COLUMN-Amid drilling boom, US states rush to update laws: Kemp

Wed Oct 17, 2012 7:14am EDT

By John Kemp

LONDON Oct 17 (Reuters) - Legislatures in 34 U.S. states, from Alaska and California to Kentucky and Maryland, have enacted no fewer than 94 separate laws relating to oil, gas and coal so far this year, as the surge in exploration and production pushes fossil fuels high up the agenda for state lawmakers.

The number of new laws passed on fossil fuels has soared from 66 bills in 22 states last year, and 55 bills in 27 states in 2010, according to the online bill-tracking database run by the National Conference of State Legislatures (NCSL).

It is the second-wave of energy laws to emerge from state capitols. The first wave came in 2009 when 35 states passed a total of 129 different laws (Chart 1).

But the first wave contained numerous measures about greenhouse emissions and energy conservation.

The second wave centres firmly on drilling, transporting and taxing fossil fuels.

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Chart 1:

Chart 2:

NCSL Database:

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At their session in 2009, Maryland legislators approved the Greenhouse Gas Emissions Reduction Act. By 2012, the General Assembly was enacting the Gas Wells in Deep Shale Deposits Act to require drillers to restore local water supplies properly.

In 2008/9, California's legislature was concerned about promoting geothermal and other forms of renewable energy. By 2011/12, the focus had shifted to collecting taxes from oil and gas production and improvements to pipeline safety.

The geographical focus of state lawmaking has also shifted. Interest in regulating fossil fuel extraction and distribution has spread from North Dakota and Montana, the two states at the heart of the Bakken drilling boom, to go nationwide.

In 2009, Montana and North Dakota accounted for a quarter of all new fossil energy laws. The new wave is far more extensive, and includes states like Pennsylvania that did not pass any fossil fuel bills during the first wave (Chart 2).

LAWMAKERS' CONCERNS

The subjects of new legislation provide a roadmap to the issues states are encountering as they update their laws to cope with the drilling boom. In 2012, most laws have fallen in six general areas:

(1) Severance taxes, production credits, and the treatment of income from oil and gas for corporate and individual income taxes, as well as the need to raise revenue for state oil and gas commissions and other regulators.

(2) Pipeline siting, rights of way, exercise of eminent domain and safety inspections -- for both trunk pipelines and local gathering and distribution systems.

(3) Disclosure of drilling activity and the chemicals used for hydraulic fracturing, as well as rules preserving the confidentiality of individual well records.

(4) Environmental regulations, including drinking water quality, and special rules covering drilling on state-owned land.

(5) Rules to define the rights of surface owners as well as control exploration, seismic surveying and the use of multiple frac pads.

(6) Laws to pre-empt regulation and law-making by cities and counties.

The pattern that emerges is one of lawmakers rushing to fill gaps in state laws to cope with a disruptive new technology revolutionising domestic oil and gas production, which has brought exploration and production to areas of the country that have not seen new drilling and pipelines for decades.

Like any other new technology, the rules governing hydraulic fracturing initially proved out of date and inadequate to control the social side effects. Much of the criticism of the oil and gas industry relates to this semi-lawless "wild west" phase. But the upsurge in new laws suggests state governments are now quickly moving to address these concerns and bring the industry under proper control.

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