Advisors on Fracking Unsure of Cuomo Administration’s Expectations

A panel appointed by the Cuomo Administration earlier this month has been tasked with giving advice on some of the most sensitive issues related to the controversial gas drilling technique known as hydraulic fracturing, or fracking. But weeks after it was created, the group’s role is still unclear to some of its members, and there are questions about balance.

In the months ahead, the group is supposed to advise the state Department of Environmental Conservation on enforcement, fees and taxes and minimizing the community impacts of gas drilling. Meanwhile, the state will solicit feedback on its 1,095-page environmental review of fracking. As soon as 2012, the DEC could begin issuing permits to drill in parts of upstate New York lying above the gas-rich Marcellus Shale formation.

But no meeting has yet been scheduled for the 13-member High Volume Hydraulic Fracturing Advisory Panel, and several members said they were asked to join just hours before the DEC went public with its fracking plans.

"It was suggested to us a couple of days ago, and we formally agreed to participate late yesterday afternoon," wrote panelist Kate Sinding, an attorney with the NRDC, in an email as Commissioner Martens was announcing the panel on July 1.

The same day, Erica Ringewald, a spokesperson for another panelist, Environmental Advocates of New York’s Robert Moore, wrote, "We had about an hour to assess yesterday."

Stan Lundine, a former Lieutenant Governor who is also a panelist, expressed some confusion about the panel's purpose "because I don’t know the answers, where we still haven’t had the first meeting of this panel."

Some panelists had a little more time to consider the offer. Robert Catell of the Advanced Energy Research and Technology Center at SUNY-Stony Brook said he’d been talking with the DEC “for some time” and Mark Boling, a senior vice president at Houston-based Southwestern Energy, said he was asked to join the panel about a week in advance.

Panels and committees are usually praised by their creators for the expertise they bring. But very often what they do is something far more valuable: they provide political cover to make unpopular decisions. On the hotbutton issue of fracking - which has political, environmental, and economic dimensions - this panel could help ease the way to a broadly-accepted compromise on fracking. But if the group founders, key constituencies could instead be alienated from the process.

A Question of Balance

Boling is a choice that rankles some in the natural gas industry: not only is he the only representative of the natural gas industry on the panel, his firm has very little skin in the game.  His firm, Sourthwestern, has only a small number of acres under lease in New York State.

"I'd be remiss if I didn't admit that that bothers me," said Brad Gill, executive director of the Independent Oil & Gas Association of New York, an industry group. "We would like to see greater local input, from operators who know the Marcellus end of the business and know how to drill in New York State."

Boling sees his role as a bridge between energy companies and the environmentalists who often oppose their activities. Since early 2010, Boling has led an effort to develop a new industry code of conduct, in partnership with the Environmental Defense Fund. The idea is to address the concerns over fracking, such as water contamination and air pollution – concerns some gas drillers say are exaggerated: "A lot of companies don’t agree with my views," he said.

The composition of the rest of the panel is raising eyebrows as well. Six of the 13 members are staffers at environmental groups. And people who are on the front lines of the issue have largely been left out: there is no representative of land owners (several property-owner groups have formed since 2007), and no well services company is represented.

Assemblywoman Donna Lupardo, a member of the new panel, represents the gas-rich area around Binghamton and says there could be an advantage to broadening the panel.

“I think it would not hurt for us to have a number of voices at the table,” Lupardo said. “Certainly someone from the oil & gas industry, someone from the landowners should be involved.”

Lupardo, a Democrat with strong environmental cred, said she initially hesitated when she was asked to join a group that will, in effect open the door to fracking in New York. But, Lupardo said, “too much is at stake to not be directly engaged in the process.”

A DEC spokesperson said the agency has received suggestions for additional panelists, and is considering them.

Asked whether he sees his panel as balanced, DEC Commissioner Joe Martens pointed out that one advisor, Robert Catell, is a former chairman of National Grid. He also sits on the board of Keyera, a company that fracks for gas in Alberta. Another panelist, Kate McGinty, a former advisor to President Clinton, sits on the board of NRG, a power plant operator.

Putting a Price on Gas Development

The most contentious issue panelists are likely to deal with is imposing new costs on the gas industry to offset some of the negative social and environmental consequences of fracking.

One option would be to institute a severance tax, which targets a portion of the revenues generated by gas drillers. Boling pointed out that in 2008, Arkansas raised its negligible severance tax to a heftier 1.25 to 5-percent reserving most of the revenue for road repair and construction (moving heavy industrial equipment on small roads can cause serious damage). The tax gave Arkansans a reason to support drilling in the state’s Fayetville Shale, Boling said.

But in Pennsylvania, the issue has become a political flash point. Tom Corbett, now the state’s Republican governor, made opposition to the severance tax a campaign issue when he was running for the governorship in 2010.

And although Boling supported the 2008 severance tax in Arkansas, he’s now opposing a proposed tax hike there, arguing it would make the cost of doing business too high.

One likely measure that may be easier for the gas industry to accept would be a hike in permit fees, which could enable the DEC can hire more staff to process more drilling applications.

But Will The Drillers Come?

Some opponents of fracking fear that as soon as new rules are in place, the gas industry will swarm into New York State. But this is not likely to happen. For one thing, DEC’s Martens has said permits will only be issued as quickly as his agency’s budget will allow.

What’s more, the economics of natural gas are not working in the drillers’ favor. Since the shale gas boom began, natural gas prices have slumped to around $4 per thousand cubic feet. Earlier in the 2000’s the price was as high as $10. Mushrooming supplies and stable demand mean prices will likely stay low for years to come as more shale reserves are tapped all around the country.

Another obstacle is the long wait time drillers face to obtain the heavy equipment used in fracking. Mike Hogan, an independent oil & gas consultant in Western New York, said roughly 3,500 wells sit ready to be fracked in other states, and a driller ordering equipment for a new site today can expect to wait two to three years for delivery.

Hogan said the companies he does business with are “just happy that the process is moving forward,” and will review regulations once they’ve been written.

While many forces are acting to slow the pace of development, one fact may prompt some companies to hurry to put drill bits in the ground: expiring leases. Natalie Cox, a spokesperson for Talisman Energy, notes that the company’s total area of land under lease – currently around 400,000 acres – is constantly declining, as agreements with landowners, often for a term of 5 years, expire. One way to avoid that: start drilling.

Chesapeake Energy, which has 1.76 million acres under lease, recently announced a novel alternative plan to ramp up demand: invest $1 billion in technologies to enable cars to run on natural gas.

Many observers say the first wells to be fracked in New York will likely lie just a few miles from the Pennsylvania state line.

“The infrastructure, the service companies the drilling rigs, all the support services, the workers are in Pennsylvania,” said Brad Gill of New York’s Independent Oil & Gas Association.

But for many panelists, Pennsylvania’s brief experience with fracking, which includes a number of spills and explosions, serves as a cautionary tale.

“Looking at Pennsylvania, you see policy-making occurring backwards,” said Lupardo. “Something goes wrong, and they decide to establish a policy. I think people should feel very good about the way New York has approached this.”