles of operational preemption. The Court rejected express and implied preemption arguments.

In City of Longmont v. Colo. Oil and Gas Ass’n, Case No. 15SC667, the Court found Longmont’s voter-approved attempt to ban fracking to be in operational conflict with and, hence, preempted by the state Act. The Court noted that available alternatives to fracking did not lessen the state’s interest in fracking under the state’s Act and the district court’s factual finding that “virtually all oil and gas wells” in Colorado are fracked. The Court recognized that Longmont’s fracking ban implicated possible increased costs in producing oil and gas, reduced royalties, and the potential for a ripple-effect of local patchwork regulation across the state which could result in a de facto statewide ban notwithstanding the intent of the state Act. Similarly, in City of Fort Collins v. Colo. Oil and Gas Ass’n, Case No. 15SC668, the Court agreed that a 5-year voter-approved moratorium on fracking and storing fracking waste within the City was preempted by the state Act. The Court found the 5-year moratorium improperly rendered the state’s statutory and regulatory scheme superfluous, “at least for a lengthy period of time, because it prevents operators who abide by the Commission’s rules and regulations from fracking until 2018.” The Court, however, stated that it’s opinion expressed “no view as to the propriety of a moratorium of materially shorter duration.”

Hence, the Court invalidated Longmont’s ban and Fort Collins’s moratorium because they (i) involved questions of mixed state and local concern and (ii) each local regulation was preempted due to operational conflicts with the operation of the state Act. The Court also took the opportunity to reject a “beyond a reasonable doubt” standard of proof for the preemption proponent; rejected intervenor-citizens’ “inalienable rights” argument; and, clarified earlier Court preemption decisions (Voss and Bowen-Edwards), emphasizing (i) that the judicial question of “whether a matter is one of statewide, local or mixed state and local concern is separate and distinct from the question of whether a conflict between state and local law exists,” and (ii) that the preemption analysis requires the court to examine the interplay between state and regulatory schemes and to conduct “a facial evaluation of the respective regulatory schemes, not a factual inquiry as to the effect of those schemes ‘on the ground.’”

Once these Court decisions become final they are not subject to further review. Although these decisions may impact similar local government measures imposing local control over oil and gas activity in Colorado, they are not likely to stop or slow citizen-initiative efforts to increase local control of oil and gas activity.

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Sixty Years of Fracking Data – What Does it Say?

On January 27, 2015, the U.S. Geological Survey, the science arm of the U.S. Department of the Interior, published a scientific investigative report, supported by a separate data series, consisting of hydraulic fracturing and fracturing treatment records from 1947-2010. Over 1 million fracked wells and 1.8 million fracking treatment records were reviewed by the agency. This is the first time that such a comprehensive analysis of the practice and evolution of fracking has been made available to the public and should prove of great value inside and outside of the oil and gas industry. The report and data set survey the practice of fracking from its initial use to the present and consider drilling techniques, additives, proppants, treatment fluids and water use. This information was then compared by the agency to information in peer-reviewed articles. The Abstract summarizes a key finding, “[w]ater-intensive horizontal/directional drilling has also increased from 6 percent of new hydraulically fractured wells drilled in the United States in 2000 to 42 percent drilled in 2010. Increases in horizontal drilling also coincided with the emergence of water-based ‘slick water’ fracturing fluids. As such, the most current hydraulic fracturing materials and methods are notably different from those used in previous decades and have contributed to the development of previously inaccessible unconventional oil and gas production target areas, namely in shale and tight-sand reservoirs.” In sum, new fracturing technologies have unlocked previously inaccessible resources.

Gallegos, T.J. and Varela, B.A., 2015 “Trends in hydraulic fracturing distributions and treatment fluids, additives, proppants, and water volumes applied to wells drilled in the United states from 1947 through 2010—Data analysis and comparison to the literature: U.S. Geological Survey Investigations Report 2014-5131. and “Data regarding hydraulic fracturing distributions and treatment fluids, additives, proppants, and water volumes applied to wells drilled in the United States from 1947 through 2010.”

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Federal Judge Strikes Down County Ordinance Banning Hydraulic Fracturing

On January 19, 2015, in a 199-page summary judgment opinion in SWEPI, LP v. Mora County, New Mexico (CIV 14-0035 JB/SCY), New Mexico U.S. District Court Judge James Browning declared that a 2013 Mora County ordinance banning corporate oil and gas drilling and hydraulic fracturing unconstitutional and in violation of the corporate-plaintiff developer's property rights and the Supremacy Clause under the U.S. Constitution. The law, titled the Mora County Community Water Rights and Local Self-Government Ordinance, banned such activity within a substantially rural county approximately 100 miles northeast of Santa Fe. The Plaintiff is a subsidiary of Royal Dutch Shell PLC.

Although subject to review by the Tenth Circuit U.S. Court of Appeals, this federal court's decision is a setback for local control activists. Judge Browning found that the Ordinance expressly attempted to circumvent corporate rights protected by federal law. In fact, the Ordinance declared that companies "shall not have the rights of 'persons' afforded by the United States and New Mexico Constitutions," including First Amendment rights and due process. Judge Browning noted that the "Defendants' argument that corporations should not be granted constitutional rights, or that corporate rights should be subservient to people's rights, are arguments that are best made before the Supreme Court -- the only court that can overrule Supreme Court precedent -- rather than a district court." Although the federal court did not find Plaintiff's "takings" claim to be ripe because Plaintiff had not sought just compensation through a state inverse condemnation action, Judge Browning further found the Ordinance violative of, and impliedly preempted by state law since it would create waste and prohibit activity that New Mexico law allows.
Although state courts in New York and Pennsylvania have ruled in favor of some level of local government control over oil and gas development, decisions rejecting similar oil and gas activity bans were issued in 2014 by Boulder District Court Judge D.D. Mallard, which are now at issue in the Colorado Court of Appeals.

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