Recent Developments in the Battle Over Hydraulic Fracturing

The Marcellus Shale stretches across the Appalachian Mountains, and may hold over 500 trillion cubic feet of natural gas. Gas companies are eager to exploit this resource using the controversial technique, hydraulic fracturing (“fracking”). This valuable and untapped resource has caused a battle in the northeast among gas companies, environmentalists, and local, state, and federal governments, and is a microcosm of the worldwide battle over fracking. The fate of the Marcellus Shale has ramifications for the entire industry. On September 24, 2012, a federal judge in New York dismissed attempts to block regulations allowing fracking in the Delaware River basin, an area that extends into Delaware, New Jersey, Pennsylvania, and New York. The regulations were proposed in May 2010 by the Delaware River Basin Commission (“DRBC”), a multi-state public entity that works in partnership with the federal government in river basin planning, development, and regulatory agency. The DRBC has authority to establish standards for the operation of all basin area projects or facilities affecting water resources, and thus has the ability to permit or ban fracking in the basin. The DRBC currently has a moratorium in place that bars fracking, but the new proposed regulations would open up the basin to the practice. Once the DRBC finalizes regulations and removes the moratorium, fracking will have a green light, although each state may develop stricter standards than set forth in DRBC rules.

Several groups filed suit to block the DRBC’s attempt to allow fracking in the basin, by forcing the federal defendants to complete a full environmental impact review under the National Environmental Policy Act of 1969 (“NEPA”). One DRBC member, the state of New York, joined the environmentalist plaintiffs in the suit against the remaining DRBC members. However, on September 24, 2012, the court granted the defendants’ motion to dismiss, ruling that the plaintiffs lack injury-in-fact, and that the claims are not ripe so long as the DRBC’s current moratorium on fracking remains in effect.

While the decision removes one impediment to fracking in the basin, more challenges are likely on the horizon. The judge in this decision noted that it is reasonable to foresee a further challenge under NEPA and a substantive challenge to the regulations themselves, which would be launched after the final DRBC regulations are eventually issued. For now, the legal battle over fracking in the basin continues. At stake is a significant amount of natural gas plays, which rest close to important drinking water supplies, including those of Philadelphia and New York City.

Elsewhere in the state of New York, Governor Andrew Cuomo’s administration has a deadline of November 29, 2012 to finalize fracking regulations. New York’s regulations were first proposed in July 2008. If the administration fails to finalize the rules, the government must begin the rulemaking process anew, which would open up the process to challenge by environmental interests. Department of Environmental Conservation spokesperson Emily DeSantis said that the agency expects to miss the deadline. In the meantime, an executive order signed by the Governor established a statewide fracking moratorium, and dozens of towns have banned fracking outright. The local bans have withstood legal challenge so far, though appeals are pending. New York is ground zero in the ongoing war over fracking. If the state moves to allow fracking, the decision could be influential nationwide.

Even here in Louisiana, where the political climate is much less hostile to fracking, a subsidiary of Cheniere Energy Corp. has met resistance in its plans to convert a Cameron Parish liquid natural gas (“LNG”) import facility into an export facility. Even though the conversion was permitted by the state, the Sierra Club has moved to block the facility’s conversion, and on October 5, 2012, the U.S. Department of Energy agreed to consider the Sierra Club’s challenge. Certainly, the outcome of that dispute as well as the battles in New York are indicative of the great value and challenge facing the fracking industry.