Proposed federal rules regulating hydraulic fracturing to produce oil and natural gas on public lands would impose an estimated $1.5 billion a year in additional costs on the energy industry, according to the results of an analysis prepared for a trade association.
Given the potential costs involved, the Western Alliance for Energy has written letters to Interior Secretary Ken Salazar and the White House Office of Management and Budget calling for a suspension in the rule-making process until the Bureau of Land Management conducts a more comprehensive economic analysis of its own.
“The Interior Department is willing to rush forward with regulations that lack scientific basis and a thorough economic analysis as required for major rules that exceed the $100 million cost threshold,” said Kathleen Sgamma, vice president of government and public affairs for the Western Energy Alliance.
Moreover, the proposed federal rules are redundant, Sgamma said. “States have been successfully regulating fracing for generations, including on federal lands, with no incident of contamination that would necessitate redundant federal regulations.”
Hydraulic fracturing has become an increasingly prevalent technique for extracting oil and natural gas. A mixture of water, sand and additives is pumped under high pressure into underground rock formations, creating small fractures that allow oil and natural gas to flow into a well.
Opponents of fracing have raised questions about the chemicals used in the process and the potential for water contamination.
The Western Energy Alliance, a Denver-based group of 400 companies involved in oil and natural gas exploration and production, hired an economics firm to analyze the effects of proposed new rules for drilling activity on federal lands.
The analysis conducted by John Dunham & Associates estimated the total aggregate annual costs for new wells and well workovers at between $1.5 billion and $1.6 billion.
The estimated costs in Colorado range from $140.6 million to $145 million.
The proposed BLM rules would require additional information and impose new requirements on hydraulic fracturing and other well stimulation activity in applying for drilling permits for new wells and performing additional stimulation on existing wells.
Among other things, the proposed rules would require information about the source of water for well completion activities and the processing and disposal of recovered fluids; detailed engineering designs; and additional requirements for well casings, cement bond logs and mechanical integrity testing.
Dunham said the analysis took into account the number of wells that could be affected by the rules and the additional costs related to new requirements. The analysis also considered the cost of delays in permitting and production and the value of lost petroleum production.
Sgamma said the new rules could divert resources away not only from energy development, but also the economic growth that goes with that development in the form of jobs and capital investments.
The rule-making process shouldn’t go forward, if at all, until the BLM conducts a full economic assessment of the effects as required by federal laws, Sgamma said.
Moreover, the proposed rules are premature until the Environmental Protection Agency releases the results of its study on hydraulic fracturing, she added.