Environmental Issues Surrounding Shale Gas Production The U.S.

Experience A Primer

The Subcommittee has been struck by the enormous difference in perception about the consequences of shale gas activities. Advocates state that fracturing has been performed safely without significant incident for over 60 years, although modern shale gas fracturing of two mile long laterals has only been done for something less than a decade. Opponents point to failures and accidents and other environmental impacts, but these incidents are typically unrelated to hydraulic fracturing per se and sometimes lack supporting data about the relationship of shale gas development to incidence and consequences. An industry response that hydraulic fracturing has been performed safely for decades rather than engaging the range of issues concerning the public will not succeed. - U.S. Energy Secretary Steven Chus Shale Gas Advisory Board, Initial Report, August 11, 2011.

Terence H. Thorn April 2012

Environmental Issues Surrounding Shale Gas Production A Primer

The shale gas revolution of the last few years has changed the perception of the natural gas industry and has dramatically revitalized natural gas exploration and production while unlocking vast new reserves of natural gas. The increasing cost and complexity of producing conventional reserves has been countered by new production techniques that allow access to an abundance of relatively low cost unconventional reserves. Shale gas development is receiving a great deal of public scrutiny and the debate over the environmental impact of this new technology has raised some genuinely important issues. Environmentalists claim the process could contaminate rivers and aquifers and pollute the air, while the natural gas companies point out that the fracking method has been used safely for decades. Industry, regulators and many members of the environmental community believe that these concerns can be readily addressed by the employment of best drilling practices, research and investment in new technologies, and rigorous regulatory oversight. The challenges for everyone will be to both protect the environment, public health and safety while realizing the full economic and environmental benefits of expanded shale gas development. This paper provides an overview of the major environmental issues surrounding shale gas development and the regulatory and technical response to identify, prevent and mitigate these impacts.

Overview

It took the combination of two decades old technologies- horizontal drilling and vertical hydraulic fracturing, or fracking, to make extracting shale gas economically viable. Shale-gas fracking was first developed in the early 2000s in the United States in the Barnett shale formation beneath northern Texas and Oklahoma. More recently, the technology is being used in the Marcellus shale formation, which extends from southern New York across Pennsylvania and into western Maryland, West Virginia, and eastern Ohio. Little known even five years ago, the success of shale-gas development is seen as changing global energy markets. The tremendous potential of shale gas resources has resulted in renewed interest in expanding natural gas use in the areas of electricity generation, alternative transportation

fuels including using natural gas for the generation of hydrogen for fuel cells, feedstock for the hugely efficient cogenerating facilities, and even as LNG exported from the U.S. The U.S. is becoming a shale gas laboratory for the world. Chinese, French, and Japanese companies were among recent investors making long-term financial commitments to US unconventional oil and gas plays in a trend that is expected to continued low gas prices. IHS Herold Inc. statistics showed international transactions involving US shale plays accounted for 40 deals totaling $60 billion during 2008-11 of which 33 transactions were announced within the last 2 years. These partnerships provide US operators with capital to continue development while the drill-and-carry joint venture partners gain unconventional technical expertise. The M&A trend from investors abroad into US shale continued robustly going in 2012 with transactions by Total, China Petroleum Corp (Sinopec), and Marubeni Corp announcing transactions in early January. In the fracking process, a well is drilled horizontally through shale formations, which generally lie 1000 meters or more beneath the surface. Next, explosives are used to penetrate the well casing. Sand, water, and a chemical solution containing particles known as proppants is injected into the horizontal segments at very high pressures, causing the shale to fracture.1 The proppants remain within the fractures that they helped induce to keep them open, thus increasing the permeability of the reservoir. Once pressure is released, the fracking fluid flows back to the surface, and gas from the shale flows into the well. The gas is piped to processing plants, where it is purified and compressed for transport. The results of this new technology have been spectacular. In the last three years, more than 3,000 gas wells have been drilled just in western Pennsylvanias share of the huge Marcellus shale formation. In the Barnett Shale over 14,000 wells have been drilled using hydraulic fracturing. Domestic natural gas production, bolstered by shale plays, continued a five-year upward trend, increasing by nearly 5% in 2010 2009 levels, almost

For a detailed look at the composition of fracking fluids see the discussion in Section B, Groundwater Contamination, pages 9-10. 4

matching a nearly 6% hike in demand. Gas production was bolstered by a nearly 30% jump in shale play output, according to statistics published in the Energy Information Administration's (EIA) Annual Energy Review for 2010 (Released October 19, 2011). Shale gas production accounted 23 percent of U.S. production in 2010 and is forecast reach 49% of production in 2035 (early release, EIA Annual Energy Outlook 2012, January 23, 2012). Shale and tight gas now account for almost two thirds of the daily gas produced in the United States. In the U.S, there has never been an energy resource that escalated its market share from essentially zero to 25 percent in just five years. Bentek Energy, LLC estimates natural gas production in West Virginia and Pennsylvania now averages almost 4 billion cubic feet per day (Bcf/d), more than five times as much as the average from 2004 through 2008 and accounts for over 85% of total Northeastern U.S. natural gas production.

Source: U.S. Energy Information Administration, August 2011

How Much Shale Gas Is There?

A U.S. Geological Report (USGS), released August 25, 2011, estimates that the eightState Marcellus Shale region contains some 84 trillion cubic feet of undiscovered, recoverable natural gas. That amount is far higher than the geological service had estimated in a 2002 report which estimated 2 trillion cubic feet of gas reserves, but far below a 2011 estimate by the Energy Information Administration. EIA in January 2011 had estimated 410 trillion cubic feet (tcf) of recoverable gas. The conflicting reports prompted confusion about the extent of natural gas reserves available in the Marcellus region.

The Washington, D.C. based research group Resources For the Future, in an Issue Brief,2 explained that questions about the differences likely lie in a misunderstanding of the definitions of shale gas resource classifications used by the U.S. Energy Information Administration (EIA) and USGS. The USGS estimate of 84 trillion cubic feet (tcf) measures only undiscovered resources outside known fields in the Marcellus. The EIAs 410 tcf estimate of inferred reserves is for known but unproven fields. The two estimates also differ in their respective analysis of well spacing and estimates of average production per well. However, the EIA has said they will adopt the undiscovered resource estimate from the USG. The new estimate should simply replace the previous estimate of undiscovered resources and not the current estimate of inferred reserves. In its early release of the Annual Energy Report for 20123, the EIA said it now thinks there are about 482 trillion cubic feet of shale gas in the U.S., down from earlier estimates of 827 trillion cubic feet. The bulk of the downward revision was the result of changing expectations for the Marcellus to 141 trillion cubic feet. The EIA modified its estimate based on the USGS latest findings, and on recent well data from the state of Pennsylvania. Despite the lower estimates, the agencys report noted that shale gas would continue to have a growing impact on the broader energy market. The share of natural gas produced by drilling in shale formations is projected to more than double, from 23 percent in 2010 to 49 percent in 2035. At a hearing before the US Senate Committee on Energy and Natural Resources on January 31, 2012, EIA Acting Administrator Howard Gruenspecht downplayed the significance of a 65% reduction in EIA estimates for technically recoverable, undiscovered resources in the Marcellus shale, noting that as we gain more and more experience with actual drilling, the numbers will always tend to evolve to total

Undiscovered Resources and Inferred Reserves, David w. McLaughlin, Issue Brief 11-15, October 2011. 3 January 23, 2012. http://www.eia.gov/forecasts/aeo/er/ 7

recoverable resource. He also noted that ultimately resource estimates will not be the primary driver of US industry activity. It will be lower drilling costs and increased well productivity, rather than size of the US resource base.

Environmental Concerns
As with any rapidly expanding new technology, several major environmental concerns have developed over the effects of shale gas development on air and water quality: the large water requirements and the improper disposal of waste water, the possibility that underground fracking fluids can migrate into aquifers, and that shale gas operations not only contribute to poor air quality near drilling operations but significantly add GHG emissions to the atmosphere.

A. Water Use and Wastewater Disposal It can take two to five million gallons (7-19 million liters) of water to frack a well, and a well may be fracked multiple times. Even if some of the water can be recycled, the process requires a major withdrawal from the aquifer or other water resources. As shale development continues to grow in the Marcellus, water usage for well fracking could reach 650 million barrels per year in Pennsylvania, New York and West Virginia, according to a report done earlier this year for the U.S. Department of Energy and state authorities. It sounds like a lot until its compared to the other water uses in the three states. Water used in shale development is a fraction of total water usage for agricultural, industrial and recreational purposes. In the states In the Marcellus, for example, the total volume of water needed to meet estimated peak shale gas development would be about 0.65 billion barrels per year, which represents about 0.8 percent of the 85 billion barrels per year that are currently consumed in the Marcellus basin states. 4 In Texas, Dan Hardin, the resource planning director for the Texas Water Development Arthur, D., Uretsky, M, and Wilson, P., Water Resources and Use for Hydraulic Fracturing in the Marcellus Shale Region, All Consulting, p. 3. http://www.netl.doe.gov/technologies/oilgas/publications/ENVreports/FE0000797_WaterResourceIssues.pdf. 8
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Board, said water use for fracking was not expected to exceed 2 percent of the statewide total. But drilling can send water use numbers much higher in rural areas. For example, Dr. Hardin projects that in 2020, more than 40 percent of water demand in La Salle County, in the Eagle Ford Shale, will go toward fracking. Until recently, no water went toward fracking there. Coal and nuclear power plants, in particular, draw many times more water and represent over 70% of the water used in the three state area. Shale gas producers are quick to point out that ten times as much water is required to produce the equivalent amount of energy from coal. Ethanol production, where milled grain is mixed with water and enzymes to create slurry, can require as much as a thousand times more water to yield the same amount of energy from natural gas.5 Access to sufficient water is critical to shale gas development, but cumulative effects on the sources of large water withdrawals must be managed. Industry is making tremendous progress in managing water withdrawals and learning to treat and use produced water, reducing the water demands of shale gas drilling. With each round of fracking, about half of the fracking fluid returns to the surface along with the gas, via the collection pipes. The returned fracking fluid, now called wastewater or flowback, is either trucked to water treatment plants that may or may not be designed to handle fracking chemicals, reinjected into old wells, or stored in large, tarp-lined pits, where it is allowed to evaporate. The wastewater often contains a high salt level, dissolved solids, oil, chemicals, and added materials (such as sand or ceramic grains). Many environmentalists have severely criticized the handling of wastewater, claiming it results in toxic waste and surface water contamination. They also argue that fracking fluids could migrate from the gas-bearing layers, which are over 5,000 feet below the

The National Renewable Energy laboratory estimates of water usage during ethanol production range from 3 to 4 gallons of water used per gallon of ethanol produced or over 400,000 gallons per day for a 50 million per year facility. 9

surface, up to water tables often less than 500 feet from the surface and contaminate drinking supplies. Environmental community documentaries like "Gasland," assert that hydraulic fracturing has been responsible for water pollution and the presence of methane in water supplies. A key problem is the disposal of the fracking fluid. As described in the Vaughn and Purcell study cited below, fracking chemicals and drilling waste are more hazardous above ground than several miles underground and pose a more serious environmental hazard than potential contamination of groundwater from fracking. In the Southwest U.S., producers reinject the fluid into abandoned wells. States like Texas have many deep underground injection wells, regulated by the U.S. Environmental Protection Agency, where companies dispose of the salty and chemical- and mineralladen shale wastewater. In the northeast United States there is a shortage of injection wells for disposal of wastewater and sludge. Some of that waste is being sent to existing underground waste dumps, leading to the possibility of spills, or being hauled to waste water treatment plants that may or may not be capable of processing the wastewater. Since these problems were highlighted, most drilling companies in Pennsylvania have stopped sending their wastewater through treatment plants that were unable to remove many of the contaminants before the water was discharged into rivers. State regulators and drinking water operators are also now testing more regularly for radioactive and other toxic elements in the drilling wastewater.

B. Groundwater Contamination Although much of the water used in fracking is collected from the well and processed, there are concerns that potentially carcinogenic chemicals can sometimes escape and find their way into drinking water sources. Gasland promoted the idea that shale gas leaking into drinking supplies allowed tap water to ignite. Fluids are used to create the fractures in the formation and to carry a propping agent (typically silica sand), which is deposited in the induced fractures to keep them from

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closing up. Water and sand make up 98 to 99.5 percent of the fluid used in hydraulic fracturing. In addition, chemical additives are used. The exact formulation varies depending on the well. 6 The chart below taken from Modern Shale Gas Development in the United States: A Primer (April 2009, U.S. DOE)7 demonstrates the volumetric percentages of additives that were used for a nine stage hydraulic fracturing treatment of a Fayetteville Shale horizontal well. Evaluating the relative volumes of the components of a fracturing fluid reveals the relatively small volume of additives that are present. The additives depicted on the right side of the pie chart represent less than 0.5% of the total fluid volume. Overall the concentration of additives in most slickwater fracturing fluids is a relatively consistent 0.5% to 2% with water making up 98% to 99.5%.

Source: Modern Shale Gas Development in the United States, U.S. DOE, NETL, April 2009. http://www.netl.doe.gov/technologies/oil-gas/publications/epreports/shale_gas_primer_2009.pdf

Typical shale gas deposits are located several thousand feet below the deepest potential sources of underground drinking water. Further, the low permeability of shale rock and other intervening formation horizons present additional impediments to the flow of
6

For a list of chemicals used in fracking fluid see http://fracfocus.org/chemical-use/whatchemicals-are-used 7 http://fracfocus.org/node/93 11

fracking chemicals from target zones upward into aquifers. The likelihood of water contamination as a consequence of fluids migration up through several thousand feet of strata is extremely unlikely. The gas industry asserts there has never been a documented case in the U.S. of groundwater contamination caused by fracking. In 2011 EPA Administrator Lisa Jackson told the U.S. Congress that there had been no proven cases where the fracking process itself has affected water. However, in their December 2011 draft report Investigation of Ground Water Contamination near Pavillion Wyoming, EPA reported that its investigation of groundwater in Pavillion, Wyo., found chemicals consistent with natural gas production and hydraulic fracturing fluids. 8 EPA began investigating water-quality concerns in private drinking water wells 3 years ago at the residents requests in the West-Central Wyoming community, about 20 miles northwest of Riverton. Since that time, EPA said it has worked with Wyoming state government officials, local residents, and Encana Oil & Gas (USA) Inc., the gas field's owner, to assess groundwater quality and identify potential contamination sources. Its Denver regional office released a draft analysis of its data for public comment and independent scientific review. Encana representatives have questioned the source of some chemicals found by EPA and believe the preliminary findings are conjecture, not fact, and only serve to trigger undue alarm. Others have questioned the EPA sampling process and have noted this is a very old field and contamination could have come from surface spills. The EPA initiated a 45-day comment period that was to have ended Jan. 27, 2012. On March 29, 2012, EPA extended the public comment period to October 16, 2012. EPA also plans a peer review by independent scientists that is expected to take 30 days. On January 31, 2012 EPA posted 622 files related to the investigation at its web site.9 Testifying before Congress on February 1, 2012 James B. Martin, EPAs Region 8 administrator in Denver, told the House Science, Space and Technology Committees
8 9

http://www.epa.gov/region8/superfund/wy/pavillion/index.html http://www.epa.gov/region8/superfund/wy/pavillion/docs.html. For the report and other documentation see http://www.epa.gov/region8/superfund/wy/pavillion/. 12

Energy and Environment Subcommittee that the draft report never implied hydraulic fracturing was unsafe and made clear that the causal link to hydraulic fracturing has not been demonstrated conclusively, and that our analysis is limited to the particular geologic conditions in the Pavillion gas field and should not be assumed to apply to fracturing in other geologic settings. Pavillion is unusual in that commercial natural gas is present at depths as shallow as 1,100 feet and because there is no cap rock forming a barrier between the deeper natural gas and shallow intervals. Therefore, over the geologic ages, this has allowed the upward migration of deeper natural gas to shallow depths. The agency agreed with Wyoming state regulators on March 8, 2012 to conduct more tests at a site in Pavillion. Most agree that more likely candidates as sources of possible water contamination include improper well design, inadequate surface casing and substandard or improper cementing, improper handling of surface chemicals, improper design/performance of holding ponds, and improper storage and disposal of wastes and produced water. More stringent design standards are being adopted, and more active regulatory oversight is being exercised. These steps will reduce the incidence of such problems. A study conducted by the Energy Institute at the University of Texas at Austin (Factbased Regulation for Environmental protection in Shale Gas Development, February 2012)), found that many problems attributed to hydraulic fracturing are related to processes common to all oil and gas drilling operations, such as drilling pipe inadequately cased in concrete. Many reports of contamination can be traced to aboveground spills or other mishandling of wastewater produced from shale drilling and not from hydraulic fracturing. Others cautioned that although the study didnt confirm any cases of drinking water contamination caused by fracking, that does not mean such contamination is impossible or that hydraulic fracturing chemicals cant get loose in the environment in other ways (such as through spills of produced water).10 Ann Davis Vaughan and David Pursell, ("Frac Attack: Risks, Hype, and Financial Reality http://energy.utexas.edu/index.php?option=com_content&view=article&id=151&Itemi d=160 13
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of Hydraulic Fracturing in the Shale Plays." Reservoir Research Partners; and Tudor, Pickering, Holt & Co.), summarize the available studies and information on hydraulic fracturing and provide an objective look at the debate. The authors confirm that watersupply contamination from so-called stray gas occurs more often from failures in well design and construction, breaches in spent hydraulic-fracturing water-containment ponds, and spills of leftover natural gas liquids used in drilling. In this respect, waste disposal and safe materials handling are the biggest challenges to producers. The authors analyze incidents of contamination cited by environmental advocates as evidence of contamination caused by fracking and conclude that most of those incidents are either naturally occurring gas in water sands or problems caused by mistakes in well design -- improper cementing -- not related to fracking.

C. Methane Emissions Methane emissions from natural gas extraction, especially shale gas, have been getting a lot of attention in recent months. A paper by Cornells Robert Howarth (Methane and the greenhouse-gas footprint of natural gas from shale formations, March 13, 2011, Climatic Change)11 argues that natural gas from fracking operations can be worse for the atmosphere than coal because of methane seepage into the atmosphere. The Cornell study suggests that life cycle greenhouse gas (GHG) emissions from shale gas are 20%-100% higher than coal on a 20-year timeframe basis. This contradicts a National Technology Energy Laboratory (NETL) study (Life Cycle Greenhouse Gas Analysis of Natural Gas Extraction & Delivery in the United States, May 2011) which, on an electricitygeneration comparison basis, shows that natural gas base load has 50% lower GHG emissions than coal on a 20 year timeframe basis.12 Worldwatch Institute and Deutsche Bank, (Comparing Life-Cycle Greenhouse Gas Emissions from Natural Gas and Coal,

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http://www.sustainablefuture.cornell.edu/news/attachments/Howarth-EtAl-2011.pdf DOE/NETL (2010) Life cycle analysis: natural gas combined cycle (NGCC) power plant, DOE/NETL-403- 110509, p127. http://www.netl.doe.gov/energyanalyses/pubs/NGCC_LCA_Report_093010.pdf 14

August 25, 2011)

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concludes that on average, U.S. natural gas-fired electricity

generation emits 47 percent less GHGs than coal from source to use using the IPCCs 100-year global warming potential (GWP- see 4 below) for methane of 25. The Howarth paper has been criticized in four areas: 1) First, the data for leakage from well completions and pipelines is very incomplete and taken from a few isolated cases reported in industry magazines, and numbers for pipeline leakage from long-distance pipelines in Russia. 2) The gas-to-coal comparisons are all done on a per energy unit basis and compare the amount of emissions involved in producing a gigajoule of coal with the amount involved in producing a gigajoule of gas. Since a gigajoule of gas produces a far more electricity than a gigajoule of coal (assuming an electricity conversion efficiency of 60% for natural gas and 30% conversion efficiency for older coal plants), a per kWh comparison is the correct one. 3) The technological solutions for methane leakage (better well completion techniques, better pipeline integrity) are relatively inexpensive and exist today compared to solving the GHG emissions problems of a coal plant (Carbon Capture and Storage or CCS). 4) Howarth uses 20 year GWPs to compare coal with gas, rather than the 100year figure used by the Intergovernmental Panel on Climate Change. GWP is a relative measure of how much heat a greenhouse gas traps in the atmosphere. It compares the amount of heat trapped by a certain mass of the gas in question to the amount of heat trapped by a similar mass of carbon dioxide. A GWP is expressed as a factor of carbon dioxide (whose GWP is standardized to 1). For example, the 20 year GWP of methane is 72 which means if the same weights of methane and carbon dioxide were introduced into the atmosphere, methane will trap 72 more times heat than the carbon dioxide over the next twenty years.

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http://www.worldwatch.org/system/files/pdf/Natural_Gas_LCA_Update_082511.pdf 15

Although methane is about 21 times more powerful at warming the atmosphere than carbon dioxide, methane has much shorter lifespan than CO2- approximately 12 years compared to more than a century for CO2. Howarth amplified the greenhouse gas footprint of unconventional gas development by measuring the global warming potential of leaked methane over a 20-year time frame, rather than the 100 years more commonly. Over a 100-year period the GWP of methane is 25. That choice, critics say, inflates methanes global warming footprint unnecessarily, allowing the authors to reach their controversial conclusion that unconventional natural gas development is worse than burning coal.

In addition to the Worldwatch Institute and NETL studies cited above, a study performed by researchers at Carnegie Mellon, whose work was funded by the Sierra Club, concluded that life cycle GHG footprint for shale gas is 20 to 50% lower than that for coal. Finally a study by IHS Global Energy Research Associates did not calculate relative GHG footprints, but it noted some of the same problems with the Howarth study. A second study from Cornell University also concludes that the Horwath study by Howarth was "seriously flawed," and that shale gas has a GHG footprint that is only one-third to one-half that of coal. The new study was conducted by L.M. Cathles III and others and published online in the journal Climatic Change Letters on January 3, 2012.14 Finally a study from the National Oceanic and Atmospheric Administration's Earth Systems Research Laboratory (ESRL) in Boulder, Colorado maintains that fields that rely on fracking tend to leak more methane than fields with conventional wells. The study has not been released and is currently in press at the Journal of Geophysical Research. The study is not a life cycle analysis and is a snapshot of emission events in a specific area and is comparing a localized data point with a national estimate for all wells and processing plants. For a detailed discussion of this issue and the studies, see Appendix III. A commentary on The greenhouse-gas footprint of natural gas in shale formations by R.W. Howarth, R. Santoro, and Anthony Ingraffea, Lawrence M. Cathles III & Larry Brown & Milton Taam & Andrew Hunter. http://www.springerlink.com/content/x001g12t2332462p/ 16
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The full life cycle impact of natural gas production is attracting increased interest as studies such as Horwaths surface and energy policies include an expanded role for natural gas. Between its 2010 and 2011 editions of the Inventory, the EPA significantly revised its methodology for estimating GHG emissions from natural gas systems, resulting in an estimate of methane emissions from Natural Gas Systems in 2008 that was 120 percent higher than its previous estimate. For the 2011 Inventory, the EPA modified its treatment of two emissions sources that had not been widely used at the time of the 1996 study, but have since become common: gas well completions and workovers with hydraulic fracturing. It also significantly modified the estimation methodology for emissions from gas well cleanups, condensate storage tanks, and centrifugal compressors. Any sources of so-called greenhouse gases are important and every effort to reducing those methane emissions should be a priority for the natural gas industry. The Howarth study is an important reminder that the whole life cycle is what matters, not just the immediate emissions.

D. Other Air Emissions Other air quality impacts from shale gas operations also include emissions of carbon dioxide stripped from the gas, sulphur dioxide and/or hydrogen sulphide from treating sour water for use as hydraulic fracture fluid, and NOX and other emissions from compressors, pollution from diesel engines; and ground level ozone. EPA has identified these emissions as one of the largest sources of air pollution from the energy industry. DOEs Shale Gas Subcommittee supported rigorous standards for new and existing sources of methane, air toxics, ozone precursors and other air pollutants from shale gas operations and cites EPAs July 28, 2011 proposed amendments to oil and gas air emissions standards as achieving significant benefits in controlling these emissions. The proposed rules were finalized on April 17, 2012 (see page 22 below). EPA was under a court-ordered deadline to develop the air-quality rules tied to fracking after being sued by

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environmental groups.

E. Waste Water Injection Causes Minor Earthquakes A 2.7-magnitude earthquake rocked Ohio on Christmas Eve 2011, followed by a 4.0magnitude quake on New Year's Eve. Pumping wastewater from shale gas operations deep underground was the likely cause of minor earthquakes recorded recently in Ohio, scientists said. All of the quakes were recorded within a 5-mile radius of a wastewater injection well run by Northstar Disposal Services. It appears the quakes were triggered by wastewater from shale gas operations that acted as a lubricant at a fault located about 1 mile underground. On November 5, an earthquake measuring 5.6 rattled Oklahoma and was felt as far away as Illinois. Until two years ago Oklahoma typically had about 50 earthquakes a year, but in 2010, 1,047 quakes shook the state. OGS Austin Holland's August 2011 report, "Examination of Possibly Induced Seismicity from Hydraulic Fracturing in the Eola Field, Garvin County, Oklahoma" Oklahoma Geological Survey OF1-2011, studied 43 earthquakes that occurred on January 18, ranging in intensity from 1.0 to 2.8 Md (milliDarcies.) The report's conclusions state, "Our analysis showed that shortly after hydraulic fracturing began small earthquakes started occurring, and more than 50 were identified, of which 43 were large enough to be located." As part of its ongoing effort to study a variety of potential impacts of U.S. energy production, United States Geological Survey (USGS) scientists have been investigating the recent increase in the number of magnitude 3 and greater earthquakes in the midcontinent of the United States. Beginning in 2001, the average number of earthquakes occurring per year of magnitude 3 or greater increased significantly, culminating in a sixfold increase in 2011 over 20th century levels. The scientists then took a closer look at earthquake rates in regions where energy production activities have changed in recent years. The lead researcher in the paper15, Mr. Ellsworth, believes the increased number of
15

Are Seismicity Rate Changes In the Midcontinent Natural or Manmade? ELLSWORTH, W. L. et al, US Geological Survey. April 2012. 18

earthquakes is not associated with hydraulic fracturing, but instead with the disposal of drilling waste fluids in deep well injection sites, of which there are 144,000 in the USA. None of what government researchers consider being man-made earthquakes has caused significant damage. The EPA is expected to issue guidance to help state regulators assess earthquake risks. Last year, the Colorado Oil and Gas Conservation Commission began asking state geologist Vince Matthews to review permit applications for new or expanded injection wells. The move came after a 5.3 magnitude earthquake on Aug. 23, 2011, near Trinidad in the gas-producing Raton Basin. In Ohio, the Department of Natural Resources has proposed new rules for fluid transportation. Ohios proposed rules would include limiting the depth of drilling, additional review of available geological data before permits are approved and requiring an automatic shutoff system if injection pressures exceed state limits. The state also is requiring electronic transponders for cradle to grave monitoring of fluids brought to Ohio wells for injection. The recommendations are a response to 12 earthquakes centered within a mile (1.6 kilometers) of an injection well in Youngstown, Ohio. Industry will need to investigate all areas at risk in which seismicity may be induced through current activity of shale gas production. More needs to be known about how these activities interact with in-situ stresses and possibly affect seismic activity.

Regulatory Developments
Regulators and legislators at both the federal and state levels are taking steps to address environmental concerns about shale gas development by initiating studies to analyze the risks of fracking and imposing additional regulatory requirements on hydraulic fracturing operations. Historically, environmental groups had pointed to the uneven enforcement by state agencies to gain support for more stringent federal regulations. However, Shale Gas Subcommittee member Dan Yergin, testified before the U.S. Senate Committee on Natural Resources that states also are much closer to the community than the federal

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government and state governments have long-established experience regulating the oil and gas industry. Working to develop regulations and protocols that will minimize drillings environmental impact, a common focus of industry and regulators has been the importance of a continuous improvement in the various aspects of shale gas production that relies on best practices and is tied to measurement and disclosure. Those states that have seen a dramatic spike in exploration and production activity have been quick but deliberate in adjusting their regulations accordingly, and many of the stated goals of the environmental groups on hydraulic fracturing, such as chemical disclosure and management of water resources, have been or are being addressed by state regulation such as the programs taking effect in Texas, Wyoming, Colorado, Oklahoma, New York and Pennsylvania. Nine states already have disclosure laws for hydraulic fracturing. But only one stateColoradorequires what the BLM would require: the names and concentrations of the individual chemicals pumped into each well. In June 2011, Texas became the first state to require public disclosure of chemicals used in hydraulic fracturing operations. Specifically, in 2011 the Texas legislature passed a new law (HB 3328) that required chemical ingredients subject to Material Safety Data Sheets to be posted to a public website. FracFocus.org is specifically referenced. In addition, information about other ingredients must be provided to the Texas Railroad Commission and made publicly accessible. Information about the total volume of water used in fracturing operations must also be publicly filed with the Commission. Louisiana, New Mexico, Colorado, Arkansas, Wyoming and Oklahoma are developing similar regulations. The final Texas rule was adopted on December 27, 2011 and went into effect February 1, 2012 for wells permitted after on or after this date. Colorado's new regulation, effective April 1, 2012, goes further than most in requiring drillers to disclose all the chemicals they use in frackingnot just the chemicals considered potentially hazardous. The American Petroleum Institute (API) has developed a series of shale development

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guidance documents that encompass well integrity and production operations. 16 ). Historically, API standards have been integrated into state regulatory frameworks. Such an approach benefits all parties in shale gas production: regulators will have more complete and accurate information; industry will achieve more efficient operations; and the public will see continuous, measurable improvement in shale gas activities. The Interstate Oil and Gas Compact Commission, the Marcellus Shale Coalition, the State Review of Oil and Natural Gas Environmental Regulation (STRONGER), the Groundwater Protection Council, and the Intermountain Oil and Gas Project, are all working to identify best practices.

At the Federal Government level, the U.S. Environmental Protection Agency (EPA) has begun a new study of hydraulic fracturing at the direction of Congress and is in the early stages of collecting information on the potential environmental impact of fracking. The study is a welcomed first step in a scientific analysis of the risks of fracking and in potentially developing industry best management practices. The agency recently released a proposed Study Plan that lays out a broad approach to its study of hydraulic fracturing and the potential impacts on drinking water sources. The initial results will be available at end of 2012, with a final report due in 2014. On July 28, 2011, the U.S. Environmental Protection Agency (EPA) announced the release of a 604-page suite of proposed air emission regulations for oil and gas production, processing, transmission, and storage. The new rules will leverage operators ability to capture and sell natural gas that currently escapes into the air, resulting in more efficient operations while reducing harmful emissions, including methane leakage, that can impact air quality in surrounding areas and nearby states. The proposed regulations would make green completions17 mandatory and older pipelines and processing plants must also be retrofitted with new gear to reduce leaks, something
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www.api.org/policy/exploration/hydraulicfracturing/index.cfm#guidance A green completion is where gas and liquid hydrocarbons are separated from the wastewater using tanks, gas-liquid-sand separator traps, and gas dehydration equipment. If gathering lines are not available to collect the gas, it can be flared. 21

that can be easily done for low cost and with existing technology. In fact, many drilling companies already use green-completion systems. Southwestern Energy Co. and Devon Energy Corp. say they already use systems to capture methane and other fumes at wells, the key requirement of a rule that may be issued as early as today. Drilling hasnt slowed in Colorado or Wyoming where technology to capture emissions has been required by the state since 2009 and 2010. Of wells drilled in 2011 by eight members of Americas Natural Gas Alliance, 93 percent used systems to capture stray gas, according to Sara Banaszak, chief economist with the Washington-based group.

Covered operations and equipment would include completions and recompletions of hydraulically fractured natural gas wells, compressors, pneumatic controllers, various storage tanks, and gas processing plants. The Interstate Natural Gas Association of America, a trade group that represents natural gas and oil pipeline companies, in an October 11 letter to Assistant Administrator, Office of Air and radiation, Gina McCarthy, stated that the Environmental Protection Agency had no defensible reason to include natural gas transmission pipelines in a proposed emissions rule for the oil and gas industry. The American Petroleum Institute has also criticized the proposed rule and asked EPA to give businesses more time to review the rule, which would also cut air pollution from drilling and production activities. On April 17, 2012, the EPA announced that companies would now have until January 1, 2015 (rather than the 60 days in the original proposal) to begin using "green completion" equipment that can pare emissions at natural gas wells. It is estimated that 25,000 new and existing natural gas wells are fractured or re-fractured each year. API President Jack Gerard had warned in earlier that just 300 sets of the emissions-reducing equipment were available in the U.S. EPA Assistant Administrator Gina McCarthy said moving back the deadline will "provide time for industry to order and manufacture enough equipment as well as train personnel to conduct green completions. During the transition period, companies can use both green completions and flaring. After Jan. 1, 2015, companies

22

cannot only use flaring. 18 On October 19, 2011, the U.S. Environmental Protection Agency unveiled plans to set national standards for wastewater discharges from natural gas drilling amid growing concern over water pollution from fracking. The EPA said in a statement that it would accept comments for new standards over the coming months for shale gas extraction as well as for gas from underground coal beds. Noting that President Obama has made clear that natural gas has a central role to play in our energy economy, EPA Administrator Lisa Jackson said in a statement that we can protect the health of American families and communities at the same time we ensure access to all of the important resources that make up our energy economy. The American Petroleum Institute argues that voluntary industry standards better deal with the produced water from natural gas drilling in that the industry works with state regulators directly to minimize environmental impact during the acquisition of water for drilling, water use during fracking operations and treatment and disposal of water and other fluids recovered after the well is completed. Industry officials further note that there is no one-size-fits-all approach to managing water at natural gas sites, because of the wide variations in geology. API has issued its own guidelines for water management that apply to hydraulic fracturing. In a November 23, 2011 letter to Earthjustice, EPA stated that it will use the Toxic Substances Control Act (TSCA) to draft regulations requiring companies to disclose information regarding "chemical substances and mixtures used in hydraulic fracturing." Although the EPA has not indicated what information will be subject to disclosure, the agency stated that it will attempt to avoid duplication of "the well-by-well disclosure programs already being implemented in several states," and that it anticipates that its regulations will "focus on providing aggregate pictures of the chemical substances and mixtures used in hydraulic fracturing."

NRDC documented the savings available from green completions and nine other pollution control measures in a report called Leaking Profits (March 2012). http://www.nrdc.org/energy/files/Leaking-Profits-Report.pdf 23

18

The US Department of the Interior ("DOI") has been working on fracturing regulations for federal lands. The draft rules focuses on the disclosure of chemical identities, wellbore integrity and management of wastewater disposal. US Sec. of the Interior Ken Salazar told the US House Natural Resources Committee I February 2012 that regulations covering hydraulic fracturing on federal lands are necessary, and will be developed after full consultations with state and Indian tribal governments. Proposals will go through a full federal rule-making process and possibly could provide a template for national standards, he suggested. Federal onshore fracking regulations are necessary because 99% of gas wells now being drilled on public lands use fracking and horizontal drilling. Oiland-gas groups, which called the proposals redundant with what many states and industry itself are already doing and saying they would further impede oil-and-gas development on federal lands. The U.S. Bureau of Land Management, which is drafting rules for natural gas production by hydraulic fracturing on federal property, has said it will use industry standards for cementing. The BLM draft proposed fracking rule has not been released to the public yet. The Natural Gas Subcommittee of the U.S. Secretary of Energys Advisory Board published its 90-day interim report on Improving the Safety and Environmental Performance of Hydraulic Fracturing. The panel's report pushes several broad themes, such as "continuous improvement" and "best practices and it offers ideas that could serve as the underpinnings of legislative or regulatory changes. The seven-member Natural Gas Subcommittee called for better tracking and more careful disposal of the waste that comes up from wells, stricter standards on air pollution and greenhouse gases associated with drilling, and the creation of a federal database so the public can better monitor drilling operations. While warning that hydraulic fracturing presents real risks to the air, water and land that must be addressed by energy companies and federal and state regulators, the report also noted that in the great majority of regions where shale gas is being produced, large depth separation between drinking water sources and the producing zone] exists, and there are few, if any, documented examples of such migration. SEAB issued its second 90-day report on Nov. 10 which reviewed progress made on the 20 recommendations the subcommittee outlined in its Aug. 18 initial report. The new 24

report criticizes federal agencies, state governments, industry and public interest groups for not moving quickly enough on its recommendations of increased regulation on hydraulic fracturing a critical technology that allow us to access the nations rich shale gas resources. The SEAB urges more regulatory action on three areas: reducing air emissions at hydraulic fracturing sites, more disclosure of the chemicals used in hydraulic fracturing, and reducing the impact of hydraulic fracturing on drinking water and setting wastes discharge standards. Specific recommendations included: Improve casing and cementing procedures to isolate the gas-producing zone from overlaying formations and potable aquifers. Loss of well integrity is simply the result of poor well completion or poor production-pressure management. Control the entire lifecycle of the water used from acquisition to disposal. All water flows should be tracked and reported quantitatively throughout the process. Limit water use by controlling vertical fracture growth. Periodic direct measurement of earth stresses and the micro-seismic monitoring of water and additive needs will eliminate rogue methane migration and save production money. Use multi-well drilling pads to monitor processes and minimize truck traffic and surplus road construction. The use of mats, catchments, groundwater monitors, and surface water buffers all standard in the oil industry should be industry standard in shale gas production as well. Declare unique and/or sensitive areas off-limits to drilling. There is such an abundance of natural gas reserves that have come from the fracking revolution that there is no need to be provocatively drilling beneath protected urban or wilderness spaces. This recommendation is also one of the most difficult to apply as the owners of the minerals in such areas have the right to produce those minerals. Fortunately, with long-reach horizontal drilling, many urban areas can be developed from remote pad sites with appropriate controls. Mitigate noise, air and visual pollution. Conversion from diesel to natural gas or electrical power for equipment fuel is an important first step and can be substantially accelerated.

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API issued its own 10-page update regarding how industry has responded to the subcommittees recommendations. API noted that the SEABs draft report outlines unrealistic expectations and does little to highlight the efforts that industry and regulators had already made to ensure that these activities are conducted safely. It is unreasonable to expect that industry and federal, state and local regulators could institute complex new regulatory programs in three months. The two reports reflected 6 months of deliberations among a group of industry experts, environmental advocates, academics, and former state regulators. Finally, on April 13, 2012, President Obama issued an executive order establishing an interagency working group to coordinate federal policies to support safe and responsible US unconventional natural gas resource development. The order established the working group and named his domestic policy advisor, Cecilia Munoz, or a designated representative as its chair. Its members will include deputy-level representatives or the equivalent from the US Departments of the Interior, Energy, Defense, Agriculture, Commerce, Health and Human Services, Transportation, and Homeland Security; the US Environmental Protection Agency; and the White House Council on Environmental Quality, Office of Management and Budget, National Economic Council, and Office of Science and Technology Policy. The working group will coordinate agency activities to ensure they are efficient and effective, and share scientific, environmental, and related information among the agencies where appropriate. It will make long-term plans and ensure coordination among federal entities on research, natural resource assessment, and infrastructure development; promote interagency communication with stakeholders; and consult with other agencies and offices where appropriate. Hours after the executive order was issued, DOI, DOE, and EPA announced a memorandum of agreement to coordinate their present and future scientific research and scientific studies on unconventional oil and gas resource development. They said a primary goal of this effort will be to identify research topics where collaboration among the three agencies can be most effectively and efficiently conducted to provide results and technologies that support sound policy decisions by the agencies responsible for 26

ensuring the prudent development of energy sources while promoting safe practices and human health.

Conclusion
Fracking fluids will get greener, water use will get down, all because the industry, quite frankly, will do it, must do it, and will feel the public pressure -- not the EPA pressure -- to do this in a responsible way.- Lisa Jackson, EPA Administrator, January 2012. No energy produced, whether in or outside of the United States, is produced without risk and without some environmental cost. The extraction, processing, and transportation of natural gas all affect the environment. However, expansion of the supply of natural gas permits the displacement of more polluting forms of energy. With the shale gas boom continuing to gather steam, hydraulic fracturing will likely remain a focus for environmental and citizen groups concerned about the potential environmental impacts associated with shale gas development. Industry is well aware that failure to manage some of the attendant impacts surrounding the development of this resource such as water use and contamination concerns, the public disclosure of the composition of fracking fluids, and fugitive emissions will seriously hamper efforts to fully develop this resource. Working with industry, federal and state regulators and legislators will continue to monitor developments and develop regulations and protocols that will minimize shale gas developments environmental footprint and any long-term impacts that it might have. With time, experience, and investment, the technology and practices necessary to achieve shale gas potential in a safe and environmentally acceptable manner will become the industry standard. The U.S. experience and technology innovations can then be carried to the rest of the world. 27

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Appendix I The Environmental Issues: Water Use and Waste Water Disposal
With hundreds of wells to be drilled over large shale gas plays, water management warrants considerable regulatory attention. The very large volumes of water needed to hydraulically fracture shale gas wells with current technology makes water consumption a critical issue in shale gas development. And while hydraulic fracturing requires large amounts of water, the technology of development is evolving rapidly to lessen the amount. Innovations include closed-loop systems that recycle the same water for further use. Anywhere from 10 to 50 percent of the 2-5 million gallons of injected water is returned to the surface. The flowback fluid can contain chemicals used during the fracturing operation as well as naturally occurring radioactive, organic and other materials picked up from the producing formation. Hydraulic fracturing companies use a variety of

complex fluids and additives to provide specific viscosities and desired conductivity for each well stimulation. Although fracking fluids are more than 99% water and sand, they also contain a number of chemicals, including some that are toxic at the parts-per-billion level, such as benzene, antimicrobial agents, and corrosion inhibitors. The federal House Energy and Commerce Committee released a report in April 2010 that identified 29 chemicals that are either known or possible carcinogens and are subject to EPA regulation under the Clean Water Act. Oil and gas fracking, however, was exempted from the act in 2005 by a provision in the Energy Policy Act.

Shale-gas drillers consider the composition of their fracking fluids to be proprietary. Nonetheless, several states have passed laws to mandate disclosure of the fluid ingredients. The state legislature in Texas passed a bill in May 2010 that stipulates that operators disclose several aspects of the operation, including types and volumes of

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the fracking fluid; a list of additives used in the operation, such as acid or biocide; chemical ingredients contained in the fracking fluid; and concentrations of each chemical ingredient and the associated chemical families. Shortly thereafter big Marcellus players such as Chesapeake Energy and Devon Energy began to make the ingredients public.

Devon, along with other oil and gas exploration and development companies, had already voluntarily met state reporting requirements by submitting chemical information through a website, FracFocus.org, a joint project between the Ground Water Protection Council and the Interstate Oil and Gas Compact Commission. By April 2011 at least 37 companies had agreed to participate in the project, according to FracFocus. The legislation in Texas allows operators to submit their chemical information to this site. Many states, including Pennsylvania, require an analysis to ensure that any proposed water withdrawals will not harm the watershed by adversely affecting stream flow, aquatic life, recreational resources or sensitive environments. Until the second half of last year, Pennsylvania had been the only state to allow most of this wastewater to be discharged into rivers after only partial treatment. The 1974 Clean Water Act, among other things, requires EPA to protect underground sources of drinking water and granted EPA the power to regulate injection wells. Injection wells are classified into six classes according to the type of fluid they inject and where the fluid is injected. Class II wells inject fluids associated with oil and natural gas production operations. Most of the injected fluid is brine that is produced when oil and gas are extracted from the earth. More than 2 billion gallons of waste, mostly brine, from oil and gas drilling and production are injected into those wells each day. 19 Nationwide, there are more than 151,000 waste-injection wells, also known as Class 2 wells.

19

http://water.epa.gov/type/groundwater/uic/wells.cfm 30

Although the fracking process is essentially the same in the Barnett and Marcellus shales, the disposal of wastewater generated in fracking differs greatly between the two areas. In Texas, shale-gas drillers can inject their waste into some of the thousands of Class II oil and gas waste-injection wells located in and near the Barnett formation. Pennsylvania has only a handful of Class 2 wells. New York State has no disposal wells. The lack of injection wells has forced Marcellus shale frackers to find other means for disposing of the wastewater generated at each well that isnt recycled. In recent months, though, the industry has boasted big gains in the amount of well wastewater that is reused, rather than trucked to treatment plants that empty into rivers and streams. New figures released by Pennsylvania regulators confirm many of those claims, showing that for the first time, a majority of well wastewater is now being recycled. At least 65 percent was recycled from July to December 2010 according to state records. But even with the recycling effort ramping up dramatically, more tainted wastewater is being shipped to treatment plants providing evidence that recycling gains are being erased by the continuing expansion in drilling. Range Resources of Dallas Texas was also the first company in the Marcellus to begin recycling wastewater. By filtering the water to remove solids that might interfere with equipment and treating the water with antibacterial agents, the company found it could get the water clean enough to reuse in fracking. By October 2009, Range was successfully recycling 100% of its flow back water in its core operating area in southwestern Pennsylvania (because of the large volumes needed, the company still has to add fresh water to the mix.) And the company says in the impoundments where it stores the wastewater until use, it includes bird netting, security and privacy fencing, solar-powered aeration, liner that is six times thicker than that used in landfills, and electronic monitoring to notify officials if there is a leak.

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Appendix II The Environmental Issues: Ground Water Contamination

Perhaps the most publicized environmental risk arises from the possibility that fluids used in hydraulic fracturing can contaminate drinking water sources. Much of the water used in fracking is collected from the well and processed, but there are concerns that potentially carcinogenic chemicals can sometimes escape and find their way into drinking water sources. Initially the industry itself was of little help by generally refusing to reveal what was contained in their fracking fluids which reinforced fears that the natural gas companies were not being honest about potential risks. The movie Gasland claimed that shale gas leaking into drinking supplies caused tap water to ignite. The gas industry maintains that there has never been a documented case in the US of groundwater contamination caused by fracking. The New York State Department of Environmental Protection, in its 2009 analysis of the potential impacts of natural gas drilling on the New York City watershed, raised the possibility that water from hydraulic fracturing could migrate from the gas-bearing layers, which are 5,000 feet below the surface, up to water tables less than 500 feet from the surface. The presence of 4,500 feet of rock above the hydraulic fractured zone makes such an eventuality unlikely. Typical shale gas deposits are located several thousand feet below the deepest potential sources of underground drinking water. Fracturing typically takes place at a depth of 6,000 to 10,000 feet, while fresh water aquifers are typically less than 1,000 feet below the surface. Further, the low permeability of shale rock and other intervening formation horizons present additional impediments to the flow of fracking chemicals from target zones upward into aquifers. Consequently, the likelihood of water contamination as a consequence of fluids migration up through several thousand feet of strata is extremely unlikely. More likely candidates as sources of possible water contamination involve surface activities, including improper well design, inadequate surface casing and substandard or improper cementing, improper handling of surface

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chemicals, improper design/performance of holding ponds, and improper storage and disposal of wastes and produced water. In the case of drilling through aquifer formations, by regulation, surface casing is generally required to extend at least 50 to 100 feet below the deepest potential source of drinking water in order to isolate the aquifer from the drilling and production process. In many instances, concentric casing sleeves are utilized to provide additional barriers. Ann Davis Vaughan and David Pursell, ("Frac Attack: Risks, Hype, and Financial Reality of Hydraulic Fracturing in the Shale Plays." Reservoir Research Partners; and Tudor, Pickering, Holt & Co.), show that water-supply contamination from so-called stray gas occurs more often from failures in well design and construction, breaches in spent hydraulic-fracturing water-containment ponds, and spills of leftover natural gas liquids used in drilling than from the hydraulic fracturing process. The Manhattan Institute for Policy Research in their own report (June 2011) noted that environmental problems that have arisen in connection with hydraulic fracturing in no way call into question the soundness of that procedure. In reality, they result from improper drilling and well-casing technique and defective formulation of cement. Such errors and flaws allow wells to penetrate shallow gas deposits, permitting the gas within them to escape and enter groundwater supplies. Marcellus gas resides far below these deposits and any aquifers. The report goes on to say more stringent design standards should be adopted, and more active regulatory oversight should be exercised. These steps would reduce the incidence of such problems. William Whitsitt, an executive vice president at Devon Energy, in testimony before Congress said multiple barriers stand between groundwater and fracking. Each wellbore is surrounded by at least two casings with a layer of cement between them and around the outside diameter. Further preventing contamination is the layer upon layer of impenetrable rock that separates the shale from groundwater,

While gas migration has not been shown to result from fracking, the natural gas industry recognizes that methane migration can occur as a result of ineffective well design and

33

insufficient well casings. There have been incidents where methane from producing and shallow formations have impacted surface and well water supplies due to poor cement integrity associated with the shallower strings of cemented casings. On Nov. 4, 2009, Pennsylvanias Department of Environmental Protection released a statement indicating that well integrity issues led to groundwater contamination associated with natural gas production activities in Dimock Township, PA: 20 On December 8, 2011, the U.S. Environmental Protection Agency (EPA) issued a draft report Investigation of Groundwater Contamination Near pavilion Wyoming. Under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), residents of Pavillion petitioned EPA, asking the agency to investigate whether groundwater contamination exists, its extent, and possible sources. Residents had started complaining that their drinking water has turned brown in the mid 1990s, shortly after existing, nearby gas wells were fracked. The problem got worse in 2004, and for a time, the gas companies operating in the area trucked in replacement drinking water. This practice was stopped in more recent years. Following the petition, EPA began its investigation three years ago. The draft report indicated that EPA had identified certain constituents in groundwater above the production zone of the Pavillion natural gas wells that are consistent with some of the constituents used in natural gas well operations, including the process of hydraulic fracturing. In its report, EPA claimed that its approach to the investigation best supports the explanation that inorganic and organic compounds associated with hydraulic fracturing have contaminated the aquifer at or below the depths used for domestic water supply in the Pavillion area. EPA did not appear to conclude that there was a definitive link to a release from the production wells, nor to the constituents found in domestic wells in shallower parts of the aquifer. EPA also plans a peer review by independent scientists. This may be the very first instance that the EPA has linked the fracking to water contamination.

20

http://www.portal.state.pa.us/portal/server.pt/community/newsroom/14287?id=2418&ty peid=1. 34

The EPA sampled residential wells, stock wells, shallow monitoring wells, and two municipal wells. The domestic wells range in depth from approximately 20 feet to nearly 800 feet, and the two municipal wells are 505 and 515 feet deep. The two shallow monitoring wells were approximately 15 feet deep. According to the EPA Draft Report, the early phases of the investigation detected the presence of methane and diesel-range organic chemicals in some of the deeper domestic wells, which prompted EPA to install two deep monitoring wells in June 2010. Whether the report clearly links groundwater contamination to drilling or hydraulic fracturing activities has been the source of heated debate between proponents and opponents of the use of hydraulic fracturing for natural gas development. EPA acknowledges that the results are specific to Pavillion. In the release of the draft study EPA noted that The draft findings announced today are specific to Pavillion, where the fracturing is taking place in and below the drinking water aquifer and in close proximity to drinking water wells production conditions different from those in many other areas of the country. In this respect the pavilion wells were atypical when compared to a typical shale gas well The Pavillion wells were vertical wells (typical shale wells are horizontal). The Pavillion wells lacked surface casing which means almost all of them lacked protection from leakage at depths from which people draw water (typical wells have cemented casing down past the deepest water levels). The Pavillion wells were abnormally shallow with the fractures occurring at 1,200 feet while the water extended to 800 feet (typical shale wells are a mile and a half underground with thick rock between the well and underground water). Industry officials pointed out that the EPA announcement didn't focus on those domestic water wells but two wells drilled somewhat deeper into the aquifer specifically to test for pollution. They argue that the compounds found in the water could have been brought about by contamination in their sampling process or construction of their well. The extent to which EPA may revise its findings in response to public comments and a forthcoming

35

external scientific review is unclear and will not be known until the agency finalizes its report. A study (Fact-based Regulation for Environmental protection in Shale Gas Development, February 2012) conducted by the Energy Institute at the University of Texas at Austin found that many problems attributed to hydraulic fracturing are related to processes common to all oil and gas drilling operations such as drilling pipe inadequately cased in concrete. Many reports of contamination can be traced to above ground spills or other mishandling of wastewater produced from shale drilling and not from hydraulic fracturing. The institutes research team looked at reports of groundwater contamination in three shale plays: the Barnett Shale in North Texas; the Marcellus Shale in Pennsylvania, New York and parts of Appalachia; and the Haynesville Shale in western Louisiana and northeast Texas. The Environmental Defense Fund, which helped develop the scope of work and methodology for the study, noted that, although the study didnt confirm any cases of drinking water contamination caused by fracking, that does not mean such contamination is impossible or that hydraulic fracturing chemicals cant get loose in the environment in other ways (such as through spills of produced water). Scott Anderson of the Environmental Defense Fund in his blog added that the study shined a light on the fact that there are a number of aspects of natural gas development that can pose significant environmental risk. And it highlights the fact that there are a number of ways in which current regulatory oversight is inadequate. The following conclusions are particularly important: Many reports of groundwater contamination occur in conventional oil and gas operations (e.g. failure of well-bore casing and cementing) and are not unique to hydraulic fracturing. Surface spills of fracturing fluids appear to pose greater risks to groundwater than hydraulic fracturing itself. Blowouts uncontrolled fluid releases during construction and operation are a rare occurrence, but subsurface blowouts appear to be under-reported.

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The lack of baseline studies makes it difficult to evaluate the long-term, cumulative effects and risks associated with hydraulic fracturing. Most state oil and gas regulations were written well before shale gas development became widespread. Gaps remain in the regulation of well casing and cementing, water withdrawal and usage, and waste storage and disposal.

Enforcement capacity is highly variable among the states, particularly when measured by the ratio of staff to numbers of inspections conducted.

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Appendix III The Environmental Issues: Air Emissions and GHG

The assumption has been that the increased uses of natural gas can radically reduce the GHG footprint of the electric power industry. Natural Gas would also play an important role in expanded end use applications and enabling renewables as the world moved to a less carbonized energy future. It is also understood that the extraction, processing, and transportation of natural gas all affect the environment. Air quality impacts mentioned include emissions of carbon dioxide stripped from the gas; sulphur dioxide and/or hydrogen sulphide from treating sour water for use as hydraulic fracture fluid, and NOX and other emissions from compressors; pollution from diesel engines; and ground level ozone. However, it is important to remember that the expansion of the supply of natural gas permits the displacement of more polluting forms of energy. Natural gas is considered clean because, on combustion, it emits roughly half the carbon dioxide of coal and about 30% that of oil. Estimating the net environmental impacts, therefore, requires comparing the upstream negative environmental externalities associated with gas development with the downstream positive externalities created by switching to natural gas. Until recently, studies estimated that life-cycle emissions from natural gas-fired generation were significantly less than those from coal-fired generation on a per MMBtu basis. A study out of Cornell University (Robert W. Howarth, et al., Methane and the greenhouse-gas footprint of natural gas from shale formations, Climatic Change, March 13, 2011)21 suggests that the rush to develop Americas unconventional gas resources will likely increase the nations carbon emissions rather than decrease them. According to Howarth, combustion is only one part of the natural gas life cycle. During other parts of the cycle a lot of methane is lost. It's not that the burning of natural gas itself produces more greenhouse gases than the burning of coal. Rather, Howarth looked at the total life

21

http://www.sustainablefuture.cornell.edu/news/attachments/Howarth-EtAl-2011.pdf 38

cycle of shale natural gas production, including the drilling and fracking of wells and the transport of gas, and found that significant amounts of methane in shale gas production escape into the atmosphere instead of being captured and used for fuel. The study suggests that between 3.6% and 7.9% of the methane escape into the atmosphere. The researchers also include data from a recent study from NASA making the case that methane can interact with aerosol particles in the atmosphere in a way that amplifies methane's warming impact, especially in the short-term. In addition, thousands of trucks are driving every minute of every day to bring fracking fluid to drills and to remove wastewater. When all is factored in, Howarth and his colleagues conclude the greenhouse gas footprint of shale gas is likely 20% greater than coal per unit energy, and may be as much as twice as high. The study concludes that the production of a unit of shale gas to be more GHG-intensive than the production of a unit of conventional natural gas. Consequently, if the upstream emissions associated with shale gas production are not mitigated, a growing share of shale gas would increase the average life-cycle greenhouse gas footprint of the total U.S. natural gas supply. According to Howarth, shale gas has a bigger carbon footprint than coal in the short-term, and is comparable over the long-term. That directly contradicts the industry position that natural gas has one-half the carbon footprint of coal To summarize, the Howarth study maintains that: 1) Higher emissions from shale gas are released during hydraulic fracturing. 2) Between 3.6 percent and 7.9 percent of the methane from shale-gas production escapes to the atmosphere in venting and leaks over the lifetime of a well; 3) These methane emissions are at least 30 percent more than and perhaps twice as great as those from conventional gas; 4) Compared to coal, the footprint of shale gas is at least 20 percent greater and perhaps more than twice as great on the 20-year horizon and is comparable

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when looked at over 100 years.

The Howarth study results are challenged in four areas: 1) First, the data for leakage from well completions and pipelines is very incomplete and taken from a few isolated cases reported in industry magazines, and numbers for pipeline leakage from long-distance pipelines in Russia. Howarth points out that he didnt purposefully avoid certain data. There just isnt a lot out there. (MIT, Technology Review, April 15, 2001). 2) The gas-to-coal comparisons are all done on a per energy unit basis and compares the amount of emissions involved in producing a gigajoule of coal with the amount involved in producing a gigajoule of gas. Since a gigajoule of gas produces a far more electricity than a gigajoule of coal (assuming an electricity conversion efficiency of 60% for gas and a 30% conversion efficiency for older coal plants), a per kWh comparison is the correct one. If modern gas technology replaces old coal technology as it is retired, switching from coal to natural gas would dramatically reduce the greenhouse impact of electricity generation. 3) The technological solutions for methane leakage (better well completion techniques, better pipeline integrity) are relatively inexpensive and are currently available compared to solving the GHG emissions problems of a coal plant (CCS). 4) Howarth uses use 20-year global warming potentials (GWPs) to compare coal with gas, rather than the customary 100 year figures. Methane decays in the atmosphere in decades while carbon dioxide persists in the atmosphere for hundreds to thousands of years. If you average the impact of GHG emissions over 20 years instead of 100, you amplify the relative influence of methane and the downsides to gas. As noted by Michael Wang, senior scientist on life40

cycle energy and environmental effects of energy production at Argonne National Laboratory, Illinois, although methane is more than 70 times more powerful at heating the atmosphere than carbon dioxide over a 20-year period, after 100 years it's only 25 times more potent. (Life-cycle emissions for natural gas generation using new EPA estimates are 47 percent lower than for coal-based generation when using a GWP of 25).

There is a wealth of information relating to the life cycle emissions of the natural gas industry. Key ones include: Timothy J. Skone, National Energy Technology Laboratory (NETL), Life Cycle Greenhouse Gas Analysis of Natural Gas Extraction & Delivery in the United States, presentation (Ithaca, NY: 12 May 2011; revised 23 May 2011); Mohan Jiang, et al., Life cycle greenhouse gas emissions of Marcellus Shale gas, Environmental Research Letters 6 (3), 5 August 2011. Industry Challenges Study that Natural Gas 'Fracking' Adds Excessively to Greenhouse Effect, Richard Lovett, Nature, April 2011.Five Things to Know About the Cornell Gas Study, Energy In Depth, May 4, 2011; and Life Cycle Greenhouse Gas Emissions of Marcellus Shale Gas (Jiang et al, Carnegie Mellon University, published Environmental Research Letters, August 5, 2011), IHS CERA, "Mismeasuring Methane - Estimating Greenhouse Gas Emissions from Upstream Natural Gas Development," August 2011, School of Public Policy, University of Maryland , The Greenhouse Impact of Unconventional Gas for Electricity Generation, Nathan Hultman, Dylan Rebois, Michael Scholten4and Christopher Ramig (October 25, 2011), and Cornell University, A Commentary on The Greenhouse-gas footprint of natural gas in shale formations by R.W. Howarth, R. Santorio and Anthony Ingtaffea, November 2011. The NETL study concludes that when used to generate electricity, natural gas conventional or not results in far less emissions than coal. Using a 100-year global warming potential and assuming an average power plant, unconventional gas results in 54% less lifecycle greenhouse gas emissions than coal does. Even using a 20-year global warming potential, as Howarth argues one should, the savings from substituting unconventional gas for coal are almost 50%. Howarth found a large fraction of produced

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gas from unconventional wells never made it to end users, assumed that all of that gas was vented as methane, and thus concluded that the global warming impacts were huge. As the NETL work explains, though, 62% of that gas isnt lost at all its used to power equipment. The NETL study acknowledges and explores a range of uncertainties. But it finds nothing close to the problems that Howarth claims. The Carnegie Mellon study shows that the development and completion of a typical Marcellus shale represents an 11% increase in GHG emissions relative to average domestic gas. It also notes that Marcellus shale has generally lower life cycle GHG emissions (2050% depending upon plant efficiencies and natural gas emissions variability) than coal for production of electricity in the absence of any effective carbon capture and storage processes. The CERA paper, a private report for ANGA and found on their website, shows that the Howarth paper grossly overestimates the quantities of methane that are leaking uncontrolled into the atmosphere at the well site. They note that vented emissions of the magnitudes estimated by Howarth would be extremely dangerous and subject to ignition. In response to the new EPA proposed new source performance standards under the Clean Air Act that would regulate air emissions during the completion phase of hydraulically fractured gas wells, the CERA report shows that EPA has overstated estimates of gas vented during well completion operations and are therefore also overstated in terms of reducing air pollution and emissions of GHG. The University of Maryland study concludes: GHG impacts of shale gas areonly 56% that of coal. Methane has the ability to trap large amounts of infrared radiation relative to CO2, but it also has a comparatively shorter lifetime in the atmosphere. As a result, methanes 100 y GWP is much lower than its 20 y GWP.

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Two factors lead to an overall carbon intensity advantage for gas during the combustion stage. First, gas releases more energy per unit of carbon emitted. Second, the technology used for combustion of gas is more thermodynamically efficient than that used for coal, enabling a larger amount of chemical potential energy in the fuel to be converted to electricity.

Arguments that shale gas is more polluting than coal are largely unjustified. We have demonstrated that the fugitive emissions from the [shale gas] drilling process are very likely not substantially higher than for conventional gas. Evaluated solely on the criterion of GHG emissions from electricity generation, shale gas is not likely to be substantially more polluting than conventional gas.

The Cathles study from Cornell University also concludes that the Horwath study was "seriously flawed" and that shale gas has a GHG footprint that is only one-third to onehalf that of coal. The new study was conducted by L.M. Cathles III and others, and published online in the journal Climatic Change Letters on January 3, 2012. Cathles maintains that Howarths arguments fail on four critical points: 1) Howarth et al.s high end (7.9%) estimate of methane leakage from well drilling to gas delivery exceeds a reasonable estimate by about a factor of three and they document nothing that indicates that shale wells vent significantly more gas than conventional wells. This high-end estimate of 7.9% is unreasonably large and misleading. 2) The data they cite to support their contention that fugitive methane emissions from unconventional gas production are significantly greater than that from conventional gas production are actually estimates of gas emissions that were captured for sale. The authors implicitly assume that capture (or even flaring) is rare, and that the gas captured in the references they cite is normally vented directly into the atmosphere. There is nothing in their sources to support this assumption.

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3) Howarth seems to dismiss the importance of technical improvements on the GHG footprint of shale gas. He downplays ongoing efforts and the opportunity to further reduce fugitive gas emissions in the natural gas industry, while at the same time citing technical improvements in the coal industry. 4) The 20-year time horizon for the GHG comparison of natural gas and coal hides the critical fact that the lifetime of CO2 in the atmosphere is far longer than that of methane. A 100-year timeframe at least captures some of the implications of the shorter lifetime of methane in the atmosphere that are important when considering swapping gas for coal. The long-term benefits of swapping gas for coal are completely missed by the 20-year GWP factor. 5) Howarth et al. treat the end use of electricity almost as a footnote and a 20-year GWP and minimize the efficiency differential between gas and coal by citing a broad range for each rather than emphasizing the likelihood that efficient gas plants will replace inefficient coal plants. Had they used a 100-year GWP and their low-end 3.6% methane leakage rate, shale gas would have about half the impact of surface coal when used to generate electricity (assuming an electricity conversion efficiency of 60% for gas and their high 37% conversion efficiency for coal). Coal is used almost entirely to generate electricity, so comparison on the basis of heat content is irrelevant. Gas that is substituted for coal will of necessity be used to generate electricity since that is coals almost sole use. The appropriate comparison of gas to coal is thus in terms of electricity generation. If the comparison is based on the heat content of the fuels, gas becomes twice as bad as coal from a greenhouse perspective. The appropriate comparison of gas to coal is thus in terms of electricity generation. 6) Leaking 6% of the gas that will ultimately be produced into the atmosphere during on-site handling, transmission through pipelines, and delivery appears to

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be far too high and at odds with previous studies. The most recent comprehensive study (EPA 2011, Table 337, assuming a 2009 U.S. production of natural gas of 24 TCF)22 shows the emission of methane between source and user is ~2.2% of production. Breaking this down, 1.3% occurs at the well site, 0.73% during transmission, storage, and distribution, and 0.17% during processing. Howarth et al.s transmission, storage and distribution losses are 25 times higher than the EPA (2011) estimate of 0.73%. Howarth responded to the Cathles and stood by his approach and findings.23 He criticized Cathles for only focusing on electricity generation instead of both electricity generation and heat generation. He further argues that both 20- and 100-year integrated time frames for methane are important, but the decadal scale is critical, given the urgent need to avoid climate-system tipping points. He stands by his conclusion that for most uses, the GHG footprint of shale gas is greater than that of other fossil fuels on time scales of up to 100 years. Researchers at the National Oceanic and Atmospheric Administration (NOAA) and the University of Colorado, Boulder, will soon publish a study that estimates that natural-gas producers in an area known as the Denver-Julesburg Basin are losing about 4% of their gas to the atmosphere not including additional losses in the pipeline and distribution system. This is more than double the official inventory, but roughly in line with estimates made in 2011 that have been challenged by industry.24 Focusing on the Denver-Julesburg Basin, where more than 20,000 oil and gas wells have been drilled during the past four decades, the team analyzed the ratios of various pollutants in the air samples and then tied that chemical fingerprint back to emissions from gas-storage tanks built to hold liquid petroleum gases before shipment. In doing so, they were able to work out the local EPA (2011) Inventory of greenhouse gas emissions and sinks 19902009, EPA 430-R11-005, p55. http://epa.gov/climatechange/emissions/usinventoryreport.html 23 Venting and leaking of methane from shale gas development: response to Cathles et al. Robert W. Howarth & Renee Santoro & Anthony Ingraffea. http://www.springerlink.com/content/c338g7j559580172/fulltext.pdf 24 Hydrocarbon emissions characterization in the Colorado front range- A pilot study. Currently in press at the Journal of Geophysical Research. 45
22

emissions that would be necessary to explain the concentrations that they were seeing in the atmosphere. Some of the emissions came from the storage tanks but a big part of it leaked from the infrastructure according to says Gabrielle Ptron, an atmospheric scientist at NOAA and at the University of Colorado in Boulder. Their range of 2.37.7% loss, with a best guess of 4%, is slightly higher than Corn-ells estimate of 2.23.8% for shale-gas drilling and production. It is also higher than calculations by the EPA, which revised its methodology last year and roughly doubled the official US inventory of emissions from the natural-gas industry over the past decade. Until available, the study, which is not a life cycle analysis, is difficult to evaluate and some are already questioning how representative the testing site is which includes oil and gas production and whether the data can be extrapolated for a national average. The debate over emissions from shale gas development has been marked by a scarcity of hard data. However, oil and gas companies are well underway collecting actual data and conducting actual measurements of emissions as part of the EPA Subpart W rules. Preliminary feedback from members of actual data indicates emission estimates to be significantly lower. Once sampling data is available across the nation, it will be easier to compare estimates. The controversy over GHG emissions from shale gas development shouldnt obscure a basic and important question: what happens to the claimed emissions benefits of natural gas once you consider its entire life cycle? A new EPA rule will require natural gas facilities to report their vented and fugitive methane and carbon emissions, which should at the very least provide more data for a full picture of the total life cycle of natural gas. Unquestionably, theres still much useful work to be done. The debate over the Howarth paper also emphasizes the importance of implementing the many existing control technologies and practices that can significantly reduce the overall greenhouse gas footprint of the natural gas industry. Many companies are already reducing vented and flared methane emissions voluntarily through the EPAs voluntary Natural Gas STAR program. In 2009, companies involved in STAR prevented the equivalent release of 34.8 million metric tons of CO2.

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And it's worth remembering that, greenhouse gas emissions aside, natural gas is cleaner on a total pollution basis than coal with its mercury and sulfur and other pollution problems

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Appendix IV The Regulatory Response

Considerable effort is being made by federal and state regulators to work with industry to better evaluate the risks of hydraulic fracking and to strengthen the regulation to mitigate potential environmental impacts. The regulatory concerns focus primarily on water use and contamination concerns, issues surrounding the public disclosure of the composition of fracking fluids, and fugitive emissions.

U.S. Department of Energy (DOE) In May 2011 President Obama instructed the DOE to convene an advisory committee to recommend measures that could immediately improve fracking safety and environmental performance. The panel, organized as a subcommittee of the Secretary of Energy Advisory Board, was given just 90 days to issue its findings. The President also called for the panel to produce within six months advice to agencies on shale-gas extraction processes that will ensure the protection of public health and the environment. The panelwhich is led by MIT professor and former Central Intelligence Agency director John Deutsch, and which includes environmentalists and industry representativesfocused on both the fracking process itself and larger concerns surrounding drilling and gas development. The committee conducted public meetings on June 1-2, June 13, June 28, and July 13, The Department of Energy also received over 25,000 public comments. The report (Shale Gas production Subcommittee 90-Day Report, August 18, 2011, U.S. Department of Energy) endorsed shale gas for its economic and potential environmental benefits, but calls for significantly more oversight of shale gas operations than currently exists. A second 90-day report was released on November 18, 2011 (Shale Gas Production Subcommittee Second Ninety Day Report, November 18, 2011, U.S. Department of Energy).25

The initial shale gas report focused exclusively on the production of natural gas and some
25

These reports are available at http://www.shalegas.energy.gov 48

liquid hydrocarbons from shale formations with hydraulic fracturing in vertical or horizontal wells. The report included recommendations in several key areas: 1) Making information about shale gas production more accessible to the public. A national database containing information from various databases nationwide in comparable format would provide regulatory bodies a better tool to access and monitor trends in enforcement activities, permit industry members to analyze data on production trends to identity best practices, and permit the public easier access to environmental protection and safety measures. 2) Full disclosure of all chemicals used in fracturing fluids. While the

committee agrees with the prevailing view that the risk of leakage of fracturing fluids through fractures made in deep shale reserves is remote where there are is large separation from drinking water, the report finds that there is no economic or technical reason to prevent public disclosure of all chemicals used in fracturing fluids.
3) Immediate and longer-term actions to reduce environmental and safety risks of shale gas operations affecting air quality using proven technologies and practices. Shale gas production, (e.g., exploration, drilling, venting/flaring, equipment operation, gathering and vehicular traffic), results in the emission of ozone precursors, particulates, toxic air pollutants and greenhouse gases (GHG), primarily methane. But the knowledge of the extent, variability and scale of many shale gas production emissions is uncertain, making emissions oversight and mitigation best practices equally uncertain. Air emissions are increasingly a concern in certain parts of the country due to drilling expansion. The Shale Gas Subcommittee supported rigorous standards for new and existing sources of methane, air toxics, ozone precursors and other air pollutants from shale gas operations and cites EPAs July 28, 2011 proposed amendments to oil and gas air emissions standards as achieving significant benefits in controlling

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these emissions if finalized and implemented. Both methane and ozone precursors (Volatile Organic Compounds (VOCs) and sulfur dioxide) were singled out as concerns. The subcommittee also suggests companies should be required to measure and publicly disclose air pollution emissions, including methane, air toxics, ozone precursors and other pollutants. Such disclosure should include direct measurement wherever feasible and characterization of chemical composition. It recommends enlisting a subset of producers in different basins, on a voluntary basis, to immediately launch project to design and implements measurement systems to collect air emissions data. Finally, the report acknowledges GHG emissions associated with shale gas development will have wide-ranging influence on future regulations, federal energy policies, and industry carbon management strategies. The report recommends additional work should start immediately to establish reliable data on the life-cycle greenhouse gas impacts across all aspects of natural gas production, delivery and use. The subcommittee suggests a timetable for the assessment should be in place in the next year, and that the DOE Office of Science and Technology Policy should coordinate an interagency effort to identify sources of funding and lead agency responsibility.

4) Adopt a systemic approach to water management based on consistent measurement and public disclosure. Certain common principles should guide the development of integrated water management, including (1) the adoption of a life cycle approach to water management to track and report water flows from the acquisition to the disposal life cycle stages, (2) the measurement and public report of the composition of water stocks and flow throughout the water life cycle stages, and (3) maintaining a manifest of all transfer of water among locations. State and locate localities should adopt systems for measurement and reporting of background water quality In advance of shale production activity. The report notes that in the great majority of regions where shale gas is being produced,

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[large depth separation between drinking water sources and the producing zone] exists, and there are few, if any, documented examples of such migration. Instead, the Subcommittee focuses on poor well construction, design, and casing as presenting the largest risks to drinking water.

5) Creation of a Shale Gas Industry Operation organization committed to continuous improvement of best operating practices Organizing and Implementing Best Practices The subcommittee recommends the creation of a shale gas industry production organization dedicated to the continuous improvement of best practice through development of standards, diffusion of the standards and assessing compliance. Specifically, the subcommittee said two organizations can help improve the availability of shale gas information for the general public. These organizations are the existing not-for-profit State Review of Oil and Natural Gas Environmental Regulation, known as STRONGER, and the Ground Water Protection Council (GWPC). STRONGER provides peer review of state regulatory activities. The peer reviews are conducted by a panel of state regulators, industry representatives, and environmental organization representatives with respect to the processes and policies of the state under review. GWPC has a project to expand a risk-based data management system, which allows states to exchange information about fracking operations. Certain best practice topics identified by the subcommittee include, but are not limited to (1) measurement and disclosure of air emissions including VOCs, methane, air toxins and other pollutants, (2) reduction of methane emissions from all shale gas operations, (3) integrated water management systems, (4) well completion, casing and cementing, and (5) characterization and disclosure of flow back and other produced water.

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6) Research and development (R&D) to improve safety and environmental performance. The subcommittee believes that governmental agencies will need to sponsor R&D and analytic studies addressing topics that benefit the public or industry, but which do not permit individual firms to attain a proprietary position. Examples may include environmental and safety studies, risk assessments, resource assessments, and longer-term R&D efforts including research on methane hydrates. Without providing funding levels or assignments of responsibility to government agencies, the subcommittee noted that given the scale and growth of the shale gas resource, the federal government should sponsor some R&D for unconventional gas. The second 90-Day Report released in November 18, 2011 26 focused on implementation of the recommendations (listed above) from the initial report. The Shale Gas Production Subcommittee commented on the perceived failure to implement its recommendations and noted that the progress to date was less than the Subcommittee had hoped. The Subcommittee cautioned that whether its approach is followed or not, some concerted and sustained action is needed to avoid excessive environmental impacts of shale gas production and the consequent risk of public opposition to its continuation and expansion. The second SEAB report breaks their 20 recommendations into three groups: 9 recommendations ready for implementation, primarily by federal agencies; 4 recommendations requiring cooperation between regulators and industry; 6 recommendations that require new mechanisms for success.

26

U.S. Department of Energy, Secretary of Energy Advisory Board Shale Gas Production Subcommittee Second Ninety Day Report, Nov. 18, 2011. http://www.shalegas.energy.gov/resources/111811_final_report.pdf. 52

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The U.S. Environmental Protection Agency (EPA) EPA is currently undertaking the first national study to evaluate the effects of fracturing on drinking water. The agencys Science Advisory Board (SEAB) provided comments to EPA August 4, 2011. The Agency will revise the study plan in response to the SAB's comments and promptly begin the study. The initial research results are expected to be completed by the end of 2012 with a goal for a final report in 2014. The study will investigate alleged water contamination from drilling in five areas in Texas, Colorado, North Dakota and Pennsylvania. It also will encompass cradle-to-grave research projects in Pennsylvania and Louisiana, where the agency will track drilling's effects on water quality from before the drill bit hits the ground to after hydraulic fracturing has been performed. The study will exclude the two Wyoming gas fields where agency researchers have already collected some of the most in-depth data on drilling's 54

environmental impacts. The excluded sites are in Sublette County and Pavillion, Wyo., where EPA scientists began testing water and collecting data three years ago in response to allegations of drilling-related contamination. In Sublette County, one of the most active drilling fields in the country, researchers discovered benzene in 88 water wells in 2008 and have been testing ever since. In Pavillion, the EPA found metals, methane, hydrocarbons and traces of compounds related to fracking chemicals in residential water wells in 2009. To gain access to drilling sites, EPA researchers have partnered with two companies that have agreed to allow agency scientists to be present before a drill pad is cleared, as it is drilled, and as it is hydraulically fractured. The lifecycle study will allow the EPA to test water quality near the drilling sites before any activity takes place, and then monitor for changes as the companies drill their wells. It also will allow the EPA to collect and test fracturing fluids and other waste that flows back out of the well, providing an exact chemical portrait that can be compared to water contaminants if they are discovered. According to an EPA official, the agency is considering "tagging" the hydraulic fracturing fluids with a benign tracer, a technique that could finally make it possible to see exactly where the injected fracturing fluids wind up. In response to a petition filed by Earthjustice and 120 other organizations, the EPA in a November 23, 2011 letter stated that it will use the Toxic Substances Control Act (TSCA) to draft regulations requiring companies to disclose information regarding "chemical substances and mixtures used in hydraulic fracturing." Although the EPA has not indicated what information will be subject to disclosure, the agency stated that it will attempt to avoid duplication of "the well-by-well disclosure programs already being implemented in several states," and that it anticipates that its regulations will "focus on providing aggregate pictures of the chemical substances and mixtures used in hydraulic fracturing." The EPA's decision grants a portion of the relief requested in Earthjustice's petition, but denies other portions of the requested relief. Earthjustice's petition, dated August 4, 2011, requested that the EPA use 15 U.S.C. 2607 (section 8 of TSCA) to require chemical manufacturers to report a broad range of information on all substances

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used in the exploration and production of oil and gas. The EPA stated, however, that its disclosure regulations will apply only to substances used in hydraulic fracturing, and that the agency was denying Earthjustice's request for regulations relating to other substances used in oil and gas activities. The EPA has also proposed new air pollution standards for oil and gas exploration and production operations in response to a court order. The standards would require operators to capture natural gas that currently escapes into the atmosphere. EPA said the proposal would cut volatile organic compounds (VOCs) emitted during several processes, including a 95% reduction during completion of new and modified hydraulically fractured wells. Capturing gas that currently escapes into the air would make it available for sale through technology and processes several producers already use and some states require, the proposal included reviews of four air regulations for the oil and gas industry as required by the Clean Air Act: a new source performance standard for VOCs from equipment leaks at gas processing plants; a new source performance standard for sulfur dioxide emissions from gas processing plants; an air toxics standard for oil and gas production; and an air toxics standard for natural gas transmission and storage. EPA is required to issue final standards by February 2012. Covered operations and equipment would include completions and recompletions of hydraulically fractured natural gas wells, compressors, pneumatic controllers, various storage tanks, and gas processing plants. Key features of the new EPA proposed standards: Hydraulic Fracturing. "Green" or "Reduced Emissions Completions," in which gas and liquid hydrocarbons are separated from flowback, would need to be employed during completions and recompletions of hydraulically fractured gas wells. Compressors (used to move natural gas through pipelines). Centrifugal units would need to be equipped with dry seal systems; the rod packing in reciprocating compressors would need to be replaced every 26,000 hours of operation.

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Pneumatic controllers (used at gas processing plants and compressor stations to maintain liquid levels, pressures, and temperatures). At gas processing plants, use of controllers that are not gas- driven would eliminate VOC emissions. At compressor station and other locations, the controller bleed limit would be 6 cubic feet of gas per hour. The Agency would classify each individual controller as an "affected facility" so that the standards would apply to each newly installed or replaced device. Condensate and crude oil storage tanks. A 95 percent reduction in VOC emissions would be required for tanks with a throughput of at least 1 barrel per day of condensate or 20 barrels per day of crude oil. Natural gas processing plants. Leak detection and repair requirements would be tightened to control VOCs, and sulfur dioxide performance standards would be strengthened for plants with a sulfur feed rate of at least 5 long tons per day or a hydrogen sulfide concentration in the acid gas stream of at least 50 percent. Produced water ponds. EPA is asking for comment on VOC emissions from produced water ponds and associated control technologies. Oil and Natural Gas Production. Hazardous air pollutant (HAP) emissions from crude oil and condensate tanks and from large glycol dehydrators would need to be cut by at least 95 percent. Startup, Shutdown, and Malfunction ("SSM"). For both the production and transmission/storage sectors, the existing SSM exemption would be eliminated. The estimated aggregate cost of the proposals through 2015 for all regulated sectors is $754 million; however, EPA is forecasting the value of the resulting natural gas and condensate available for sale to be $783 million.

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The American Petroleum Institute is calling for another 60 days of public comment (under the current timeline, public comments would end around Oct. 31), and even further delay of implementation, particularly since some of the rules will require expanded use of certain equipment meant to burn off some emissions. The equipment, known as tank combustors, are already in use, but companies need more time to ramp up production of more units. The Interstate Natural Gas Association of America, a trade group that represents natural gas and oil pipeline companies, in an October 11 letter to Assistant Administrator, Office of Air and radiation, Gina McCarthy, stated that the Environmental Protection Agency had no defensible reason to include natural gas transmission pipelines in a proposed emissions rule for the oil and gas industry. 27 In their letter INGAA stated that the proposed rules would have far-reaching impacts on our industry, yet, for natural gas transmission and storage companies, VOC emissions are relatively minimal. This leads us to believe that the actual aim of these proposed standards is to regulate greenhouse gases (GHGs). Further, the VOC content of pipeline quality gas a standard defined in federally regulated tariffs is relatively low. Applying operating standards on interstate natural gas pipeline and storage operations therefore would yield at best a very small reduction in VOC emissions. Regulations cannot significantly reduce something is not significant in the first place. With so little to be gained in reductions of VOCs, it seems apparent that the true thrust of the proposed regulations, at least as they apply to INGAAs members, is to reduce emissions of greenhouse gases, notably methane. On April 17, 2012, the Environmental Protection Agency issued the final rules that include the first federal air standards for natural gas wells that are hydraulically fractured, along with requirements for several other sources of pollution in the oil and gas industry that currently are not regulated at the federal level. 28 Green completions, also called reduced emission completions (or RECs), continue to be identified as the best system of emission reduction, but EPA identified a transition period (until January 1, 2015) to
27 28

www.ingaa.org/File.aspx?id=16537 http://epa.gov/airquality/oilandgas/actions.html 58

ensure green completion equipment is broadly available. During this transition period, fractured and refractured wells must reduce their emissions through combustion devices (flares).

On October 19, the U.S. Environmental Protection Agency announced plans to write new national standards that would govern how energy companies dispose of wastewater from natural gas drilling sites including fluids that may contain radioactive material. No comprehensive set of national standards exists for such activities, and EPA will begin the process of developing a proposal with input from producers, public health officials, and other stakeholders. EPA said it will consider uniform national standards because of information it has received, including state-supplied wastewater sampling data, of pollutants entering surface waters because of inadequate treatment at facilities. It said that it plans to gather data, consult with stakeholders, and seek public comments on a proposed rule for CBM water in 2013 and for shale gas in 2014. EPA said that the CBM timetable is shorter because it has already gathered extensive data and information about it. The rule making process could span years, and represents the first broad national guidelines for disposal of that wastewater, with likely limits on when municipal treatment facilities can accept the fluid. The EPA said in a statement that it would accept comments for new standards over the coming months for shale gas extraction as well as for gas from underground coalbeds. EPA will consider standards based on demonstrated, economically achievable technologies, for shale gas wastewater that must be met before going to a treatment facility. The oil and gas industry maintains that state regulators are best qualified to assess the unique characteristics of shale plays in their regions and the appropriate water disposal requirements associated with that production and that the current system of regulation already accounts for the fact that there is wide variability in the volume, regional environmental conditions, and available management methods for produced water.

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On November 23, 2011, in response to a petition filed by Earthjustice and several other organizations, the EPA stated that it would use the Toxic Substances Control Act (TSCA) to draft regulations requiring companies to disclose information regarding "chemical substances and mixtures used in hydraulic fracturing." Although the EPA has not indicated what information will be subject to disclosure, the agency stated that it will attempt to avoid duplication of "the well-by-well disclosure programs already being implemented in several states," and that it anticipates that its regulations will "focus on providing aggregate pictures of the chemical substances and mixtures used in hydraulic fracturing." The EPA's decision grants a portion of the relief requested in Earthjustice's petition, but denies other portions of the requested relief. Earthjustice's petition, dated August 4, 2011, requested that the EPA use 15 U.S.C. 2607 (section 8 of TSCA) to require chemical manufacturers to report a broad range of information on all substances used in the exploration and production of oil and gas. The EPA stated, however, that its disclosure regulations will apply only to substances used in hydraulic fracturing, and that the agency was denying Earthjustice's request for regulations relating to other substances used in oil and gas activities. As for the disclosure regulations that EPA has agreed to draft, it is unclear exactly what information will need to be disclosed.

Following the release of the EPA draft report, entitled Investigation of Ground Contamination near Pavillion, Wyoming (see discussion under Appendix II), the agency is waiting for information from Encana Corp., which has 123 wells in that area, on the water samples the company took at the same time as the EPA. The U.S. Department of Interior The Obama administration is poised to swiftly advance plans to stiffen standards governing natural gas drilling on federal lands. The Interior Department is readying to propose rules to govern fracking that are expected to require disclosure of chemical ingredients used in the fracking process, and also address well integrity and water

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management. In March, officials met with the American Petroleum Institute, Americas Natural Gas Alliance, the American Exploration and Production Council, the Independent Petroleum Association of America, and the U.S. Oil and Gas Association who expressed their concern that the regulations dont create what the companies consider burdensome requirements that stymie production. Environmental groups are pushing for stronger federal oversight on several fronts, including the repeal of a 2005 law that shields fracking from certain EPA Safe Drinking Water Act rules. The Interior Department last year launched a broad review of whether it needed to step up its oversight of natural gas drilling on the roughly 700 million acres of public land under the federal governments control. DOI has drafted a rule for federal lands that focuses on disclosure of chemical identities, well-bore integrity and management of wastewater disposal. The draft rules must undergo public comment once they are proposed, and their provisions could change before becoming final. Under the draft rules, before starting to fracture a well, operators would have to perform tests to show its built strongly enough to withstand maximum operating pressures. And they would have to disclose where they get their fracturing water from and how they would dispose of the wastewater that resurfaces. Industry is concerned that the new rules will create a redundant layer of requirements because states have laws and rules that already apply to companies operating on federal lands within their boundaries. As of mid April 2012, the Interior Department had not announced when it will release the draft rules for public comment.

At the State Level Colorado has recently amended its oil and gas regulations to specifically address hydraulic fracturing operations. After initially considering broad hydraulic fracturing chemical disclosure requirements, the Colorado Oil and Gas Conservation Commission eventually adopted a more tailored disclosure provision that provides regulators with the necessary information about fracturing fluids when it is needed but at the same time protects trade secret information. The Arkansas Oil and Gas Commission has enacted new regulations specifically requiring service companies to maintain master lists of

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chemicals used in hydraulic fracturing operations in the state and provide those lists to the Commission.

Wyoming and Pennsylvania have updated and amended their oil and gas regulatory programs to more specifically address hydraulic fracturing operations. Governor Corbett has created the Marcellus Shale Advisory Commission and charged it to identify, prioritize and craft recommendations regarding the safe, efficient and environmentally responsible extraction and use of unconventional natural gas reserves in Pennsylvania. On Oct. 3, Pennsylvania Gov. Tom Corbett outlined his proposed Marcellus shale oversight program, and many of his proposed policies stemmed from the state's Marcellus Shale Advisory Commission report, which he received in late July. The Commission issued 96 recommendations. About one third require legislative changes, and more than 50 can be accomplished within the state agencies. Governor Corbett said he will soon submit his drilling proposals to the legislative leadership, and he instructed state regulators to recommend policy implementation plans by the November. Specifically Corbett proposed: Increasing the well setback distance from private water wells to 500 ft from the current 200 ft., and to 1,000 ft. from public water systems. Increasing the setback distance for wells near streams, rivers, ponds, and other bodies of water to 300 ft from 100 ft. Increasing well bonding to $10,000 from $2,000. Increasing blanket well bonds up to $250,000 from $25,000. Expanding an unconventional gas operators presumed liability for impairing water quality to 2,500 ft from a gas well (currently 1,000 ft), and extending the duration of presumed liability to 12 months after well completion (currently 6 months). Enabling state regulators to take quicker action to revoke or withhold permits for

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operators who consistently violate rules. Doubling penalties for civil violations to $50,000. Doubling daily penalties to $2,000/day.

The proposals also call for counties, local governments, and state agencies to adopt an impact fee related to Marcellus shale drilling and development. Estimates show that this impact fee will bring in about $120 million in the first year, climbing to nearly $200 million within 6 years. A formula would split the impact fee revenues among the county, municipalities that host drilling pads, and all municipalities within the county. The distribution formula will be based on population and highway miles. Part of the fee revenues would be divided among various state agencies, with most of it to be allotted for road, bridge, rail, and other transportation infrastructure maintenance and repair within counties hosting Marcellus gas development. Under this plan, counties and municipalities may use these funds on various gas developmentassociated expenses including water, storm water, and sewer system construction and repair.

Despite heightened concern about contamination of useable groundwater aquifers (primarily in Pennsylvania and New York) by hydraulic fracturing of deep shale formations, no such cases appear to be documented with evidence. Pennsylvania is implementing enhanced well casing and cementing requirements to reduce the likelihood of communication between deep fractured zones and shallower zones outside of the wellbore. The state has also increased fees for processing shale permits, which has allowed it to hire more inspectors and permitting staff. On August 21, 2010, the Pennsylvania Department of Environmental Protection (DEP) issued a regulation that requires new or expanding dischargers of wastewater to meet the total dissolved solids (TDS) standard of 500 milligrams per liter. This action did not satisfy the environmental community, which insisted that the DEP ban all oil- and gasfield waste discharge into surface waters. In most instances, the major companies

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working in the Marcellus region had already moved to end the disposal of wastewater into surface waters and were instead transporting wastewater to Ohio for disposal. Indeed, a recent report by The Wall Street Journal (April 25, 2011) indicated that the major companies are moving to end oil- and gas-field waste disposal into surface waters. In March, an environmental lawsuit was filed asking a Wyoming district court to force regulators to reconsider roughly 50 trade secret exemptions it granted to companies using hydraulic fracturing techniques to extract oil and gas in the state. Under landmark, twoyear-old regulations, the state requires well operators to disclose the identities of chemicals they use in the process. But the measure allows trade secret exemptions meant to protect companies from being forced to reveal proprietary information, and the environmental critics say the state has been too eager to approve them. In 2010 and 2011, the state has granted 50 chemical secrecy requests by oil and gas service companies. The Wyoming Oil and Gas Conservation Commission provided some of the requested information to the environmentalists in January, but it refused to turn over any chemical formulations that had been designated as trade secrets. The lawsuit asks the seventh judicial district court in Casper, Wyo., to invalidate any insufficiently supported and overly broad trade secret requests and force the state regulators to reconsider the exemptions. However, even if they are granted trade secret status, oil and gas companies are still obligated to send identifying information about the chemicals they use to state regulators. The commission will have the information on file but will prevent it from becoming public if they agree to the confidentiality request only. The supervisor may release the confidential information in the event that it becomes necessary in the event of an incident. On August 29, 2011, the Railroad Commission of Texas (the "Commission") approved a proposed rule that sets forth requirements for the disclosure of chemicals used in hydraulic fracturing operations. Starting Feb. 1, drilling operators in Texas will have to report many of the chemicals used in the process and disclose of the amount of water needed to frack each well. The rule would implement Texas House Bill (HB) 3328 relating to Disclosure of

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Composition of Hydraulic Fracturing Fluids. Consistent with the provisions of HB 3328, Section 3.29(c) of the proposed rule sets forth disclosure requirements for suppliers, service companies, and operators involved in hydraulic fracturing operations. Specifically, the proposed rule provides that, no later than 30 days following the completion of a hydraulic fracturing treatment on a well, suppliers and service companies must provide the operator of the well with the identity of each chemical ingredient intentionally added to the hydraulic fracturing fluid. A copy of the proposed rule is available at www.rrc.state.tx.us/rules/prop-new-3-29-frac-disclosure-Aug29.PDF. The proposed rule calls for companies to use the Chemical Abstracts Service (CAS) number to identify the composition of frack fluids. The use of CAS numbers makes disclosure of chemicals more transparent for suppliers, shippers, end users, and the public. The proposed rule would require companies to list their frack fluids on a public web site, FracFocus.org. The web site is a joint project of the Ground Water Protection Council and the Interstate Oil & Gas Compact Commission. Some oil companies already voluntarily post their information on it. The Texas Legislature authorized exceptions to disclosure for ingredients considered to be proprietary or trade secrets. The trade secrets designation can be appealed, but only by the landowner where the frack job happen or by an adjacent landowner. In New York State, on Dec. 13, 2010, Gov. Paterson issued an order requiring Department of Environmental Conservation (DEC) to perform additional review of the environmental impacts of high-volume hydro fracturing and horizontal drilling and placing a moratorium on issuing new permits for high volume horizontal hydraulic fracturing until July 1, 2011. When Governor Cuomo took office last January, he left the moratorium in place but appointed an 18-member advisory panel to make recommendations about it. This review was to be completed by June of 2011 and then opened to public comment. The Preliminary Revised Draft Supplemental Generic Environmental Impact Statement

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(SGEIS) was issued July 8, 2011 and the revised Draft SGEIS was issued September 7, 2011. The comment period was extended to December 12, 2011. A Generic Environmental Impact Statement (GEIS) provides a comprehensive review of the potential environmental impacts of an activity and how these impacts could be mitigated. The Department prepared a Supplemental GEIS (SGEIS) to assess issues unique to horizontal drilling and high-volume hydraulic fracturing (sometimes referred to as hydrofracking) in the Marcellus Shale and other low permeability reservoirs. Once the official draft is complete, it still needs to go through a 30-day public comment period before regulators could actually write the final rules. It also appears that the final rules will carry a number of restrictions: High-volume fracturing would be prohibited in the New York City and Syracuse watersheds, including a buffer zone; Drilling would be prohibited within primary aquifers and within 500 feet of their boundaries; Surface drilling would be prohibited on state-owned land including parks, forest areas and wildlife management areas; High-volume fracturing will be permitted on privately held lands under rigorous and effective controls; and DEC will issue regulations to codify these recommendations into state law.

As drafted, the SGEIS would leave as much as 85% of the Marcellus Shale in New York open to drilling. The recommendations also mention tighter rules on well construction, requiring additional casings near the surface of a well to prevent the migration of any gas or fracking fluid. A copy of the Revised Draft SGEIS may be found at www.dec.ny.gov/energy/75370.html. The State Department of Environmental Conservation is currently reviewing and responding to over 20,000 comments (an unprecedented number) on its most recent proposal to allow fracking in New York. With continued strong organized opposition to shale gas fracturing in New York, there is no indication that shale-gas development in the

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state will begin in 2012. If high-volume hydraulic fracturing moves forward in New York, it will move forward under the strictest standards in the nation. On June 2011, Maryland Governor Martin OMalley issued an order calling for a threeyear study of the economic and environmental effects of drilling the Marcellus Shale before permits to drill can be issued. And in August 2011, New Jersey Governor Chris Christie placed a one-year moratorium on hydraulic fracturing so that the Department of Environmental Protection can further evaluate the potential environmental impacts of this practice in New Jersey, as well as evaluate the findings of ongoing federal studies.

Canada
Canadian natural gas producers on Sept. 8 2011 announced new guiding principles for hydraulic fracturing that guide water management and improved water and fluids reporting practices for shale gas development in Canada. The principles were created by members of the Canadian Association of Petroleum Producers (CAPP) and apply to all CAPP natural gas producing members, large and small, operating in Canada. CAPPs guiding principles for hydraulic fracturing apply in all jurisdictions in which the upstream industry operates in Canada. The principles were created with the understanding that some provinces will develop their own regulations. The Canadian natural gas industry supports all regulations that govern hydraulic fracturing, water use and water protection according Michael McAllister, executive vice-president of Encana. The guiding principles for hydraulic fracturing are available on CAPPs website as each are finalized. On January 30, 2012 CAPP announced best operating practices for fracking. The operating practices, designed by members and passed by the CAPP board of directors, echo last falls principles in setting out broad goals for disclosing fracturing components, assessing chemicals with an eye to using the least environmentally harmful products, ensuring proper wellbore construction and using the best methods to safely transport, handle, store and dispose of fracking chemicals. The practices suggest producers do

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baseline groundwater testing before developing a gas field and then monitor during drilling and completions. The operating practices are to apply to all CAPP members exploring for and producing natural gas in Canada, although CAPP concedes it has no enforcement function to ensure that they do. The Energy Resources Conservation Board is currently undertaking a review of well drilling and completion rules.

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