Shale Gas Boom and Earthquakes Shake-up Ohio Laws

June 6, 2012Articles
As seen in the Westlaw Journal Environmental Reporter (Reprinted with Permission. 2012 Thomson Reuters).

A rare Ohio earthquake on New Year’s Eve has provided new fuel in the growing controversy over shale gas exploration in the state. The earthquake, which was tied to the underground injection of wastewater from the fracking process, provided a new sense of urgency to create rules to address the environmental consequences of fracking. Ohio is in the process of crafting enhanced oil and gas regulations with the goal of making them the best in the nation.

On March 22, 2012, Ohio Republicans, with the support of Governor John Kasich, introduced an overhaul of the State’s oil and gas laws aimed at addressing new issues from shale gas exploration. While the 185-page bill has industry support, it also has the support of some environmentalists. The Environmental Defense Fund testified in support of the bill applauding it for being a “more complete package” of changes than other states.1

This is not the first overhaul of Ohio oil and gas laws in recent years. In 2010, Ohio completed the most significant revision its oil and gas laws since the laws came into existence in 1965. However, these new rules, coming on the cusp of the emergence of shale gas development in Ohio, failed to address many issues involved with horizontal drilling and hydraulic fracturing. As a result, a new bill, S.B. 315, which is currently pending, will address many unique unique shale gas requirements.

The new legislation comes just as Ohio’s natural gas industry is quickly achieving national prominence. Ohio's natural gas is in increasing demand because of the prevalence of "wet gas" in the state. Wet natural gas contains ethane and other useful chemicals in addition to the traditional fuel gas. Ethane can be "cracked" to form ethylene, which is used in the manufacture of plastics. In what promises to be one of the largest industrial developments in the region, Shell recently decide to build a ethane cracker plant in neighboring southwest Pennsylvania.2 While natural gas prices remain low, wet gas remains a valuable commodity.

While S.B. 315 impacts many areas of energy policy, the primary impacts of the Bill will be on shale gas exploration. Most notable are changes in chemical reporting requirements, disclosure of the source of water used in the fracturing process, water quality sampling requirements, and major changes to the underground injection well program.

Chemical Disclosure

Ohio environmental groups have been highly critical of the perceived lack of disclosure of chemicals used in the fracking process. The fracking process works by pumping water into a well and hydraulically increasing the pressure in the well to the point that it fractures the target layer of shale. Various chemicals are added to water pumped into the well in order to control bacteria growth, reduce corrosion, and improve production.3 While the chemicals represent a small percentage of all water pumped into a well, given the large quantities of water involved in the fracking process, the amount of chemicals is significant.

S.B. 315 aims to put in place a "cradle-to-grave," or "spud-to-plug" in oil and gas terminology, chemical reporting system. Under current law, well operators must only report to the Ohio Department of Natural Resources ("ODNR") chemicals used in the well stimulation process. With the proposed law, well operators will have report all chemicals that go into a well during any point in the life of the well. ODNR plans to disclose chemical reporting data from well operators on the website www.fracfocus.org.

Critics contend that the proposed law does not adequately disclose the identity of all chemicals because certain trade secret chemicals may be disclosed by the "chemical class to which the component belongs" as opposed to the precise name of the chemical.4

Protecting water sources

Unlike other states, Ohio has a plentiful supply of fresh water. However, when it comes to fracking, water use can create controversy.5 Each well requires between five to six million gallons of water during its lifetime.6 The water must come from either the Lake Erie or the Ohio River watershed. While each watershed contains massive amounts of water, the increasing trend is to monitor and control withdrawals.

Another bill under consideration, H.B. 473, will create a program for the issuance of permits for the withdrawal of water from the Lake Erie basin as part of the ongoing Great Lakes Initiative. Ohio must implement rules to comply with the Great Lakes Compact, a legal agreement between the Great Lakes states and two Canadian provinces to regulate large withdrawals and take other actions to protect the Great Lakes.7 In 2011, Gov. Kasich vetoed an earlier version of the proposed rules, which were criticized for not being stringent enough. While the primary aim of the Compact was to prevent the draining of the Great Lakes by sending water to dryer southern states, undoubtedly it will also impact fracking in Ohio by creating a permitting program for large withdrawals.

In addition to the requirements of H.B. 473, under S.B. 315 well operators will also have to disclose the source of water used in the fracking process.8 Operators will have to indicate whether waters come from the Lake Erie or the Ohio River watershed and estimate the amount of recycled water to be used, if any. Ohio is quickly developing the facilities needed to recycle flowback water from fracking operations.9

Another proposed change in S.B. 315 is the requirement for baseline water quality testing. Well operators will have to conduct multiple water tests within 1500 feet of a proposed horizontal well.10 For vertical wells in urban areas, water sampling will have to be conducted within 300 feet of the well.11 If water contamination is detected in the future, this testing will allow regulators to determine to what extent ground water was contaminated prior to any drilling activity.

Limited disposal options

Disposal options for the disposal of wastewater in Ohio have become increasingly limited. Currently, 98% of all oil and gas well brine is disposed of by underground injection.12 The other 2% is spread on roads for dust and ice control.13 Attempts to treat brine at centralized waste facilities prior to disposal at a POTW have met with considerable resistance from Ohio EPA and not viable options.

Underground injection wells are now receiving more oversight than before the Shale Gas boom. Since March 2011, the Youngstown, Ohio region has experienced twelve small earthquakes ranging in magnitude from 2.1 to 4.0.14 All of the earthquakes were located near the Northstar I deep injection well, which had been disposing large quantities of brine from Pennsylvania and Ohio. Scientists believe that the injection well was operating near a previously unknown fault line that was in a state of stress, which trigged the earthquakes.15

S.B. 315 includes a number of changes that impact underground injection wells.16 The bill maintains a fee of $.05 per barrel to dispose of in-state brine and $.20 per barrel for out-of-state brine in Ohio.17 The State will use ten percent of the funds collected from these fees for geological mapping to prevent future earthquakes.18 All businesses that wish to transport brine within Ohio will also have to register with the State.19 The original version of the bill contained a few controversial proposals that were later removed. These included the requirement that trucks that hauled brine contain an electronic tracking transponder and raising the fees for the disposal of out-of-state brine to $1.00.

Underground injection has become virtually the only possible way to disposes of the large quantities of brine generated in the fracking process. In Warren, Ohio, the Patriot Water Plant initially received permission to pre-treat brine prior to discharging it to the local water treatment plant.20 However, the Patriot Water Plant's treatment activities met with considerable resistance from environmental groups and Ohio EPA. Ohio EPA refused to permit the City of Warren POTW to accept the treated brine, effectively shutting down the Patriot Plant.21 For now, underground injection is the only feasible method of disposing of large amounts of oil and gas brine. S.B. 315 does allow the Director of Ohio EPA to explore wastewater treatment and recycling programs through the implementation of future pilot programs.22

More new rules on the way

The only certainty when it comes to the regulation of fracking in Ohio is that regulation of this emerging industry is far from over. On April 20, 2012, Richard J. Simmers, Chief of Oil and Gas Resources Management at ODNR identified other areas in Ohio oil and gas law that could benefit from improved regulation. In particular, Simmers identified spill prevention, centralized impoundments, and pipelines as areas ready for review. As work continues on Ohio's loft goal of developing the best shale gas regulatory scheme in the nation, it has become clear that regulation will be an ongoing process.
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(1) Bob Downing, Environmental group likes Ohio’s revised drilling rules, Akron Beacon Journal Online, May 4, 2012, http://www.ohio.com/blogs/drilling/ohio-utica-shale-1.291290/environmental-group-likes-ohio-s-revised-drilling-rules-1.304851. 
(2) Shell Chemicals, Appalachia petrochemical project http://www.shell.com/home/content/chemicals/aboutshell/our_strategy/marcellus_cracker_project/ (last visited May 4, 2012). 
(3) FracFocus.com, Why Chemicals are Used, http://fracfocus.org/chemical-use/why-chemicals-are-used (last visited May 4, 2012). 
(4) Sandy Buchanan, Kasich's "right-to-know" about chemicals would keep Ohioans in the dark, http://ohiocitizen.org/?p=13388 (last visited May 4, 2012). 
(5) Spencer Hunt , "Fracking” is Thirsty Work, The Columbus Dispatch, (March 25, 2012). 
(6) Ohio Department of Natural Resources, Water Withdrawal Regulations for Oil and Gas Drilling, http://www.dnr.state.oh.us/water/pubs/fs_div/default/tabid/23941/Default.aspx (last visited May 4, 2012). 
(7) The Great Lakes-St. Lawrence River Basin Water Resources Compact, Ohio Great Lakes Compact Advisory Board, Final Recommendations to the Governor and General Assembly, http://ohiodnr.com/portals/7/Compact_Advisory_Board_Final_Report_12_15_10.pdf (December 15, 2010); The Great Lakes Basin Compact, http://www.glc.org/about/glbc.html (last accessed May 3, 2012). 
(8) S.B. 315, Sec. 1509.06(A)(8)(a). 
(9) Bob Downing, Chesapeake unveils system to recycle waste water from ‘fracking’ drill sites, Akron Beacon Journal, Feb. 9, 2012, http://www.ohio.com/news/local-news/chesapeake-unveils-system-to-recycle-waste-water-from-fracking-drill-sites-1.264011. 
(10) S.B. 315, Sec. 1509.06(A)(8)(c). 
(11) S.B. 315, Sec. 1509.06(A)(8)(b). 
(12) Senate Energy and Public Utilities Committee Proponent Testimony in Support of Senate Bill 315 Provided by Ohio Department of Natural Resources Director James Zehringer, March 28, 2012, http://www.dnr.state.oh.us/Portals/11/oil/pdf/SB%20315%20Proponent%20Testimony%20of%20Director%20Zehringer_FINAL.pdf. 
(13) Id.
(14) Preliminary Report on the Northstar 1 Class II Injection Well and the Seismic Events in the Youngstown, Ohio, Area, Ohio Department of Natural Resources, http://ohiodnr.com/downloads/northstar/UICReport.pdf (March 2012). 
(15) Id. 
(16) http://www.dnr.state.oh.us/tabid/23947/Default.aspx 
(17) S.B. 315, Sec. 1509.22(H)(1)(a) & (b). 
(18) S.B. 315, Sec. 1509.22(H)(4). 
(19) S.B. 315, Sec. 1509.222(A)(1). 
(20) Joe Giesy, Patriot Water Treatment Ceases Operations Sunday, The Business Journal, March 30, 2012 (http://businessjournaldaily.com/company-news/patriot-water-treatment-ceases-operations-sunday-2012-3-30). 
(21) Id. 
(22) S.B. 315, Section 737.10(A).