Marcellus Shale Gas Update in PA

According to Bentek, a Colorado company that evaluates energy trends, Marcellus gas production in Pennsylvania and West Virginia is up by more than 50% for the first half of 2013 compared to 2012.  Indeed, Tom Murphy, Director of the Penn State University Marcellus Center for Research and Outreach, reported that the drilling rig count of operating wells is actually down in Pennsylvania indicating more efficient drilling accounts for the increased production.  Bentek also predicts that shale gas production will increase substantially in Ohio in 2014 and 2015.  In August, Royal Dutch Shell began taking bids from oil and gas companies to gauge how much ethane would be available if it decides to proceed with the development of an ethane cracker in Monaca, PA.  Even President Obama in his speech on climate change on June 25, 2013 recognized that natural gas, which he referred to as the “transition fuel that can power our economy with less carbon pollution” is creating jobs and lowering many families’ heat and power bills.  So the future appears bright for the continued development of shale gas operations and production in Ohio, Pennsylvania and West Virginia.

However, in Pennsylvania, legal issues present some concerns.  The Pennsylvania Supreme Court is considering a challenge to Pennsylvania’s Act 13 which amended the Oil and Gas Act in 2012 to preempt municipal zoning of oil and gas development.  Preemption of local regulation of operations that are subject to federal or state environmental permits avoids the mischief of potential NIMBY efforts.  In July 2012, the Commonwealth Court of Pennsylvania declared the preemption provision unconstitutional, upholding a challenge by municipalities and environmental NGO’s.  The state Supreme Court heard arguments in October 2012 with only six justices hearing the case due to then pending criminal charges against one justice.  The state has asked the court to rehear argument to avoid a possible 3-3 split but the municipalities and NGO’s opposed rehearing.  It is not clear if the court will rehear the case or when it will render a decision.  Until the court issues its ruling, Commonwealth Court has enjoined the state Public Utility Commission from reviewing local ordinances.

The significance of the preemption issue is illustrated by the efforts of Dominion Transmission, Inc. to build a natural gas compressor station in Myersville, MD.  Relying on a local ordinance, the town of Myersville denied Dominion’s application for approval of an amendment to the town’s master plan, reasoning that the compressor station would obstruct local development plans and pose a public health threat.  On October 7, 2013, a federal court granted partial summary judgment to Dominion in its lawsuit challenging that decision, ruling that the local zoning laws addressing siting and operation of the compressor station (which had already received approval from the Federal Energy Regulatory Commission) were preempted by the federal Natural Gas Act.  In July 2013, the court ordered the Maryland Department of Environment to process Dominion’s application for an air quality permit.  MDE had refused to process the permit because Dominion had been unable to obtain local zoning approval.

Despite the uncertainty posed by the legal challenge to Act 13, the Pennsylvania Department of Environmental Protection has dedicated considerable resources to staffing the oil and gas program to meet the increased activity of the Marcellus play.  Under Governor Corbett, DEP has proposed draft regulations to enhance the oil and gas program consistent with Act 13.  In August 2013, the Pennsylvania Environmental Quality Board approved the proposed regulations.  DEP scheduled a sixty day comment period and will hold six public hearings (instead of 30 days and 1 public hearing) to assure there will be adequate opportunity for public participation and input.

DEP announced in September that an independent peer review of its Office of Oil and Gas Management found it to be proficient and ready to address the increase in oil and gas operations in Pennsylvania.  The peer review was conducted by a non-profit, multi-stakeholder organization called State Review of Oil and Natural Gas Environmental Regulations, Inc. (STRONGER).  The STRONGER team highlighted the following improved aspects of the oil and gas program:

  • Increase in its staff levels to address additional permitting, inspection and enforcement activities related to increased unconventional gas well development;
  • Expansion of the program’s public participation activities associated with the abandoned well sites program;
  • Initiation of a comprehensive evaluation of radiation levels specifically associated with unconventional gas development, the first of its kind in the nation;
  • A mandate that operators performing earth disturbance activities associated with oil and gas activities must develop and implement Erosion and Sedimentation Control Best Management Practices to minimize the potential for erosion and sedimentation; and
  • Advancement of its hydraulic fracturing program and requiring that well operators      conducting well casing and cementing maintain control at all times, and prevent migration of gas or other fluids into sources of fresh groundwater.

Many in the region are enjoying the economic stimulus provided by shale gas development and operations and looking forward to continued development of energy resources.  Pennsylvania has made enhancements to the oil and gas regulatory program and received positive feedback from an independent peer review.  However, a decision on the preemption challenge may make future permitting more challenging by giving municipalities more input.

Stephen Smith focuses his practice on environmental and energy-related matters including regulatory counseling and litigation, administrative law, governmental affairs and lobbying. He represents clients before federal and state courts and administrative agencies. He provides client counseling and advice on compliance, permitting and agency communications as well as business transactions.
 
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