The controversy surrounding the extraction process known as hydraulic fracturing (or “fracking”) continues to incite fierce debate and some rather odd behavior, including Colorado Gov. John Hickenlooper's confession to the Senate Committee on Energy and Natural Resources that he drank fracking fluid produced by Halliburton.
Dubbed by some as our “road to energy independence,” fracking has been a major job creator in several states in the western U.S. (including North Dakota) these past few years. Though the practice has existed for over 60 years, the frenetic media attention in recent memory can partly be attributed to this westward expansion. Its allure is understandable, its promise somewhat mind-boggling; the U.S. has an estimated 482 trillion cubic feet (Tcf) of technically recoverable shale gas, according to current figures released by the U.S. Energy Information Administration (EIA). Some of the major shale plays that carry the potential for natural gas extraction through fracking are located in Colorado, Kansas, Montana, North Dakota, Pennsylvania, Texas and New York.
In New York, disturbing claims about fracking have peppered media coverage for years. Last week, a mid-level appeals court ruled that New York municipalities can use local zoning laws to ban the practice of fracking to drill for natural gas. The same week, California followed in the footsteps of New York State lawmakers when it endorsed a moratorium on fracking.
What does this mean for U.S. insurers and how they determine liability and coverage? California's current legislative session may provide some clues. The most populous state in the U.S. ranks fourth in oil production. Arguably the oil and gas industry represents one of the few potentially lucrative resources the economically anemic state has left. However, a host of health and environmental concerns have lawmakers and laypeople anxious, as evidenced by the nine fracking-related bills that have been introduced in the current legislative session. Although the majority of proposals focus on regulating the hotly contested drilling practice (relative to baseline water testing, permits and so on), three of the bills seek to halt fracking altogether, at least for the foreseeable future pending further scientific study.
Last week a California Assembly Panel pushed forward the three anti-fracking bills, including Adrin Nazarian's AB-649, which would ban all fracking operations within California “until the state government has an opportunity to weigh any potential threats to public health or the environment.” Under Nazarian's bill, the study on potential fracking risks would be spearheaded by the secretary of the California Natural Resources Agency and the secretary of the California Environmental Protection Agency (EPA). Another bill introduced by Calif. Sen. Fran Pavley (D-Agoura Hills) would prohibit the state from issuing new fracking permits only if a study was not completed by Jan. 1, 2015.
The Environmental Protection Agency (EPA) is currently conducting research under its Plan to Study the Potential Impacts of Hydraulic Fracturing on Drinking Water Resources, which is slated for completion in 2014. While the scope of the study is admittedly broad, the EPA is focusing on five stages of the hydraulic fracturing water cycle: water acquisition, chemical mixing, well injection, flowback and produced water, and wastewater treatment and waste disposal.
On December 18, 2012, a branch of the California Department of Conservation released a “discussion draft” of regulations to govern fracking. The “discussion draft” published by the Division of Oil, Gas and Geothermal Resources (DOGGR) includes provisions for pre-fracturing well testing; advance notification; monitoring during and after fracturing operations; disclosure of materials used in fracturing fluid; trade secrets; and storage and handling of hydraulic fracturing fluids. The draft was primarily intended to pave the way for a more formal regulatory framework, but had a negligible impact on quelling fracking concerns. Moreover, several environmental organizations have filed lawsuits against the DOGGR, fueling the argument for instating a moratorium.
When it comes to fracking, there is clearly no shortage of drama or political mudslinging. Some Calif. Democrats have seemingly appointed themselves gatekeepers of public health and safety, whereas Republicans in the state accuse them of trying to “regulate [fracking] out of existence.”
No one knows how it will play out, just that we're all in for a bumpy ride.
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