Breaking Free – March 22, 2015

Today we talk about five things that happened in the big week of March 16, 2015:

  1. Federal Fracking Rules Finally Emerge
  2. Anti-Drilling “Frack Pack” Introduced in Congress
  3. Pres. Obama’s Professor Slams the Clean Power Plan
  4. Sen. McConnell’s “No” Train Gathering Speed
  5. Gov. Wolf Sets a Minimum Gas Price

Our interview this week is with Robin Bossert, the director of the new documentary Breaking Free.

Click below to listen or find us on iTunes or Stitcher.

1.  Federal Fracking Rules Finally Emerge

This week, the Department of Interior released its long-awaited rules for hydraulic fracturing on federal land.  Secretary Sally Jewell gave a speech at the Center for Strategic and International Studies early in the week, where she praised the U.S. energy boom.  On Friday, the agency released the final rules on fracking.

The rule garnered a lot of publicity, though it is not quite as groundbreaking as some made it out to be.

The rule will also have relatively limited impact, as most of the energy boom in happening on state and private lands.

The rule requires an operator planning to conduct hydraulic fracturing on federal land to take a number of new steps, including:

  • Submitting detailed information about the proposed operation,
  • Designing and implementing a casing and cementing program that follows best practices,
  • Monitoring cementing operations during well construction,
  • Performing a successful mechanical integrity test (MIT) prior to the hydraulic fracturing operation,
  • Monitoring annulus pressure during a hydraulic fracturing operation, and
  • Disclosing the chemicals used to the BLM and the public, with limited exceptions for material demonstrated to be trade secrets.

Most, if not all, of these actions are already taking place under the watchful eye of state regulators.  The American Petroleum Institute (API) pointed to that fact in their statement on the rule:

A duplicative layer of new federal regulation is unnecessary, and we urge the BLM to work carefully with the states to minimize costs and delays created by the new rule to ensure that public lands can still be a source of job creation and economic growth.

The Department of Interior appears to respect this concern and may avoid some of the duplication:

Some states, including Alaska, Arkansas, Colorado, Illinois, Michigan, New Mexico, Ohio, Oklahoma, Pennsylvania, Texas, Utah, and Wyoming have regulations in place addressing hydraulic fracturing operations. Operators with leases on Federal lands must comply with both the BLM’s regulations and with state operating requirements, including state permitting and notice requirements to the extent they do not conflict with BLM regulations.

As the LA Times reported, many states do not expect the rule to change their operations at all:

Some already adhere to the new regulations. Steven Bohlen, California’s oil and gas supervisor, said he was confident the state’s existing regulations would meet the new federal standards.  “We welcome the federal government governing its own lands, but it will have no impact on the state regulations because the state regulations are equal to or more stringent to all federal regulations that I know about,” Bohlen said.

In some states, production on federal land makes up a large portion of overall production.  This is particularly true in Western states, and some worry the duplication costs in this rule will discourage producers in those states.  Sen. John Barrasso (R-WY), for example, has been a leader on this issue.  He wants Wyoming to be exempt from the new federal rule because state regulators already have the situation under control.  He jousted with Secretary Jewell on this topic a few weeks ago:

The Secretary appears to have been paying attention, because the rule does appear to try to appease Sen. Barrasso:

To address concerns from states and tribes about possible duplicative efforts, the final rule provides that in situations in which specific state or tribal regulations are demonstrated to be equal to or more protective than the BLM’s rules, the state or tribe may obtain a variance. Such a variance will allow for enforcement of the more protective state or tribal rule.

Nonetheless, Sen. Barrasso was not impressed.   He joined a group of 27 Senators to introduce legislation to stop the rule.  Some industry groups are more upset than API, and immediately sued to stop:

“States have been successfully regulating fracking for decades, including on federal lands, with no incident that necessitates redundant federal regulation,” said Tim Wigley, President of Western Energy Alliance. “BLM struggles to meet its current workload of leasing, environmental analysis, permitting, monitoring, inspecting, and otherwise administering the federal onshore oil and natural gas program. Yet it is undertaking an entirely new regulatory regime that it has neither the resources nor the expertise to implement.

Perhaps one of the most important parts of this rule has not been given much attention.  While most of the rules are duplicative of state regulations, Interior is closing the door to one activity that is common in many states.  That is the storage of flowback water in lined pits.  Right now, much of the extra water that comes back up a fracked well is stored in an open pit until it can be recycled or disposed of.  Interior is setting far more expensive standards for federal lands:

The final rule will require interim storage of all produced water in rigid enclosed, covered, or netted and screened above-ground tanks, subject to very limited exceptions in which lined pits could be used.

This could be one of the most significant costs of the new rule.

2.  Anti-Drilling “Frack Pack” Introduced in Congress

Last week several Democrats in the House of Representatives joined together to introduce a group of anti-fracking bills.  The bills are mostly repeat performances from past years, and are not going far in a Republican Congress.  They are, however, a clear recitation of the leading objections to the shale boom.

  • FRAC Act (H.R. 1482) – Rep. Diana DeGette’s (D-CO) bill would require Safe Drinking Water Act permits for fracking along with disclosure of chemicals used.
  • FRESHER Act (H.R. 1460) – Rep. Matt Cartwright’s (D-PA) bill would extend the application of federal stormwater runoff rules to drilling operations.
  • BREATHE Act (H.R. 1548) – Rep. Jared Polis’ (D-CO) bill would increase Clean Air Act scrutiny of drilling, primarily by regulating each well as a major emissions source, like a power plant.
  • SHARED Act (H.R. 1515) – Rep. Jan Schakowsky’s (D-IL) bill would require groundwater testing before drilling.

So, what is the prognosis for these bills?  Very few industry groups bothered to come out against it last week, and this is probably a good way to put it:

3.  Pres. Obama’s Professor Slams the Clean Power Plan

On Tuesday, the House Energy and Commerce Subcommittee on Energy and Power held a very long hearing on the Clean Power Plan, entitled “EPA’s Proposed 111(d) Rule for Existing Power Plants: Legal and Cost Issues.”  The most newsworthy item from the hearing was the testimony of Harvard University Law School Professor Laurence Tribe, who ripped into the EPA’s rule.  Republicans and the media where quick to point out that Prof. Tribe is a well-known liberal who taught constitutional law to President Barack Obama.  Politico summarized his testimony this way:

Tribe, appearing on Tuesday before the House Energy and Power Subcommittee along with prominent Hunton & Williams partner Allison Wood, laid out one legal argument after another that opponents can use in the upcoming court battles to prevent EPA from implementing the greenhouse gas rules it plans to finish this summer.

“You know, I’ve cared about the environment ever since I was a kid. And you know, I taught the first environmental course in this country, and I’ve won major victories for environmental causes. But I’m committed to doing it within the law,” Tribe said.

“Burning the Constitution should not become part of our national energy policy,” he added.

Critics are quick to point out that Prof. Tribe has been paid by Peabody Energy, but he says the views he expresses are his own.  Law professor Richard Revesz and attorney Allison Wood also testified on the legal aspects.  Later, environmental regulators from the states of Florida, Ohio, and North Carolina voted against the regulation, while a representative from Maryland testified in support.

4.  Sen. McConnell’s “No” Train Gathering Speed

U.S. Sen. Mitch McConnell (R-KY) has been arguing that states should ignore the EPA’s proposed Clean Power Plan regulations for carbon emissions from powerplants.  He upped the ante a bit this week by sending a formal letter to each of the states to lobby them directly on the issue.  He said:

Some have recently suggested that failing to comply with the EPA’s requirements would be to disregard the law. But the fact is, it is the EPA that is failing to comply with the law here. By requiring states to submit a plan aimed at achieving a lower emissions target based upon four so-called “building blocks” — (1) improved power plant efficiencies, (2) switching electricity generation sources, (3) building new generation and transmission, and (4) reducing demand — the EPA is overreaching, as its authority under the Clean Air Act extends only to the first building block related to source specific energy efficiency upgrades.

The New York Times called it a “carefully researched legal argument.”

Since Mr. McConnell is limited in how he can use his role in the Senate to block regulations, he has taken the unusual step of reaching out to governors with a legal blueprint for them to follow to stop the rules in their states. Mr. McConnell’s Senate staff, led by his longtime senior energy adviser, Neil Chatterjee, is coordinating with lawyers and lobbying firms to try to ensure that the state plans are tangled up in legal delays.

On Thursday, Mr. McConnell sent a detailed letter to every governor in the United States laying out a carefully researched legal argument as to why states should not comply with Mr. Obama’s regulations.

5.  Gov. Wolf Sets a Minimum Gas Price

SNL ran a story with an important detail to Pennsylvanians:

Hiding in plain sight in Pennsylvania Gov. Tom Wolf’s proposed severance tax on natural gas production is a bigger land mine than the rate or the volumetric fee: a $2.97/Mcf flat minimum value for all gas produced in state, regardless of its actual sale price.

Under Wolf’s proposed legislation, for example, day-ahead gas selling at the Leidy hub’s March 13 midday price of $1.435/Mcf would be taxed as if its value was $2.97/Mcf.

“Under no circumstance shall the gross proceeds be less than $20 per barrel or $2.97 per unit,” the bill Democrat Wolf is sending to the state’s General Assembly reads.

Interview with Robin Bossert, director of the new documentary Breaking Free (Starts at 28:34)

Robin is a video producer who works in New York City.  He primarily does corporate films, and he found himself doing work a couple years ago for Chris Faulkner, the CEO of Breitling Energy, an oil and gas company.  Chris was looking for ways to showcase the positive stories that were happening in the oil field and Robin was helping line up media events for Chris.  Robin describes himself as a liberal, but says he came around on hydraulic fracturing issues after listening to so much misinformation from environmental groups.  He also became concerned that oil and gas companies are doing a poor job of telling their own story.

Breaking Free began as a corporate film that Mr. Faulkner could take to communities around the country to explain the shale boom.  Over time, however, it morphed into an legitimate, hour-long, independent documentary.  Robin says he was given complete creative control over the project.  He worked with some friends and some consultants to locate people around the country who had insight into the shale boom but no particular agenda.  Robin feels like that created the power of the film, which is individuals sharing what they know and recognizing that some things are not yet clear.

Robin traveled around the country to collect stories from individuals.  He spent most his time in boom towns, and North Dakota in particular.  Many of the folks he spoke with grew up in sleepy rural towns that were now being overrun by oil and gas companies.  That change brought some pains, but Robin felt that the media was overly focused on negative stories like increased crime.  Robin found, for example, a great story of a Native American Tribe that was able use oil and gas revenues to put millions of dollars in a community fund.

The movie balances man-on-the-street interviews with input from range of experts.  On earthquakes, for example, Robin consulted a leading seismologist who put energy-caused earthquakes in context.  On climate change, Robin interviewed Bjorn Lomborg, a professor at the Institute in Copenhagen and author of The Skeptical Environmentalist.  Mr. Lomborg argues that natural gas is an important component to addressing climate change.  

Many people in the movie had strong feelings about oil and gas regulation.  State regulators are particularly popular, as federal regulators are seen as far more political.  The Keystone XL pipeline delays are an example.  Robin did find, however, that many folks want the federal government to put pressure on state governments to put protections in place.  Another interesting issue explored in the movie is how much credit the government should get for the shale boom.  As one interviewee put it, the government was important but could not have done it without George Mitchell.  On the other hand, George Mitchell would have eventually figured it out without the government.

The oil and gas business has changed dramatically with the drop in oil prices caused largely by the shale boom.  Most of the interviews in Breaking Free are from a happier time in the oil field, but the film paints a great picture of how the boom got started.  You can learn more about the film at www.breakingfreemovie.com, and it is available for download on iTunesAmazonGoogle Play and more.

https://youtu.be/rS4uMuG2DLc