BILL ANALYSIS Ó AB 1301 Page 1 Date of Hearing: April 29, 2013 ASSEMBLY COMMITTEE ON NATURAL RESOURCES Wesley Chesbro, Chair AB 1301 (Bloom) - As Amended: March 21, 2013 SUBJECT : Oil and gas: hydraulic fracturing SUMMARY : Prohibits hydraulic fracturing operations until the Legislature enacts subsequent legislation that determines whether and under what conditions hydraulic fracturing may be conducted while protecting the public health and safety and the natural resources of the state. EXISTING LAW : 1)Creates the Division of Oil, Gas, and Geothermal Resources (DOGGR) within the Department of Conservation. 2)Requires DOGGR to do all of the following: a) Supervise the drilling, operation, maintenance, and abandonment of wells and the operation, maintenance, and removal or abandonment of tanks and facilities attendant to oil and gas production, including certain pipelines that are within an oil and gas field, so as to prevent, as far as possible, damage to life, health, property, and natural resources; damage to underground oil and gas deposits from infiltrating water and other causes; loss of oil, gas, or reservoir energy, and damage to underground and surface waters suitable for irrigation or domestic purposes by the infiltration of, or the addition of, detrimental substances. b) Supervise the drilling, operation, maintenance, and abandonment of wells so as to permit the owners or operators of the wells to utilize all methods and practices known to the oil industry for the purpose of increasing the ultimate recovery of underground hydrocarbons and which, in the opinion of DOGGR, are suitable for this purpose in each proposed case. 3)Declares as a policy of the state that to further the elimination of waste by increasing the recovery of underground hydrocarbons, a lease or contract for the exploration and AB 1301 Page 2 extraction of hydrocarbons is deemed to allow, unless otherwise stated, the lessee or contractor to do what a prudent operator using reasonable diligence would do, having in mind the best interests of the lessor, lessee, and the state in producing and removing hydrocarbons, including, but not limited to, the injection of air, gas, water, or other fluids into the productive strata, the application of pressure heat or other means for the reduction of viscosity of the hydrocarbons, the supplying of additional motive force, or the creating of enlarged or new channels for the underground movement of hydrocarbons into production wells, when these methods or processes employed have been approved by DOGGR. 4)To best meet oil and gas needs in this state, requires DOGGR to administer its authority so as to encourage the wise development of oil and gas resources. 5)Requires the operator of any well, before commencing the work of drilling the well, to file with DOGGR a written notice of intention to commence drilling. Drilling shall not commence until approval is given by DOGGR. If DOGGR 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. THIS BILL : 1)Defines "hydraulic fracturing" as a technique used in preparing a well that typically involves the pressurized injection of water and chemicals, compounds, and materials into an underground geologic formation in order to expand existing fractures or create new fractures in that formation, thereby causing or enhancing the production of oil or gas from a well. Hydraulic fracturing shall include the terms "fracking," "hydrofracking," "hydrofracturing," "unconventional shale drilling," and other colloquial terms referencing this drilling technique. 2)Notwithstanding any other law, prohibits hydraulic fracturing operations until the Legislature enacts subsequent legislation that determines whether and under what conditions hydraulic fracturing may be conducted while protecting the public health and safety and the natural resources of the state. FISCAL EFFECT : Unknown AB 1301 Page 3 COMMENTS : 1)Purpose of the Bill. This bill imposes a moratorium on hydraulic fracturing operations until appropriate laws and regulations are developed that protect the public health and safety and the natural resources of the state. The author's rationale for this bill is based, in part, on DOGGR's lack of regulations on hydraulic fracturing. The author explains that DOGGR knew about the public health and environmental concerns related to hydraulic fracturing back in 2010, but did nothing to implement new regulations until recently. In 2012, DOGGR finally began conducting workshops for the purpose of creating a discussion draft of hydraulic fracturing regulations. According to the author, the discussion draft (which is explained in more detail below), includes significant gaps. Regulations are expected to be proposed sometime later this year and the rulemaking process will take at least another year. Meanwhile, hydraulic fracturing activities will continue without any oversight. In addition to DOGGR's lack of regulations, the author points to DOGGR's failure to require environmental impact reports (EIR) pursuant to the California Environmental Quality Act (CEQA). DOGGR has recently been sued by environmentalists who argue that the agency has been "approving permits for oil and gas wells after exempting such projects from environmental review or? issuing boilerplate negative declarations finding no significant impacts from these activities." The plaintiffs are seeking injunctive relief to prohibit the approval of new oil and gas wells until DOGGR complies with its legal requirements to evaluate and mitigate the significant environmental and public health impacts caused by hydraulic fracturing operations. The author further states that "[g]iven [DOGGR's] snail's pace to date and the significant gaps in the discussion draft, it appears that unless a moratorium is enacted, there are few incentives to draw all stakeholders together to thoughtfully and comprehensively develop the appropriate laws and regulations needed to protect public health and safety and address other factual environmental risks." 2)Background on Hydraulic Fracturing. According to the Western AB 1301 Page 4 States Petroleum Association (WSPA), hydraulic fracturing (a.k.a. fracking) is one energy production technique used to obtain oil and natural gas in areas where those energy supplies are trapped in rock (i.e. shale) or sand formations. Once an oil or natural gas well is drilled and properly lined with steel casing, fluids are pumped down to an isolated portion of the well at pressures high enough to cause cracks in shale formations below the earth's surface. These cracks or fractures allow oil and natural gas to flow more freely. Often, a propping agent such as sand is pumped into the well to keep fractures open. In many instances, the fluids used in hydraulic fracturing are water-based. There are some formations, however, that are not fractured effectively by water-based fluids because clay or other substances in the rock absorb water. For these formations, complex mixtures with a multitude of chemical additives may be used to thicken or thin the fluids, improve the flow of the fluid, or even kill bacteria that can reduce fracturing performance. In 2005, Congress enacted what is colloquially referred to as the "Halliburton Loophole," which exempts hydraulic fracturing (except when involving the injection of diesel fuels) from the federal Safe Drinking Water Act. As a result of this action, the U.S. Environmental Protection Agency lacks the authority to regulate hydraulic fracturing activities that do not use diesel fuel as an additive. Around the same time that Congress exempted hydraulic fracturing from the Safe Drinking Water Act, the country experienced a boom in the production of shale oil and gas. From 2007 to 2011, shale oil production increased more than fivefold, from approximately 39 million barrels to about 217 million barrels, and shale gas production increased approximately fourfold, from 1.6 trillion cubic feet to 7.2 trillion cubic feet. This increase in production was driven primarily by technological advances in horizontal drilling and hydraulic fracturing that made more shale oil and gas development economically viable. But with this boom comes various issues with regard to environmental health and safety, which has caused enormous public anxiety. Cases of environmental contamination attributed to hydraulic fracturing have been reported in AB 1301 Page 5 Wyoming, Texas, Colorado, West Virginia, and Pennsylvania. Consequently, governments at all levels across the country are looking to regulate the practice and address these concerns. 3)What are the environmental risks associated with hydraulic fracturing? According to a recent report from the U.S. Government Accountability Office (GAO), which is an independent, nonpartisan agency that works for Congress, "[d]eveloping oil and gas resources?poses inherent environmental and public health risks, but the extent of risks associated with shale oil and gas development is unknown, in part, because the studies we reviewed do not generally take into account potential long-term, cumulative effects." The GAO's report categorizes the environmental risks into the following categories: air quality, water quantity, water quality, and land and wildlife. With regard to air quality, the risks are "generally the result of engine exhaust from increased truck traffic, emissions from diesel-powered pumps used to power equipment, intentional flaring or venting of gas for operational reasons, and unintentional emissions of pollutants from faulty equipment." The GAO report also explains how silica sand, a proppant commonly used in hydraulic fracturing, and storing fracturing fluids and produced waters in impoundments can cause air quality issues. Silica sand, if not properly handled, can become airborne, lodge into a person's lungs, and cause silicosis, which is an incurable lung disease. Impoundments (i.e. ponds) containing fracturing fluids and produced waters (i.e. the water produced when oil and gas are extracted from the ground) pose a risk because the evaporation of the fluids has the potential to release contaminants into the atmosphere. With regard to water quantity, water is used for well drilling operations to make drilling mud as well as to cool and lubricate the drill bits. Water is also the primary component of hydraulic fracturing fluids. According to the GAO, "the amount of water used for shale gas development is small in comparison to other water uses, such as agriculture and other industrial purposes. However, the cumulative effects of using surface water or ground water at multiple oil and gas development sites can be significant at the local level, particularly in areas experiencing drought conditions." It should be noted that the oil and gas industry and DOGGR both AB 1301 Page 6 assert that the amount of water used for hydraulic fracturing in California is a fraction of what is used in other states. This assertion is based on information voluntarily provided by oil and gas operators. It is not clear whether this information is representative of all hydraulic fracturing in the state. Additionally, with the potential for a hydraulic fracturing boom in the Monterey Shale (which is explained in more detail below), it would be too speculative to determine the type and amount of hydraulic fracturing that will take place in the future and how much water will be needed. With regard to water quality, the GAO explains that shale oil and gas development pose risks from contamination of surface water and ground water as a result of spills and releases of hydraulic fracturing chemicals, produced water, and drill cuttings. Spills and releases of these materials can occur as a result of tank ruptures, blowouts, equipment or impoundment failures, overfills, vandalism, accidents, ground fires, or operational errors. The potential for the spill and release of chemicals involved in hydraulic fracturing has received a great amount of public attention. According to a recent congressional report, between 2005 and 2009, oil and gas companies throughout the United States used hydraulic fracturing 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. As for produced water, it can carry a range of contaminants, including hydraulic fracturing chemicals, salts, metals, oil, grease, dissolved organics, and naturally occurring radioactive materials. Drill cuttings (i.e. the broken bits of solid material removed from drilling) may contain naturally occurring radioactive materials. The potential for underground migration is also a potential risk to water quality. The GAO explains that "[u]nderground migration can occur as a result of improper casing and cementing of the wellbore as well as the intersection of induced fractures with natural fractures, faults, or improperly plugged dry or abandoned wells. Moreover, there are concerns that induced fractures can grow over time and intersect with drinking water aquifers." It should be noted that the oil and gas industry has provided information claiming that hydraulic fracturing typically occurs thousands AB 1301 Page 7 of feet below the earth's surface and that the well casing for these wells extends below an impervious layer of rock "that would prevent any migration of fluids up into the drinking water supply." Assuming that the industry is correct, there is still the problem with well casing failures. A 2000 Society of Petroleum Engineers article regarding an oil field in Kern County explained that "the well failure rate, although lower than that experienced in the 1980s, is still economically significant at 2 to 6% of active wells per year." In Pennsylvania, poor cementing around a well casing allowed methane to contaminate the water wells of 19 families. Morever, little data exists on (1) fracture growth in shale formations following multistage hydraulic fracturing over an extended time period, (2) the frequency with which refracturing of horizontal wells may occur, (3) the effect of refracturing on fracture growth over time, and (4) the likelihood of adverse effects on drinking water aquifers from a large number of hydraulically fractured wells in close proximity to each other. With regard to land and wildlife, the GAO explains that "clearing land of vegetation and leveling the site to allow access to the resource, as well as construction of roads, pipelines, storage tanks, and other infrastructure needed to extract and transport the resource can fragment habitats?[which] increases disturbances?, provides pathways for predators, and helps spread nonnative plant species." Noise, the presence of new infrastructure, and spills of oil, gas, or other toxic chemicals are other risks that can negatively affect wildlife and habitat. There is also the issue of earthquakes with hydraulic fracturing. According to the GAO report, well injections, especially the injection of produced water, have been connected to seismicity. Ideally, the environmental risks referenced above would be analyzed by the lead agency under CEQA. However, as referenced above, a recent CEQA lawsuit filed against DOGGR claims that the agency has not been conducting adequate environmental review of hydraulic fracturing operations. 4)Hydraulic Fracturing in California. According to the oil and gas industry, hydraulic fracturing has been used in California for decades. The industry claims that over 90% of hydraulic AB 1301 Page 8 fracturing occurs in Kern County, in areas with no potable water, no surrounding population, and no other significant business interests. However, reports from various sources suggest that hydraulic fracturing in California will likely increase significantly in the upcoming years, spreading to areas throughout the state. A recent report from the University of Southern California explains that "California boasts perhaps the largest deep-shale reserves in the world. Those reserves exist within the Monterey Shale Formation, a 1,750 square mile swath of mostly underground shale rock that runs lengthwise through the center of the state, with the major portion in the San Joaquin Basin." The U.S. Energy Department estimates that the Monterey Shale contains more than 15 billion barrels of oil, accounting for approximately two-thirds of the shale-oil reserve in the United States. Additionally, according to a 2008 paper published by the Society of Petroleum Engineers, "it is believed that hydraulic fracturing has a significant potential in many Northern California gas reservoirs." 5)DOGGR's Draft Regulations. On December 28, 2012, DOGGR released a pre-rulemaking discussion draft of regulations on hydraulic fracturing. The proposed regulations attempt to impose requirements on operators aimed to improve transparency and safety. Specifically, the proposed regulations would require an operator to: (1) submit information to DOGGR at least 10 days prior to beginning hydraulic fracturing operations and notify DOGGR at least 24 hours prior to commencing hydraulic fracturing operations (advance disclosure of hydraulic fracturing chemicals is not required); (2) prior to operations, test the structural integrity of wells and casings to prevent fluid migration; (3) store and handle hydraulic fracturing fluids in a specified manner; (4) monitor a specified set of parameters during hydraulic fracturing operations and, in case a breach occurs, terminate operations and immediately notify DOGGR about the breach; (5) after the conclusion of operations, monitor wells for up to 30 days and maintain data for a period of 5 years; and (6) disclose data to a Chemical Disclosure Registry (such as FracFocus.org) that is not a trade secret, unless a health professional submits a written statement of need stating that the trade secret information will be used for diagnosis or treatment of an individual exposed to hazardous hydraulic fracturing chemicals and the health professional also executes a confidentiality AB 1301 Page 9 agreement. These proposed regulations will be vetted through a year-long formal rulemaking process beginning the summer or fall of 2013. In the meantime, DOGGR has conducted public workshops in Los Angeles and Sacramento about the proposed regulations, with more planned in California cities like Bakersfield and Santa Maria through July 2013. 6)Related Legislation. AB 7 (Wieckowski), which deals with hydraulic fracturing disclosure. AB 288 (Levine), which deals with permitting well stimulation. AB 649 (Nasarian), which deals with a hydraulic fracturing moratorium. AB 669 (Stone), which deals with permitting wastewater disposal from oil and gas operations. AB 982 (Williams), which deals with groundwater monitoring. AB 1323 (Mitchell), which deals with a hydraulic fracturing moratorium. SB 4 (Pavley), which deals with hydraulic fracturing regulations and disclosure. SB 395 (Jackson), which deals with wastewater disposal wells. REGISTERED SUPPORT / OPPOSITION : Support 350 Bay Area 350 Sacramento 350 Santa Barbara 350 Silicon Valley 350 Sonoma County 350.org 350.org Sonoma County Clean Water Action (co-sponsor) Center for Biological Diversity (co-sponsor) Food & Water Watch (co-sponsor) Alameda Creek Alliance Alliance of Nurses for Healthy Environments Aromas Cares for Our Environment (ACE) AB 1301 Page 10 Baldwin Hills Oil Watch Ballona Network Battle Creek Alliance Bay Area Healthy 880 Communities Bay Localize Breast Cancer Action Burbank Green Alliance Butte Environmental Council California Coastkeeper Alliance California Student Sustainability Coalition Californians for Western Wilderness Californians Who Drink Water California Nurses Association Center on Race, Poverty, and the Environment Central Valley Safe Environment Network Chalice Farm and Sustainable Living Center Christians Caring for Creation City of Culver City Citizens Coalition for a Safe Community Citizens Committee to Complete the Refuge Claudia Y. Shafer, Attorney at Law Clean Water and Air Matter Cleveland National Forest Foundation Coastal Environmental Rights Foundation CoFED Comite Civico Del Valle, Inc. Community Food and Justice Coalition CREDO Democracy for America The Democratic Club of the Santa Clarita Valley Donna Shanske, HR Consulting Earthworks' Oil & Gas Accountability Project Ebbetts Pass Forrest Watch EcoEquity Environment California Environmental Action Committee of West Marin Environmental Defense Center Environmental Health Coalition Environmental Priorities Network Environmental Protection Information Center Evolving Products Family Farm Defenders Food & Water Watch Food Empowerment Project Frack-Free Culver City AB 1301 Page 11 Fresno Metro Ministry Friends Foundation International Friends of the Earth Friends of the Pogonip Forest Forever Gage & Gage Productions GAIA-Global Alliance for Incinerator Alternatives Global Community Monitor Golden Gate Audubon Society Green Party of Monterey County Greenaction for Health and Environmental Justice GreenFaith Greenpeace Humboldt Baykeeper inNative Klamath Forest Alliance Klamath Riverkeeper Klamath-Siskiyou Wildlands Center KyotoUSA Label GMOs Bakersfield Local Clean Energy Alliance Los Angeles Waterkeeper Los Padres ForestWatch Mainstreet Moms Medicine Lake Citizens for Quality Environment Movement Generation Natural Resources Defense Council Northcoast Environmental Center Occupy Monterey Peninsula Oil Change International The Orange County Interfaith Coalition for the Environment Organic Consumers Association Paw PAC People for Clean Air & Water of Kettleman City Project Coyote Protect Our Water Public Citizen Rainforest Action Network RefineRichmond Residents Organized for a Safe Environment (ROSE) Rising Tide Monterey Bay The River Project San Francisco Baykeeper San Joaquin Raptor/Wildlife Rescue Center San Joaquin Valley Conservancy AB 1301 Page 12 San Mateo Cool Cities Santa Cruz Indigenous Solidarity SaveWithSunlight, Inc. Sierra Club of California SLO Clean Water Action Stewards of the Earth Sungevity Take Back Our Democracy Transition Culver City Transition San Francisco Tri-Valley CAREs Turtle Island Restoration Network Union de Vecinos Unitarian Universalists of San Mateo Urban and Environmental Policy Institute Ventura Coastkeeper Whittier Hills Oil Watch Wild Equity Institute Wild Heritage Planners Wishtoyo Foundation Women's Earth and Climate Caucus World Stewardship Institute Xun Biosphere Project Opposition American Chemistry Council California Business Properties Association California Chamber of Commerce California Independent Oil Marketers Association California Independent Petroleum Association California Manufacturers & Technology Association California Small Business Alliance Coalition for Energy Users Friends for Saving California Jobs Independent Oil Producers Agency Kern Taxpayers Association League of California Food Processors Western States Petroleum Association Analysis Prepared by : Mario DeBernardo / NAT. RES. / (916) 319-2092 AB 1301 Page 13