Fracturing rule offers a concession

The Obama administration on Friday unveiled a proposed rule that would force companies to reveal the chemicals they use when drilling for oil and natural gas on public lands.

But the long-anticipated regulation includes a major concession to oil and gas companies - allowing the disclosures after a well is drilled and the chemicals are pumped underground instead of a month beforehand as federal regulators originally considered.

The result is a proposal that satisfies neither the oil and gas industry nor environmental advocates.

The measure aims to tighten standards for production using hydraulic fracturing, a technique that involves blasting a mix of sand, chemicals and water underground to crack dense rock formations and release trapped hydrocarbons.

Fracturing is being combined with horizontal drilling technology to extract what analysts predict could be a 100-year supply of natural gas stored in shale formations across the country.

Energy industry leaders and their congressional allies complained that even with the concession on advance disclosure, the mandate proposed Friday would add unnecessary red tape that could discourage oil and gas production.

And environmental advocates - who fear chemicals and natural gas from poorly designed wells can leach into drinking water supplies - said it is important to know the chemical contents of fracturing fluids before operations begin.

"Knowing after the fact is nice but does not allow for any steps to be taken if the chemicals being used are of concern to the public," Rep. Maurice Hinchey, D-N.Y., said.

Industry officials say fracturing typically takes place thousands of feet beneath underground aquifers and is safe.

Texas already has rule

Several states, including Texas, already require that companies disclose their fracturing chemicals - with exceptions for proprietary information - on the industry website FracFocus.org. The federal rule probably would require disclosure there as well, and likewise contains exemptions for trade secrets.

Industry officials insist that states are better equipped to regulate hydraulic fracturing, given the wide geological differences from region to region.

Construction standards

The Interior Department's new rule would impose additional well construction standards, testing requirements and mandates for managing and storing water that flows back after fracturing begins. Interior Secretary Ken Salazar noted that the measure was built largely on existing "common-sense industry best practices."

Although it would apply only on public lands- representing just a small share of the nation's richest shale formations - some industry advocates say it could crack the door for more federal regulation later.

"This rule may only apply to public lands now," Sen. James Inhofe, R-Okla., said. "But let's not forget that Interior Secretary Salazar has publicly stated his hope to use these rules as a blueprint for federal regulation over state and private lands in the future."

The new rule could be viewed as a pilot pro-ject testing out federal regulation of hydraulic fracturing, said Benjamin Salisbury, an analyst with FBR Capital Markets. If the measure works without driving down energy production, it could be used as justification for future moves to regulate hydraulic fracturing in other areas.

At the same time, it forces all energy producers to follow best practices.

"Except for the paperwork requirements, the vast majority of the industry would not notice this stuff," Salisbury said. "But this isn't really about them. It's about the out-liers - the small producers, the rushed jobs, the low-probability, high-impact events that are the target of regulation."

The measure also could spur industry interest in fracturing fluids that have fewer chemicals.

Pollution from wells

The Environmental Protection Agency last month imposed a rule governing pollution from natural gas wells and separately Friday issued formal guidance governing the underground injection of diesel fuel as part of fracturing operations.

Under an energy law passed in 2005, however, the federal government is barred from regulating fracturing under the Safe Drinking Water Act - leaving most oversight in the hands of states.

The Interior Department estimates that the proposal would cost up to $12,000 per well, a tiny fraction of the typical total price tag for a well.

But energy companies worry about the cost of permitting delays while federal regulators review well construction plans and geological information that the new regulation would require. An analysis by Anadarko Petroleum Corp. estimates it could cost an additional $271 to $1,366 per well for every extra day it takes the government to process permits for those projects.