By:  Justo Garcia

At the end of February, crude oil climbed past $109 per barrel.  This renewed exchanges between the Obama Administration and many Republicans who are critical of his energy policies.  Most of the attacks tied the rising cost of fuel to the President’s decision in January to reject an application by TransCanada Corporation to construct the 1,700-mile Keystone XL pipeline.  Supporters of the Pipeline, which would transport crude oil extracted from fields in Northern Canada to refineries along the Gulf Coast, believe that it is crucial to creating more American jobs and lessening American dependence on foreign oil.  Yet the focus on the Pipeline issue largely overshadowed growing tensions between the Administration and many leaders in the energy industry over a rapidly expanding technology known as hydraulic fracturing.

Hydraulic fracturing, or “fracking,” is a method of drilling for oil and natural gas that causes the release of deposits found in dense shale rock formations.  The practice itself has been around for 60 years, but expanded rapidly with relatively recent technology that allowed oil companies to evaluate the production potential of well formations at depths deeper than ever before.  Fracking involves dispersing a mix of sand, water, and chemical fluid at high velocities into dense rock formations to increase permeability and enable the extraction of oil and natural gas from well bores that would otherwise be impossible or highly uneconomical.  Some of the more recognizable formations where fracking takes place include the Marcellus shale formation in New York and Pennsylvania and the Eagle Ford shale in Texas.

Fracking is a highly complex process with many potential costs and benefits.  In February 2012, domestic energy production reached its highest level in eight years.  Many energy industry analysts credit fracking for this trend.  But environmental groups remain suspicious of fracking as a source of groundwater contamination.  For its part, the Obama Administration has remained attentive to both sides.  The President, in his January 24 State of the Union Address, recognized the potential benefits of fracking but reiterated the need to safely develop America’s petroleum resources.

Nonetheless, many energy industry leaders remain critical of what they see as an overzealous scrutiny of fracking.  Signs of this rift became clearer at the North American Prospect Expo’s 2012 Winter Conference, held on February 5 in Houston, TX.  It was there that industry leaders voiced their belief that the Administration has done more to restrict the domestic production of oil and gas through delays in permitting and restrictive regulations.  From their perspective, the current boom in the domestic production of oil and gas is occurring in spite of the Administration.

Perhaps the factor most responsible for this rift is the perceived damage done by recent EPA studies linking fracking to contaminated water supplies.  One of the more damaging reports came last December when the EPA released the results of a three-year analysis of private drinking water sources near Pavillion, Wyoming.  The Pavillion report commenced after residents reported objectionable tastes and odors in their drinking water.  These complaints coincided with an increase in the number of natural gas wells drilled in the area by Encana Corporation between 2004 and 2007.  The report ultimately found that ground water sources in the area did in fact contain synthetic chemicals, including glycols and alcohols that are commonly associated with fracking.  Still, the EPA report was careful to acknowledge its limitations as specific to Pavillion, where fracking takes place in closer proximity to drinking water aquifers than most parts of the country.

The ripples from the Pavillion report could be felt immediately in industry-friendly regions.  While efforts to expose the dangers of fracking were already becoming commonplace, the Pavillion report brought the industry into a new era of heightened sensitivity to public opinion.  The energy industry appeared somewhat willing to acknowledge some concern about fracking following a report released by the Energy Institute at the University of Texas at Austin which emphasized the environmental risks posed by surface spills of fracking chemicals. But many still remained committed to the position that such risks are shared by all oil and gas drilling operations and are not specific to fracking.  Overall, the net result of the Pavillion report was to cast aside assurances of the infallibility of fracking, however plausible. Texas Railroad Commission Chairman, Elizabeth Ames Jones’ response to the Pavillion report stated,  “[T]he geology of Texas is different…[fracking] does not go on close to the surface here and it would be impossible to migrate up miles below the earth to a water table.”  The door is now open for greater federal scrutiny and regulation of fracking, territory that the industry prefers to stay in the hands of state regulatory agencies.

By last December, conservation commissions in Texas and Colorado were already in the process of adopting rules requiring disclosure of chemicals in fracking fluids.  The Texas rule, which went into effect this month, requires fracking operators to disclose their chemical ingredients on the public website  The Texas rule also requires disclosure of water volumes used in fracking wells, also a growing concern in water-scarce states in the West.  Most notably, the Texas Railroad Commission, the state’s oil and gas regulatory agency, touted the new rules as further proof that fracking is safe. Chairman Jones, again, said “Once again the Railroad Commission is taking a lead in helping the public understand the safety of hydraulic fracturing with this rule’s adoption…Texans will know more about what is going in the ground for energy production than about the ingredients that go into their sodas.”

Soon after the Texas and Colorado rules went into effect, the Administration showed signs that it would be implementing its own rules to regulate fracking.  Media sources leaked a draft of proposed Department of Interior rules.  Similar to the rules implemented by Texas and Colorado, the proposed Federal rules would require companies to disclose elements of fracking fluid in addition to the volumes being used.  The proposed rules also contain exemptions for companies if such disclosure would implicate state or federal regulations protecting information deemed to be trade secrets.  Praised by environmentalists as a good start, the proposed rules were painted by many in the energy industry as redundant and confusing because of their similarity to state laws already in place.

With the steep rise in the price of gas showing no signs of slowing down, domestic energy production will very likely be a key issue in the 2012 Presidential Election.  It is undeniable that the domestic production of oil and gas is at an eight-year high largely because of fracking.  But many questions remain unanswered about its costs and benefits.  The difficulty for President Obama lies in countering arguments from the energy industry that the current rise in domestic production is happening in spite of his policies while also ensuring his environmentalist supporters that he is doing all that he can to ensure that the nation’s oil and gas resources are safely developed.