Regulation v. Development in the Oil & Gas Industry

Oil and natural gas issues remain at the center of energy policy deliberations in Washington, D.C., and will continue to do so through Election Day, particularly where they can be tied to economic recovery or job creation. The following is a brief overview of the key issues at the federal level. 

Oil

• The Keystone XL Pipeline remains highly visible, but attempts to force the approval of the pipeline through legislation have been unsuccessful, most recently during deliberations over reauthorization of the Surface Transportation Bill. Republicans in both the House and Senate have pledged to continue efforts to get it approved. The Obama Administration continues to say they are on schedule for a decision in early 2013.

• The President recently released his 2012 – 2017 offshore leasing plan, which identifies offshore areas to be made available for oil and gas drilling during that period.  It schedules 15 potential lease sales for the five-year period, including 12 in the Gulf of Mexico and three off the coast of Alaska.

• In addition, the Department of the Interior announced that it will hold a lease sale for 39 million acres in the Central Gulf of Mexico.

Congressional Republicans, calling these efforts insufficient, have responded by passing legislation in the House of Representatives—the Domestic Energy and Jobs Act—that would hasten and expand the development of offshore reserves (as well as onshore resources). House Republicans also recently introduced legislation that would directly respond to the President's offshore leasing plan by calling for additional lease sales and adding new areas for leasing on the East and West Coasts. While both of these bills are unlikely to be considered in the U.S. Senate, House Republicans will continue pursuing these objectives in other legislative vehicles. 

Natural Gas

Increased regulations on the coal industry and coal-powered utilities, as well as new technological developments in fields like hydraulic fracturing, have helped drastically alter the landscape for natural gas in the United States. The Energy Information Administration (EIA) now estimates that the Marcellus Shale formation in the Eastern United States contains approximately 140 trillion cubic feet of natural gas, while EIA projects that the Haynesville Formation on the Gulf Coast holds as much as 75 trillion cubic feet. Development and use of these resources are at an all-time high, and this has attracted considerable attention from both the Administration and Congress. 

• The Environmental Protection Agency (EPA) recently released a draft guidance document for regulating the use of diesel in hydraulic fracturing operations under the Clean Water Act (CWA). What constitutes "diesel" has generated significant controversy and is potentially subject to this draft guidance. This issue will be worth watching in the coming months.

• The EPA is also starting to conduct inspections of hydraulic fracturing operations under authorities that it has seldom used in the past. Specifically, the EPA is utilizing authorities under the Clean Air Act's 'general duty' clause and the CWA's oil spill prevention provisions. Though a new development, this use of these two provisions to inspect hydraulic fracturing operations has sparked debate over the legal basis of these efforts.

• The Bureau of Land Management recently proposed a rule that would set standards for well design and wastewater disposal, as well as chemical disclosure requirements, for hydraulic fracturing operations on public lands.

• Republicans in the House of Representatives have conducted oversight activities on the Administration's approach to hydraulic fracturing. Republicans on the House Committee on Energy and Commerce have asked several questions of the Obama Administration regarding Executive Order 13605, which established the interagency working group on hydraulic fracturing. Those Members of Congress want to know, among other things, what the exact role of the working group will be when it comes to the role of states as the primary regulator of hydraulic fracturing.

Several states have also undertaken legislative and regulatory options to address hydraulic fracturing within their jurisdictions. For example, North Carolina recently passed legislation that authorizes hydraulic fracturing in the state, whereas Vermont became the first state to prohibit it and California continues to debate the future of the practice within its borders.

Many of these issues will continue to be debated during the rulemaking and appropriations processes throughout the remainder of the year. The outcome of November's elections will be instrumental in determining the direction that both Congress and the Executive Branch take when it comes to the development of America's oil and natural gas resources.