UPDATE 3-NYC urges ban on shale gas drilling in watershed
* Drilling called 'unacceptable threat' to drinking water
* Gas industry says shale drilling completely safe (Adds reaction from mayor, governor, analyst)
By Edith Honan
NEW YORK, Dec 23 (Reuters) - New York City urged the state to ban natural gas drilling in its watershed on Wednesday, becoming the most powerful opponent to date of a process that critics say is poisoning drinking water.
Shale gas trapped deep underground is considered one of the most promising sources of U.S. energy, but environmentalists and small-town neighbors of drilling operations -- and now the biggest city in the United States -- are seeking to limit its exploitation.
The drilling process known as hydraulic fracturing, or "fracking," involves blasting through rock with a mixture of water, sand and a proprietary list of chemicals used to split the shale formation and free trapped gas.
Steven Lawitts, the city's top environmental official, called fracking techniques "unacceptable threats to the unfiltered fresh water supply of nine million New Yorkers," putting the city at odds with the gas industry, which considers shale drilling completely safe.
"Based on all the facts, the risks are too great and drilling simply cannot be permitted in the watershed," said Marc LaVorgna, a spokesman for Mayor Michael Bloomberg.
The 2,000-square-mile (5,200-square-km) watershed is tiny compared to the largest known U.S. shale formation, which extends below the surface in much of Pennsylvania and parts of New York, Ohio and West Virginia.
The opposition from New York City adds heft to the ranks of fracking critics and could embolden state and local authorities elsewhere, though many are strapped for cash and badly need the revenue that comes with drilling.
Geologists say the Marcellus Shale formation could satisfy U.S. natural gas demand for a decade or more, providing a relatively clean form of fossil fuel and helping promote U.S. energy independence.
New York state Governor David Paterson, who will play a major role in deciding the future of drilling next year as he slashes state services to close a $3.2 billion budget deficit, said he was still listening to "all points of view."
"We've actually extended the public comment period because of the grave concern that so many who we trust, like the mayor, are raising in this issue," Paterson told reporters.
Major natural gas producers and oilfield service companies like Schlumberger Ltd (SLB.N) and Halliburton Co (HAL.N) have a stake in shale gas production, and Exxon Mobil (XOM.N) cited the potential for unconventional gas production in its $30 billion bid to take over XTO Energy XTO.N this month.
The deal includes a clause that would allow Exxon Mobil to back out if the U.S. Congress bans or severely regulates the process used to extract gas from shale rock.
Some companies like Chesapeake Energy Corp (CHK.N) had announced they would not seek to drill in the New York watershed, which lies about 90 miles (140 km) north of the city.
Terry Engelder, a Penn State University professor of geosciences, said New York City's demand may improve prospects for passage of the "Frack Act," federal legislation that would require gas companies to disclose the chemicals they use.
"It shines a brighter light on the Frack Act because New York is a significant enough fraction of the U.S. population that care will be taken," he said.
Ray Deacon, an analyst with energy-focused Pritchard Capital, acknowledged the reluctance of companies to provide details on the fracking fluid because "it's kind of the secret sauce that makes the rock break apart."
Shale drilling companies say the industry maintains strict safeguards to prevent any danger to water supplies. But neighbors of drilling in several states report fouled water and increased illness since drilling began.
Earlier this year, New York state proposed new rules that would allow drilling for natural gas in the Marcellus Shale formation. New York City is asking the state to exclude the watershed from the areas that can be drilled.