BILL ANALYSIS Ó
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| SENATE COMMITTEE ON NATURAL RESOURCES AND WATER |
| Senator Fran Pavley, Chair |
| 2011-2012 Regular Session |
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BILL NO: AB 972 HEARING DATE: June 26, 2012
AUTHOR: Butler URGENCY: No
VERSION: June 13, 2012 CONSULTANT: Katharine Moore
DUAL REFERRAL: Environmental QualityFISCAL: Yes
SUBJECT: Oil and gas: hydraulic fracturing: moratorium.
BACKGROUND AND EXISTING LAW
California is the 4th largest oil and gas producing state and
natural resources extraction is an important contributor to the
state's economy. According to 2009 data provided by the Western
States Petroleum Association (WSPA), approximately 100,000
people were directly employed in oil and gas production in
California and the state received a combined $5.8 billion in
fuel excise, corporate and personal income taxes. The Division
of Oil, Gas, and Geothermal Resources (DOGGR) exists within
California's Department of Conservation (department). DOGGR's
Supervisor (supervisor) has extensive and broad authority to
regulate activities associated with the production and removal
of hydrocarbons (e.g. oil and gas) from the ground (Public
Resources Code (PRC) §3106). This includes the subsurface
injection of water and other fluids. The supervisor's authority
is granted in order to prevent damage to life, health, property,
natural resources, and to underground and surface water suitable
for irrigation or domestic purposes. DOGGR issues permits for
drilling new wells or re-working old ones (PRC §3203) and has 10
working days to respond to each application. Once a permit is
approved, it is valid for one year from the date of issuance.
"Hydraulic fracturing" or "fracking" of hydrocarbon wells to
enhance oil and gas recovery is an increasingly popular
subsurface process/technique. Due to technological innovations,
fracking, by itself and in combination with advanced drilling
techniques (e.g. directional and horizontal drilling) have
allowed companies to develop previously uneconomic oil and gas
reserves, such as those located in subsurface shale formations
throughout the United States. Once an oil or natural gas well is
drilled and its casing properly installed and perforated in the
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production zone, fluids are pumped down to an isolated portion
of the producing zone of the well at pressures high enough to
cause or enlarge cracks in the subsurface geologic formation
surrounding the well bore. These cracks or fractures allow oil
and natural gas to flow more freely into the well and then to
the surface. The pumped fracking fluid is usually - but not
always - comprised almost entirely of water with a small
fraction of additional substances (less than a few percent by
volume) added to enhance the process. In absolute terms the
amount of additives may be thousands of pounds as a considerable
amount of water - hundreds of thousands to millions of gallons -
may be needed to frack an individual well. The fluid volume
needed, its chemical composition and physical characteristics
will vary depending upon the particular conditions of each well.
According to industry reports and academic papers, wells have
been fracked in California for several decades. Estimates vary,
but informal reports suggest that a majority of wells in the
state may be fracked. Recently WSPA, based upon voluntary
reporting by its members, reported that 628 new and existing oil
and gas wells were fracked in California in 2011, considerably
less than half the new wells drilled (about 2,300) and much less
than half of existing wells (about 50,000 producing oil and
2,000 dry gas wells). Counties where wells have been fracked
include Kern, Ventura, Santa Barbara, Los Angeles and Monterey.
Recovery of the hydrocarbon reserves in the Monterey shale
formation may be an important "unconventional play" in the
future, and some fracked wells are producing from the formation
already. However, the decline in natural gas prices - current
spot prices are less than 25% of the peak reached in July 2008 -
suggests exploitation in the near term is less likely in favor
of conventional reservoirs. Fracking treatments are necessary
to achieve unconventional reserves' full potential with current
technology. However, fracking has become a highly controversial
technique subject to considerable scrutiny.
Significant environmental contamination is attributed to
fracking in cases in Wyoming, Texas, Colorado, West Virginia and
Pennsylvania. New York state established a fracking moratorium
until new regulations are developed, due, in part, to the
potential risks to New York City's watershed from water
contamination, as well as public health concerns. Recent news
reports suggest that a partial ban in New York may remain in
effect indefinitely. Vermont instituted a ban in May, and bills
banning fracking are active in New Jersey. Although their
authority to do so is being contested, local governments in New
York, Pennsylvania and other states have passed ordinances to
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ban fracking within their jurisdiction. Other states, including
Texas, Colorado, West Virginia, Arkansas and Ohio have revised
their laws and regulations to provide for additional safety and
protective measures for fracking operations. At the federal
level, fracking is largely exempt from the provisions of the
Safe Drinking Water Act and the Underground Injection Control
(UIC) well program courtesy of the "Halliburton Loophole," and
the Bureau of Land Management is in the process of developing
fracking regulations.
In California, despite nationwide concern and two years of
specific legislative direction, DOGGR has not exercised its
acknowledged authority to either regulate or systematically
collect data on hydraulic fracturing treatments under PRC §3106.
In March, DOGGR finally issued a formal notice to well
operators asking for voluntary reporting of fracking data
(WSPA's response is reported above). DOGGR is also conducting
seven public fracking "workshops" across the state. These
started in May and are expected to be completed in July. The
department has announced that an independent scientific study on
fracking in California will be conducted. The department's
director has further committed to a timetable to produce draft
fracking regulations towards the end of the summer with the
intent of having fracking regulations in place by the end of
this year. While some argue that DOGGR already regulates
fracking through regulating well integrity, well casing failures
are known to occur (comprehensive data are not available from
DOGGR). Arguably, it is difficult to specify or regulate design
criteria for a well casing when all the conditions the casing is
exposed to (e.g. fracking) are not known.
PROPOSED LAW
This bill would :
Define hydraulic fracturing and provide alternate terms
for it
Bar the supervisor from issuing a permit for an oil and
gas well that will be hydraulically fractured until
regulations governing its practice are adopted.
ARGUMENTS IN SUPPORT
According to the author, DOGGR has not responded adequately to the
Legislature regarding numerous questions related to the safety and
efficacy of the Underground Injection Control Class II well
program and hydraulic fracturing. Therefore, Assemblymember
Butler continues "in the interest of the environment and public
health, AB 972 requires DOGGR to cease authorizing well drilling
permits where the process of fracking will be used, until DOGGR
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adopts hydraulic fracturing "fracking" regulations."
ARGUMENTS IN OPPOSITION
WSPA argues that "this significant, untimely burden on
California's businesses and economy is unnecessary. Ý?] By
obstructing an important means of growing our in-state
production capability, AB 972 will necessitate increased oil
imports, raising the cost not only of fuel, but of
manufacturing, agricultural operations, public transportation
and all goods and services which are energy-dependent. This
will, in turn, place our businesses at a competitive
disadvantage, impede job growth and suppress property, income
and excise tax revenues."
COMMENTS
The moratorium will take up to a year to take full effect . Well
permits are valid for one year from the issue date (PRC §3203).
Therefore, any permits issued this year will be valid for at
least some portion of next year. Should this bill be chaptered,
there may be a significant number of such carry-over permits in
effect that would not have any restriction on fracking.
The definition of fracking . An oil and gas well must first be
drilled before it can be fracked. Fracking itself is considered
a well or reservoir stimulation technique that is used to
"complete" a well - in other words, make the well ready for
hydrocarbon production. As noted above, hydraulic fracturing
fluids are intrinsic to the conduct of fracking and the fluids
can include a variety of additives to serve different purposes.
For example, biocides, oxygen scavengers, enzyme breakers,
acids, stabilizers, gels, and rust inhibitors, among others, may
all be added to the fracking fluid. In particular, sand and
other materials - known as "proppants" - are routinely added to
fracking fluids to help keep the fractures open once fracking
has been completed. The definition of fracking in this bill
should be revised and additional terms added to clarify intent
and conform to terminology in use (Amendment 1).
"Unconventional shale drilling" and "fracking" are not
synonymous . "Conventional" oil and gas reservoirs are located
in relatively porous geologic formations. When a well is
drilled, oil and gas will flow out due to the pressure of the
reservoir within the formation itself (primary production) or
with the help of added pressure or temperature applied to the
reservoir (secondary and tertiary production). By contrast,
"unconventional" oil and gas reservoirs are tightly bound within
the geologic formations they are found in. Oil and gas
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production is difficult because these formations are largely
impermeable. Unlike conventional production, applied pressure
will not, by itself, lead to viable hydrocarbon production.
Discrete fractures are necessary in unconventional resources to
spur hydrocarbon production - hence the popularity of fracking
to exploit the hydrocarbons bound in unconventional shale
formations. However, the drilling of unconventional shales and
the subsequent fracking of these wells are two different steps.
The alternate terms provided for fracking in the definition
should be revised to reflect this (also a part of Amendment 1).
The existing well permit process . As noted above, a well owner
or operator has to file a notice of intent to drill with DOGGR
prior to drilling or re-working a well. The form used does not
currently require that any information be provided specific to
hydraulic fracturing treatments. The language of the proposed
moratorium should be clarified and incorporated into the
existing relevant code section to provide direction to DOGGR
(Amendment 2). The regulations must be approved and in effect
for the moratorium to be lifted.
Impact of the proposed ban on economic activity . As noted
above, California is one of the major oil and gas producing
states in the country. It is unclear what the impact from the
proposed ban on hydraulic fracturing would be given that DOGGR
has publicly committed to attempting to have fracking
regulations in place by the end of this year and the moratorium
will not be fully in place until January 1, 2014 if DOGGR does
not. At the least, this will introduce uncertainty to
operational planning for well owners and suppliers. It is
possible that further exploration and resource exploitation will
be delayed with a corresponding impact on both direct and
indirect economic activity tied to the oil and gas industry.
Previous legislative direction to DOGGR. The Governor's 2010
May Revise budget requested new positions for DOGGR, in part, to
regulate fracking. The Legislature approved this request, but
DOGGR took no action on fracking. In 2011, budget control
language authorized DOGGR to use funding "for the collection and
public dissemination of information related to hydraulic
fracturing." Again, despite the authorization for further
additional positions, DOGGR took no action on fracking. This
year, the Assembly and Senate Budget subcommittees for natural
resources both expressed significant displeasure to the
department's director about DOGGR's inactivity. The recent
actions by DOGGR on fracking, noted above, followed these
hearings.
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Is fracking safe ? It is impossible to answer that question for
California today given the lack of available information.
However, plausible mechanisms exist for significant subsurface
fluid and/or gas migration, including breaches of the integrity
of the well-casing or reservoir. As noted in an earlier section,
there is considerable evidence that suggests the increasing
concern about the potential public health and environmental
impacts of the practice is warranted. Furthermore, according to
a recent congressional report, from 2005 - 2009 oil and gas
companies throughout the US used fracking products containing 29
chemicals that are (1) known or possible human carcinogens, (2)
regulated under the Safe Drinking Water Act for their risk to
human health, or (3) listed as hazardous air pollutants under
the Clean Air Act. Additionally, the composition of fluids
injected into some wells cannot even be identified by well
owners or operators. This is considered proprietary information
by the product manufacturer and is not disclosed.
Late-breaking support "if amended" position by numerous parties.
Several groups provided "support if amended" position letters to
Committee staff too late to be fully incorporated into this
analysis. The proposed amendments were not uniform between
letters, but, in general, recommended more comprehensive
language and environmental review and analysis. The amendments
proposed below do not address these concerns.
Related legislation
AB 591 (Wieckowski, 2011) - would require disclosure of
hydraulic fracturing and fracking fluid chemical composition to
DOGGR after operations have occurred, among other related
provisions. Currently in Senate Appropriations Suspense file.
SB 1054 (Pavley, 2012) - would require advance disclosure to the
neighbors of hydraulic fracturing activities, among other
related provisions. Failed on the Senate floor.
SUGGESTED AMENDMENTS:
AMENDMENT 1
Delete page 2, lines 3 - 5, inclusive, and page 3, lines 1
- 4, inclusive and replace with 4 new sections:
"3017. "Hydraulic fracturing" means a well stimulation
treatment used in completing a well that typically involves
the pressurized injection of hydraulic fracturing fluid and
proppant from the well into an underground geologic
formation in order to fracture the formation, thereby
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causing or enhancing, or intending to cause or enhance, for
the purposes of this division, the production of oil or gas
from a well. Alternate terms include, but are not limited
to "fracking," "hydrofracking," and "hydrofracturing."
3017.1 "Hydraulic fracturing fluid" means a base fluid
mixed with physical and chemical additives, including
proppants, for the purpose of hydraulic fracturing.
Additives may be of any phase. A hydraulic fracturing
treatment may include more than one hydraulic fracturing
fluid.
3017.2 "Base fluid" is a continuous phase liquid or gas
used to transmit pressure to the underground geologic
formation.
3017.3 "Proppants" mean materials inserted or injected
into the underground geologic formation that are intended
to prevent fractures from closing."
AMENDMENT 2
Delete page 3, lines 6 - 12, inclusive and replace with:
" SEC. 5. Section 3203 of the Public Resources Code is
amended to read:
3203. (a) The operator of any well, before commencing the
work of drilling the well, shall file with the supervisor
or the district deputy a written notice of intention to
commence drilling. Drilling shall not commence until
approval is given by the supervisor or the district deputy.
If the supervisor or the district deputy fails to give the
operator written response to the notice within 10 working
days from the date of receipt, that failure shall be
considered as an approval of the notice , except as provided
for in subdivision (d), and the notice, for the purposes
and intents of this chapter, shall be deemed a written
report of the supervisor. If operations have not commenced
within one year of receipt of the notice, the notice shall
be deemed canceled. The notice shall contain the pertinent
data the supervisor requires on printed forms supplied by
the division or on other forms acceptable to the supervisor
and shall indicate if a hydraulic fracturing treatment will
be used or is planned to be used in completing the well .
The supervisor may require other pertinent information to
supplement the notice.
(b) After the completion of any well, this section also
applies as far as may be, to the deepening or redrilling of
the well, any operation involving the plugging of the well,
or any operations permanently altering in any manner the
casing of the well. The number or designation of any well,
and the number or designation specified for any well in a
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notice filed as required by this section, shall not be
changed without first obtaining a written consent of the
supervisor.
(c) If an operator has failed to comply with an order of
the supervisor, the supervisor may deny approval of
proposed well operations until the operator brings its
existing well operations into compliance with the order. If
an operator has failed to pay a civil penalty, remedy a
violation that it is required to remedy to the satisfaction
of the supervisor pursuant to an order issued under Section
3236.5, or to pay any charges assessed under Article 7
(commencing with Section 3400), the supervisor may deny
approval to the operator's proposed well operations until
the operator pays the civil penalty, remedies the violation
to the satisfaction of the supervisor, or pays the charges
assessed under Article 7 (commencing with Section 3400).
(d) (1) No notice of intention to commence drilling shall
be approved for any well where a hydraulic fracturing
treatment will be used or is planned to be used in
completing the well until regulations governing hydraulic
fracturing treatments are adopted by the division and have
taken effect.
(2) The hydraulic fracturing treatment regulations shall be
comprehensive and ensure that the integrity of the well and
well casing are maintained.
SUPPORT
California Coastal Protection Network (if amended)
California League of Conservation Voters (if amended)
Clean Water Action (if amended)
Earthworks (if amended)
Food and Water Watch (if amended)
Natural Resources Defense Council (if amended)
Sierra Club California (if amended)
Supervisor Mark Ridley-Thomas, County of Los Angeles
The Wildlands Conservancy (if amended)
OPPOSITION
California Chamber of Commerce
California Construction Trucking Association
California Independent Oil Marketers Association
California Manufacturers & Technology Association
California Small Business Alliance
Coalition of Energy Users
Friends for Saving California Jobs
Independent Oil Producers Agency
Kern County Taxpayers Association
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Western States Petroleum Association
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