June 4, 2009 / 7:14 PM / 10 years ago

UPDATE 1-US lawmakers seek regulation of drilling practice

(Adds comments from House subcommittee hearing)

By Ayesha Rascoe

WASHINGTON, June 4 (Reuters) - U.S. lawmakers expect to introduce legislation next week that would reverse a Bush era law exempting a controversial drilling practice from federal oversight, possibly driving up costs and curtailing the development of vast amounts of unconventional energy.

Democratic Representatives Diana DeGette of Colorado and Maurice Hinchey of New York plan a bill that would repeal a measure in a 2005 law that excluded the method of hydraulic fracturing from regulation under the Safe Drinking Water Act.

“This is a very serious issue. If it is not addressed, large numbers of people are very likely to suffer,” Hinchey told Reuters. “Their water will be contaminated. Their houses will no longer be livable.”

Hydraulic fracturing, or “fracking,” injects a mixture of water, sand and chemicals into rock formations at high pressure to force out oil and natural gas. The practice is used to stimulate production in old wells, but is now also used to tap oil and gas trapped in shale beds across North America.

Fracking is essential to shale gas production, which has significantly boosted U.S. gas output. The Energy Information Administration estimates this resource could make the United States self-sufficient in natural gas supply by 2030.

The new bill would open the door to Environmental Protection Agency supervision of the practice. Industry groups are concerned the law will lead to a cumbersome federal standard that may require more permitting, higher water quality for fracking fluid and additional testing.

Richard Ranger, senior policy adviser for the American Petroleum Institute, said new requirements could cost as much as $100,000 per well, a significant burden for drillers.

In areas where companies are still exploring, Ranger said “that $100,000 price tag when added to other things can lead companies to say ‘No, we’re not going to drill here.’”

Lynn Helms, who oversees North Dakota’s mineral resources, said fracking is a “critical component” of developing oil and gas from shale in his state and throughout the country.

“Without hydraulic fracturing, under regulation of the states, this resource could not be produced,” Helms testified at a House Natural Resources subcommittee hearing on Thursday.

Environmentalists say fracking without a national safety standard endangers human health by contaminating ground water. Residents in gas drilling areas have complained their well water was discolored or foul-smelling and that children became sick.

The bill would also force companies such as Halliburton Co (HAL.N) and Schlumberger Ltd (SLB.N) to reveal what chemicals they use to produce hydraulic fracturing fluid, information protected by the companies as trade secrets.

“These fracking fluids use a witches brew of toxic chemicals, nearly all of which are intrinsically hazardous to the environment,” Albert Appleton, an environmental consultant, testified at the House subcommittee hearing.

Industry groups say the criticisms are completely unfounded and that gas drilling is done thousands of feet below ground, much deeper than most water resources. Also, they say officials have not linked any public health incidents to hydraulic fracturing.

The stakes are high for U.S. shale producers, such as Range Resources Corp (RRC.N), Chesapeake Energy Corp (CHK.N) and Anadarko Petroleum Corp APC.N.

“Investors are watching it very closely because if something was to change meaningfully the deployment of the shales for natural gas, it has the potential to dramatically change market conditions,” said Christine Tezak, senior energy policy analyst at Robert W. Baird and Co. (Reporting by Ayesha Rascoe; editing by Jim Marshall)

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