BILL ANALYSIS Ó
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| SENATE COMMITTEE ON NATURAL RESOURCES AND WATER |
| Senator Fran Pavley, Chair |
| 2013-2014 Regular Session |
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BILL NO: SB 1132 HEARING DATE: April 8, 2014
AUTHOR: Mitchell URGENCY: No
VERSION: March 27, 2014 CONSULTANT: Katharine Moore
DUAL REFERRAL: Environmental QualityFISCAL: Yes
SUBJECT: Oil and gas: well stimulation treatments.
BACKGROUND AND EXISTING LAW
1.The Division of Oil, Gas and Geothermal Resources (division)
located in the Department of Conservation is the state oil and
gas regulator. The Oil and Gas Supervisor has existing broad
authority to regulate the oil and gas industry "to prevent, as
far as possible, damage to life, health, property, and natural
resources," among other factors (Public Resources Code (PRC)
§3106).
2.California is a major oil and gas producing state. It is the
third largest oil producing state and in the top 15 for
natural gas. Oil and gas development and production occurs
statewide, although it is concentrated in Kern County and
surrounding areas in the Central Valley. There are also
important producing fields in coastal areas including Los
Angeles, Ventura, Santa Barbara and other counties, and
offshore, where allowed. There are approximately 50,000
active producing oil and gas wells.
3.Lately, the practice of hydraulic fracturing of oil and gas
wells to facilitate the production of oil and gas has received
considerable attention and scrutiny, and has become
increasingly controversial. Proponents argue that it promotes
energy independence, provides good jobs and is a long-standing
industry practice that is entirely safe. Opponents argue that
fracking contaminates the air, water and soil resulting in
adverse impacts to public, environmental and occupational
health and welfare, and climate change.
4.Hydraulic fracturing ("fracking") injects a fluid, typically
composed of water and added chemicals, into an underground
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geologic formation at pressures sufficiently high to create or
enhance fractures. This process increases the permeability of
the formation to the trapped hydrocarbons which then can flow
through the formation to the wellbore and be produced.
Fracking is one form of a well stimulation treatment and
others include acid-based treatments. Well stimulation
treatments are continuously evolving as technology changes and
are specifically tailored to each particular location.
5.In California, recent projections suggest that the
"unconventional" oil reserves in the Monterey Shale formation
are the largest in the country. (The Monterey Shale is an
existing source of conventional hydrocarbon reserves.) Well
stimulation treatments, particularly acidization, may be a key
factor in developing these unconventional reserves and, if
successful, could result in an economic boom and substantial
increases in oil production.
6.As recently as February 2011, the division could not provide
any information about hydraulic fracturing in a response to an
inquiry from Senator Pavley, despite its acknowledged
authority to take regulatory action.
7.Over the last few years there have been numerous legislative
attempts to require the division to specifically regulate or
ban well stimulation.
8.Governor Brown signed SB 4 (Pavley, c. 313, Statues of 2013)
into law in September. SB 4 provides a comprehensive
regulatory framework for well stimulation treatments and has
repeatedly been characterized as the most comprehensive and
stringent in the country. Emergency interim well stimulation
regulations governing well stimulation went into effect on
January 1, 2014.
9.SB 4:
applies to all wells, both onshore and offshore in
state waters, in California,
requires that an independent scientific study of all
aspects of well stimulation be completed by January 1,
2015,
requires that the division completes permanent well
stimulation regulations by January 1, 2015,
requires that the division consult with and reach
agreements with other regulators with jurisdiction over
aspects of well stimulation by January 1, 2015,
requires that the division conduct a well
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stimulation Environmental Impact Report (EIR) and certify
it by July 1, 2015, and provides the division with the
authority to impose site-specific mitigation for well
stimulation treatments conducted during the interim
period,
requires groundwater monitoring, as specified, for
wells subject to well stimulation treatments,
requires pre- and post-stimulation public reporting
of the chemicals and water used in the well stimulation
treatment, the disposition of the chemicals and water
used, advance neighbor notification prior to well
stimulation, and baseline and follow-up water quality
testing for the neighbors, among other provisions,
requires that the production fee paid by industry
per barrel of oil (or equivalent amount of natural gas)
be used to pay for the expenses of the new regulatory
program.
PROPOSED LAW
This bill would impose a moratorium of indefinite length on well
stimulation treatments in the state until:
a scientific study is conducted and completed with
public participation,
a committee of executive agency members certifies, as
specified and with public participation, that the study is
final and that well stimulation poses no risk to, or
impairment of, the public health and welfare or the
environmental and economic sustainability of the state,
the Governor reviews the certified study and makes
further specific findings that well stimulation poses no
risk or impairment,
90 days have passed from the Governor's determination or
a judicial decision affirming the Governor's decision that
is final and nonappealable has occurred.
Should the above criteria not be entirely met, the moratorium on
well stimulation would stay in effect.
Additionally this bill would:
revise the definition of well stimulation treatments,
modify the independent scientific study required by SB 4
including deleting the due date,
largely retain the SB 4 statutory direction to the
division guiding the development of well stimulation
regulations including consultation with other regulators,
neighbor notification in advance of well stimulation,
reporting requirements, groundwater monitoring and so on,
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not require the Governor to make a finding that would
lift the moratorium,
allow the committee to direct additional studies to be
conducted and completed, if needed, if well stimulation
poses a risk or impairment,
delete the requirement that the division perform an EIR
on well stimulation and accompanying provisions guiding
well stimulation notice submissions and well stimulation
activities under the emergency interim regulations prior to
the certification of the EIR and the permanent regulations
taking effect,
provide a public process for the Secretary of the
Natural Resources Agency to determine if any vested rights
to perform a well stimulation treatment on a well exist on
a well-by-well basis during the moratorium
require that the standard used to assess the Governor's
findings or the Secretary's findings with respect to vested
rights be one of "clear and convincing evidence"
specifically provide for the following legal challenges:
o of the Governor's findings by any public
participant in the study
o of a vested rights denial by the well owner or
operator
o of a vested rights affirmation by any
interested party
ARGUMENTS IN SUPPORT
According to the author, "Today's fracking techniques are new
and may pose new dangers. Technological changes have
facilitated an explosion of drilling in areas where, even a
decade ago, companies couldn't recover oil and gas profitably.
It's important that the implications for health and
environmental safety are fully understood before fracking is
allowed to continue in [California]. SB 1132 imposes a
moratorium on all well stimulation including fracking and
acidizing, on-shore and off-shore, until a comprehensive report
is completed and submitted to the Governor and the Legislature
and a recommendation is made as to if, how and where fracking
activity can resume. Further, it lays out how the report is to
be conducted in a way that ensures fairness and reliability in
the data collected."
The City of Culver City adds "this area is home to hundreds of
thousands of residents and businesses who have experienced the
impacts of decades of oil extraction in the [Inglewood oil
field]. As evidenced by the number of residents who have
expressed their ongoing concerns during recent Culver City City
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Council meetings, there is significant public apprehension
regarding the uncertain, additional impacts that may have
occured, or may occur in the future, as a result of well
stimulation, including hydraulic fracturing."
ARGUMENTS IN OPPOSITION
A joint oil and gas industry letter states, "SB 1132 appears to
establish a study, comment and findings process designed to
ensure that well stimulation treatments are prohibited in
California in perpetuity." The letter continues, "the Governor's
finding shall be considered final only when all pending legal
challenges are resolved and [the] Governor's findings are
affirmed based on "clear and convincing evidence." Should this
standard be set for all future state scientific studies,
economic studies and regulations? [?] Oil and gas production in
California is a $34 billion annual industry, employing more than
25,000 workers with an annual payroll in excess of $1.5 billion"
and point out that the economic investments in hydraulic
fracturing and other well stimulation techniques that may make
development of California's deep shale reserves economically
viable require certainty.
According to a joint letter signed by the California Chamber of
Commerce, among others, SB 1132 is a "job killer." They
continue, "?the regulatory process for SB 4 implementation,
including the scientific study, is now underway and should be
given adequate time to proceed without abrupt and substantial
modifications such as those imposed by SB 1132."
COMMENTS
This bill is double-referred to the Environmental Quality
Committee . Issues under that Committee's jurisdiction will not
be discussed here.
Technical correction.
The correct reference to onshore gas storage projects in Title
14 of the California Code of Regulations is §1724.9, not §1742.9
[Amendment 1].
Ending funding for monitoring?
SB 4 requires the Water Boards to develop groundwater
monitoring-related model criteria supported and informed by
limited groundwater monitoring in the near term. Once the model
criteria are finalized, the Water Boards are directed to conduct
regional groundwater monitoring. The funding for this regional
monitoring stems from the statutory requirement for the per
barrel production fee to cover specified costs associated with
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well stimulation treatments. A prohibition on well stimulation
treatment is likely to effectively eliminate dedicated funding
for this monitoring. The same is true for air quality
monitoring and related efforts by the Air Resources Board.
Are there vested rights to continue well stimulation when the
moratorium is in effect?
The bill provides a detailed process for the Secretary of the
Natural Resources Agency to make a finding that a vested right
exists for a well owner or operator to stimulate a well after
the prohibition on well stimulation goes into effect.
Regardless of the Secretary's determination, the ultimate
decision is likely to be made by the court through litigation.
A more efficient process may be to have the court address the
question of vested rights directly.
Regarding the detailed requirements provided in the bill that
must be met to justify a vested rights claim, discussions with
technical experts indicate that construction, substantial or
otherwise, specific to well stimulation alone is unlikely. The
equipment used for well stimulation (e.g. large tanks and pumps)
is only temporarily installed at the well-head for the
treatment. It may be that no proposed well stimulation
treatment could satisfy this condition and, thus, none could
qualify for the opportunity to have a vested rights claims
considered.
Well stimulation treatments and oil and gas development and
production
Well stimulation is one of many techniques and processes used to
facilitate the production of oil and gas. (Well stimulation
treatments are not equivalent to oil and gas production.)
Reported data, while admittedly partial, do not indicate that
oil and gas development and production from all oil and gas
fields throughout the state requires well stimulation.
Therefore, while a moratorium on well stimulation treatments may
make oil and gas development and production from some geologic
formations less likely and/or less economically feasible, it
will not stop oil and gas development and production.
How long is the imposed prohibition on well stimulation?
It is not possible to determine in advance the duration of the
prohibition on well stimulation required by SB 1132. There is
no requirement that the prohibition be lifted in the future.
The scientific study: Considerable duplication in content with
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the SB 4-required studies
As noted above, SB 4 requires that an independent scientific
study and an EIR be conducted. Both are underway. This bill
revises the SB 4 study section considerably and removes the EIR
requirement. However, the revisions - where focused on well
stimulation - are largely of nuance and detail, rather than of
content, as SB 4 was broadly worded. Additionally, EIRs must
include certain elements and SB 4's required EIR will include
content that is not part of SB 1132's proposed study. However,
there are aspects of this bill's study that are not specifically
required by SB 4's study and may not be definitively addressed
by the SB 4 EIR. These include, for example, the impacts of
pipelines, and the impacts on home values and specific
communities. This bill contains no process to incorporate the
SB 4 study or EIR results into its proposed study.
The scientific study: Study review standards
Both SB 4 and this bill require that the scientific conclusions
of the independent scientific study be subject to the peer
review process. Within the scientific community, anonymous
review by technical experts of research findings prior to
publication is widely-acknowledged as the highest standard. SB
4, and now state law, clearly anticipates, and, in some
instances, requires that the results of the independent
scientific study will inform future regulatory development
related to well stimulation treatments. Under SB 1132, the
independent scientific study would not be completed until the
proposed interagency committee deemed it to represent "clear and
convincing evidence" that well stimulation treatments pose no
risk or impairment, as specified. Even the best available
scientific data may not be sufficient to meet this standard.
The scientific study: The "no risk" standard.
Meeting the no risk standard will be difficult to achieve as all
activities have risk, however small, associated with them.
The scientific study: Participants in the executive agency
committee
Membership of the interagency committee reviewing the scientific
study includes representatives from the Natural Resources
Agency, the California Environmental Protection Agency, the Air
Resources Control Board, the State Water Resources Control Board
and the Department of Public Health.
The scientific study: Study review process
The committee shall assess whether (a) the scientific study uses
the "best available" evidence and is complete, and (b) the
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existing well stimulation regulations and other measures meet
specified standards. After considering public comment, the
committee may solicit further scientific study, if needed. The
committee does not appear to be able to transmit the completed
study to the Governor if it finds there is any risk associated
with well stimulation treatments. It is also not clear if "the
potential human health risk associated with each chemical" can
be met using data derived from animal or other laboratory tests.
The Governor shall repeat the determination of whether existing
well stimulation regulations and other measures meet the
specified standards. The Governor appears to be able to
formally disagree with the committee's review, but only after
the committee has deemed the study to be final. The Governor is
not provided the specific authority to seek further studies (if
deemed necessary by the Governor) or to return the study to the
committee for it to do so.
The scientific study: Public participation in the study
The public will have at least two formal opportunities to
participate in the independent study process in this bill.
There have already been opportunities for the public to
participate in development of the SB 4 EIR and there will be
more in the future.
The scientific study: Best available statistical information?
The interagency committee is charged with determining if the
best available statistical information, among other best
available data, is used in the study. The statistical
interpretation of data depends fundamentally on the data itself.
Put another way, applicable statistics are not independent of
the underlying data. It is not clear if separately identifying
best available with respect to statistical interpretation of the
data in the current language is meant to impose or could allow
for the imposition of a distinct or different standard for the
statistics which could then be used to require that additional
experiments be conducted and data obtained.
The definition of well stimulation.
There may be well-related practices not generally considered to
be well stimulation treatments, such as deepening or reworking a
well, that could be interpreted to be included under the revised
definition of well stimulation treatment ("increasing [?] the
flow of fluid through the well") proposed by this bill. Gas
storage wells may be particularly affected (see note below).
Further, it is not clear whether the assessment of an increase
in fluid flow is in absolute or relative terms or which
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materials are included in that assessment.
Gas storage wells
Discussions with the division and industry indicate that there
are on the order of 500 gas storage wells in California. These
are generally located in depleted hydrocarbon reservoirs in
sandstone formations. Natural gas typically purchased
out-of-state is transported to these wells by pipeline. Changes
in pressure and temperature due largely to changes in velocity
in the vicinity of the wellbore when stored gas is being pumped
from the wells in combination with heavy hydrocarbon residues in
the depleted reservoirs leads to the precipitation and scaling
in the vicinity of the wellbore. This build-up will increase
over time and result in lower gas flow rates. Routine
maintenance is necessary typically every few years to address
this. The technical processes undertaken to conduct this
maintenance described by industry engineers do not meet the
existing definition of well stimulation treatment in state law
(PRC §3157, notwithstanding the exclusion in PRC §3160(o)). It
is unclear if the revised definition may result in maintenance
at gas storage wells being effectively prohibited under the
moratorium.
Impact of deleting the existing interim language.
It is not clear what the impact of deleting the existing interim
language will have. The division retains the authority to
regulate well stimulation, as well as to conduct EIRs.
Clarifying the legislative findings
The legislative findings make several assertions that Committee
staff have not yet been able to obtain or evaluate rigorously
the technical support for. The Committee may wish to direct
staff to continue investigating relevant aspects of the findings
in question and communicate the results to the author upon
completion.
Studies of the impacts of well stimulation.
There are peer-reviewed scientific publications investigating
the environmental, occupational and public health and safety
impacts associated with well stimulation. There is credible
evidence linking environmental contamination and risks or
potential health risks in some locations studied with either
well stimulation directly or with oil and gas development and
production made feasible by well stimulation. It is not
immediately clear to what degree studies conducted outside of
California in different conditions are applicable here.
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There was a scientific study conducted by industry on two
high-volume hydraulic fracturing operations at the Inglewood oil
field near Culver City that found no adverse environmental
impacts. Critics note that this study focused on short-term
impacts alone.
Further, illegal dumping of fracking wastes has been
well-documented in multiple jurisdictions. The Central Valley
Regional Water Quality Control Board fined Vintage a few months
ago over illegal dumping of waste, including fracking fluid
waste, in an unlined pit.
Impact of a state moratorium on wells subject to federal
jurisdiction?
The division signed a Memorandum of Understanding (MOU) in 2012
with the Bureau of Land Management (BLM) - which manages almost
50% of the state's mineral rights - for wells where they share
jurisdiction. This MOU includes a statement that the two will
cooperate on the regulation of hydraulic fracturing. It is not
clear how a statewide prohibition on well stimulation treatments
will impact wells where the BLM has jurisdiction or shared
jurisdiction (the BLM has had pending hydraulic fracturing
treatment regulations for the last few years).
While SB 1132 would impose a well stimulation treatment
moratorium in state waters, a recent analysis by the California
Coastal Commission suggests that the state may only have very
limited authority with respect to well stimulation over at least
some wells in federal waters. (The division does not have MOUs
with either the Bureau of Land Management or the Bureau of
Safety and Environmental Engineering.)
Monterey Shale estimates: boom or bust?
Large estimates of the recoverable unconventional hydrocarbon
reserves from the Monterey Shale by the US Energy Information
Administration in 2011 - 15.4 billion barrels of oil - focused
public attention on well stimulation in California. While the
US EIA revised the forecast down to 13.7 billion barrels, this
remains the largest estimated shale reserve in the country.
Recently a new study<1> by a veteran petroleum geologist
examined the assumptions made to calculate this projection using
reported production data from wells drilled in the Monterey
Shale. The new study found that the US EIA's projection was
likely to be "wildly optimistic." The study further
investigated the corresponding claims of economic growth for
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<1> Drilling California: A Reality Check on the Monterey Shale
by J. David Hughes (2013)
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development of the unconventional Monterey Shale reserves. Here
again, a careful review of available data and analysis of
forecasts suggest that projections of up to 2.8 million new jobs
are also wildly optimistic.
Earthquakes
Public concerns over the earthquake risk associated with well
stimulation is high. It can be difficult, particularly where
numerous earthquakes of small magnitude regularly occur, to
attribute earthquakes to hydraulic fracturing. However, small
earthquakes in two locations where seismic activity is unusual
have been attributed to the process of hydraulic fracturing
-England and British Columbia. The larger of two earthquakes was
of magnitude 2.3: strong enough to be felt slightly by people
but not cause damage to buildings. The U.S. Geological Survey
has found an increase in earthquakes over magnitude 3 in the
proximity of injection wells - where well stimulation waste
fluid may be disposed of - in Colorado, Texas, Arkansas,
Oklahoma and Ohio. The National Research Council in a recent
report noted that wastewater disposal in injection wells "does
pose some risk for induced seismicity."
How much well stimulation is occurring in California? How much
water is being used?
Prior to January 1, 2014 when SB 4 went into effect, all
information on well stimulation in California was voluntarily
reported by industry. Evidence exists that the reported data
were incomplete. That said, there were on the order of 600 -
850 frack jobs per year, and over 95% of these occurred in Kern
County. The Legislative Analyst's Office projects that 1,000 -
2,000 well stimulation treatments will be conducted each year in
California in the future.
For the data available - which suffers from the same caveat
noted above - water use per frack job in the state appears to be
considerably lower than the millions of gallons per well
routinely reported in other states. Cursory review of available
data indicates that most reported well stimulation jobs use up
to a few hundred thousand gallons per stimulation. This does
not mean that local water scarcity in locations where well
stimulation treatments may occur is not an issue. Information
will also become available on the use or re-use of recycled
water in well stimulation treatments as SB 4 is implemented.
Industry experts report that salty water can be used in
hydraulic fracturing treatments.
SB 4 Implementation
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In early February, the Senate Natural Resources and Water and
Environmental Quality Committees convened a joint informational
hearing on SB 4 implementation. While there had been some
glitches, the division and other invited regulators reported
considerable progress and coordination and cooperation amongst
themselves.
The division, the Water Boards and the Air Resources Board have
all made Budget Change Proposal requests for FY 2014/15 to
implement SB 4 totaling approximately $20 million and about 80
new staff.
As of April 2, 2014, the division has approved as complete 273
well stimulation notices under the emergency interim
regulations. With the exception of three notices for wells
located in Ventura County, the notices were all for wells in
Kern County. The notices are available on-line at the
division's web-site. Under the interim regulations, the Water
Boards have to concur with a well owner or operator's claim that
no protected groundwater is present in the vicinity of a well
proposed to be stimulated. This concurrence requirement has
lately slowed down the submittal of well stimulation notices to
the division due to industry's repeated submission of
insufficient data to support their claims. The Water Boards and
the division have continued industry outreach efforts and the
Water Boards recently provided a concurrence finding for two
sections of the South Belridge field.
The first update on the progress of the SB 4 independent
scientific study, dated April 1, 2014, reports that a science
advisor to the Administration has been appointed, a contractor
for the study has been selected and an appropriate process is
underway to maintain the study's independence and scientific
integrity, and complete the study on-time.
Other fracking moratoria or bans
Through executive order, New York state has had a moratorium on
high-volume hydraulic fracturing for over 6 years while a public
health study is completed. Vermont has banned fracking,
although there is no oil or gas production there. Other states
or regional entities (e.g. North Carolina, the Delaware River
Basin Commission, among others) have instituted moratoria
pending the development of regulations governing fracking.
Local level bans or moratoria on fracking have led to litigation
between the states and the locals in at least Pennsylvania,
Colorado and New York. At the local level in California, Los
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Angeles, Culver City and Santa Cruz County have passed
resolutions to place or develop moratoria on well stimulation
treatments within their jurisdictions. (The City of Carson
recently instituted a temporary moratorium on drilling in part
over concerns over well stimulation.) There are reports of
grass roots efforts at the local level across the state to ban
or place moratoria on well stimulation treatments.
SUGGESTED AMENDMENTS
AMENDMENT 1
In PRC §3157(c), correct the reference to Section 1724.9
from 1742.9.
SUPPORT
350.org
350 Bay Area
American Congress of Obstetricians and Gynecologists
Asian Pacific Environmental Network
Breast Cancer Action
California Nurses Association
Carpinteria Valley Association
Center for Biological Diversity
Center for Environmental Health
Center on Race, Poverty, & the Environment
Clean Water Action
Citizen's Coalition For a Safe Community
City of Culver City
Clean Water Action
CREDO Action
Earthworks
Environment California
Environmental Defense Center
Environmental Working Group
Food & Water Watch
Frack-Free Butte County
Friends Committee on Legislation of California
International Longshore & Warehouse Union - Southern California
District Council
Mainstreet Moms Organize or Bust
Natural Resources Defense Council
Oil Change International
Physicians for Social Responsibility - San Francisco Bay Area
Chapter
Planning and Conservation League
Santa Barbara County Action Network
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Sierra Club California
Sierra Club - Los Padres Chapter
Surfrider Foundation
over 21,000 individuals (via organized letters)
OPPOSITION
American Chemistry Council
Associated Builders and Contractors of California
California Chamber of Commerce
California Construction and Industrial Materials Association
California Independent Petroleum Association
California Manufacturers and Technology Association
California Metals Coalition
Chemical Industry Council of California
Independent Oil Producers' Association
National Federation of Independent Business
Western States Petroleum Association
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