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September 1, 2011

The Development of U.S. Shale Gas Resources: Regulation and Litigation

By David Wochner, Teri Donaldson and Sandra Safro

The rapid expansion of shale gas production in the United States as a result of improved hydraulic fracturing technologies has fundamentally—and likely permanently—changed the North American natural gas sector. A report released in July 2011 by the U.S. Energy Information Administration (EIA) estimates that there is approximately 750 Tcf of recoverable natural gas in the shale plays of the Lower 48 states alone. The development of this substantial domestic energy resource holds great promise for the United States.

Shale gas resources will have a dramatic impact on the North American power industry. The EIA reports that last year more than 7 Tcf of natural gas was consumed by the power industry. If consumption rates remain relatively constant, domestic shale gas could provide 100 years of supply to the industry, based on current estimated reserves (Figure 1).

Shale gas in the Lower 48 states. Source: U.S. Energy Information Administration

The shale gas resource also presents an economic opportunity for the U.S. Several companies are proposing to export domestic natural gas overseas as liquefied natural gas. With the U.S. Congress seriously considering legislation to incentivize natural gas as a transportation fuel, the natural gas vehicles sector also could benefit greatly from the increased domestic supplies.

Major pipeline and gas storage infrastructure is being constructed to get the volumes of gas to consuming markets. While these new projects are facilitating the transportation of shale gas, many pipelines are facing challenging shifts in transportation paths and proposing changes to rate structures to account for such shifts.

However, as a result of this rapid expansion, federal and state regulators have questioned the adequacy of existing regulations that govern shale gas production and hydraulic fracturing. Members of the U.S. Congress also have raised environmental and transparency concerns and have proposed legislation in an effort to address such concerns.

After briefly discussing hydraulic fracturing, the development of new pipeline infrastructure, and a number of the environmental issues that have been raised in response to prolific drilling, this article provides an overview of federal legislation, federal and state agency action, and pending litigation that may impact domestic shale gas development.

What Is "Hydraulic Fracturing"?

Hydraulic fracturing is not new by any means. The process was first used commercially for a natural gas well in 1949. Hydraulic fracturing, or "fracking," is a process by which water, with a very small amount of sand and chemical additives, is injected into a well at high pressure, creating fissures in the shale rock. These fissures are "propped open" with a propping agent in order to release the natural gas trapped inside. The fracking fluid is then pumped back to the surface for recycling or disposal.

Technological advances in the fracking process have led to the more recent expansion of shale gas production. The practice has stirred controversy as it has become more widespread, particularly in regions of the country without a robust and well-developed oil and gas industry. However, such challenges are common in new industries and should not be viewed as fatal to the future of shale gas production.