North America Shale Blog

North America Shale Blog

State Oil and Gas Laws v. Local Control: The Struggle Continues in Ohio

Posted in Ohio, Ohio DNR, Oil and Gas, Zoning

On February 17, 2015, the Ohio Supreme Court announced its ruling in The State Ex Rel. Morrison v. Beck Energy Corporation et al. That closely-watched case addressed whether local ordinances that impact drilling operations are preempted by the Ohio Department of Natural Resources’ (ODNR’s) authority to issue oil and gas drilling permits under R.C. Chapter 1509. In this case, Beck Energy had received a permit from ODNR to drill for oil and gas in the city of Munroe Falls. As Beck Energy began its operations, Munroe Falls successfully sought an injunction from an Ohio state court based on Beck Energy’s non-compliance with several local ordinances, including requirements to obtain a “zoning certificate,” pay a specified fee, and secure a performance bond. The court of appeals reversed the trial court, holding that Ohio’s Home Rule Amendment did not allow the city to impose its own permit requirements on oil and gas drilling operations.

In a clear victory for Beck Energy, a divided Ohio Supreme Court agreed with the appeals court ruling and invalidated all five local ordinances. A close reading of the multiple opinions, however, shows that the court did not categorically preempt all forms of local regulation that impact drilling operations. Rather, it left the door open for further litigation regarding whether “local land use ordinances that address only the traditional concerns of zoning laws, such as ensuring compatibility with local neighborhoods, preserving property values, or effectuating a municipality’s long-term plan for development, by limiting oil and gas wells to certain zoning districts” are enforceable. In other words, the court invalidated what it considered to be a “separate permitting regime” at the local level, but declined to rule on whether more traditional exercises of local zoning that impact drilling operations are enforceable.

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New Mexico Federal Court Frames The Issues That Will Define Future Fights Over Local Fracking Regulation

Posted in New Mexico, Oil and Gas

On January 15, 2015, the United States District Court for the District of New Mexico became the first federal court to address questions related to the scope of local governments’ ability to regulate oil and gas development within those governments’ jurisdictional boundaries. In SWEPI, LP v. Mora County, New Mexico, the district court struck down a county ordinance prohibiting the extraction of oil and gas, a decision that has generally been hailed as a victory for industry. Yet a closer reading of the 199-page opinion that United States District Judge James O. Browning issued reveals that the real import of the SWEPI decision is not the result, but the framework the court articulated for analyzing two issues driving the public debate over the regulation of oil and gas development: whether state and federal laws permitting oil and gas extraction preempt local regulation of oil and gas operations, and whether, if local regulation is permissible, those regulations can represent a taking of private property.

In SWEPI, the federal district court concluded that, while there may be limitations on local communities’ ability to regulate oil and gas operations, at least in New Mexico those limitations are not likely to foreclose local governments from regulating entirely. And while not deciding the issue, Judge Browning became the first federal judge to meaningfully grapple with the question regarding whether local regulation of oil and gas, and specifically regulation of hydraulic fracturing, has the potential to result in an uncompensated taking of a mineral interest in violation of the Fifth Amendment to the United States Constitution. Given the court’s comprehensive treatment of the pertinent legal issues relevant to those questions, the opinion in SWEPI is likely to be influential in shaping the approach of both regulators and industry in the future. Continue Reading

Crude-by-Rail Update: What to Expect From Recent Crude Oil Derailments

Posted in PHMSA, Transportation, West Virginia

These are uncertain and stressful times for all involved in the transportation of crude oil by rail. Since February 14, two fiery derailments in West Virginia and Ontario have refocused an unwelcome spotlight on the necessity of transporting crude oil production by railroad in areas without adequate access to pipelines.

The attention comes at a politically sensitive juncture as the Pipeline and Hazardous Materials Safety Administration’s and the Federal Railroad Administration’s comprehensive crude-by-rail safety rule awaits review with the White House’s Office of Management and Budget[1] – a process that will likely produce a final rule by mid-May.

But can companies involved in crude-by-rail expect other repercussions from the two recent derailments? Without a doubt they can. Continue Reading

China to Increase Shale Gas Production

Posted in Oil and Gas, Shale

China plans to increase its shale gas production from 1.3 billion cubic meters of shale gas per year to 30 billion cubic meters per year by 2020, according to Chen Weidong of China National Offshore Oil Corp. This goal is significantly less than the 60 to 80 billion cubic meter goal set in 2012, when the Chinese government declared it would start extracting its reserves, which are the largest in the world. The goal was reduced because of difficult drilling conditions.

Though China became the second largest shale gas producer in 2014, it will likely have to increase its reliance on imports over the next few years because demand is growing faster than production. “Last year, the import dependency was about 31 percent. By 2020 that dependency will go up to 40 to 50 percent,” said James Henderson, senior research fellow at the Oxford Institute for Energy. “We’ll get the supply from Russia and also [from] Turkmenistan. We’ve already got secured supplies for over 400 billion cubic meters for 2020.” Turkmenistan supplies nearly half of China’s gas imports. Continue Reading

When Oil Prices Head South, So Do the Bakken Oil Trains

Posted in Shale, Transportation

Bakken crude oil increasingly heads south as low oil prices erode its competitive advantage in the U.S. East Coast market. The price of WTI crude oil—the benchmark price for most U.S. shale crudes—is moving toward parity with Brent, the international crude price benchmark for grades such as Nigerian Bonny Light that compete with Bakken in the U.S. East Coast market. This reduces the economic incentive for refiners to bring Bakken oil nearly 1,800 miles by rail when they can procure seaborne cargoes of light, sweet crude oil from Nigeria, Angola, and other niche suppliers such as Azerbaijan, which eagerly seek buyers because the U.S. shale revolution largely displaced them from the massive U.S. crude market. In essence, when WTI’s discount to Brent falls below $5/bbl, East Coast refiners’ incentive to bring in Bakken crude by rail declines because the economics come to favor imported crudes. Continue Reading

U.S. Geological Survey Releases Publications on Historical Hydraulic Fracturing Trends

Posted in Hydraulic Fracturing

On Tuesday, January 27, the U.S. Geological Survey released two new publications highlighting historical hydraulic fracturing trends. These publications are the first of their kind: until now, there has not been comprehensive, published, publicly available information regarding the extent, location, and character of hydraulic fracturing in the United States.

The publications are a scientific investigation report called “Trends in Hydraulic Fracturing Distributions and Treatment Fluids, Additives, Proppants, and Water Volumes Applied to Wells Drilled in the United States from 1947 through 2010—Data Analysis and Comparison to the Literature” and a companion data series called “Data Regarding Hydraulic Fracturing Distributions and Treatment Fluids, Additives, Proppants, and Water Volumes Applied to Wells Drilled in the United States from 1947 through 2010.” According to lead author Tanya Gallegos, the U.S. Geological Survey now has “an improved understanding of where the practice [of hydraulic fracturing] is occurring and how hydraulic fracturing characteristics have changed over time.” Continue Reading

Pennsylvania Governor Reinstates Ban on Oil and Gas Leasing in State Parks and Forests

Posted in Oil and Gas, Pennsylvania

On Thursday, January 29, 2015, Pennsylvania’s new governor, Tom Wolf, signed Executive Order 2015-03, thereby reinstating a moratorium on new leases for oil and gas development in state parks and forests. Wolf’s moratorium restores a ban instituted by Governor Ed Rendell just prior to his leaving office in 2010. Republican Governor Tom Corbett had lifted Rendell’s moratorium by Executive Order 2014-03 on May 23, 2014.

Wolf, who campaigned heavily on a promise to ban fracking on state lands, insists that he generally supports fracking, but was concerned with “striking the right balance” because “[o]ur state parks and forests are unique assets that should be preserved, protected, and utilized by our residents for recreational purposes.” Continue Reading

2015 Texas Legislative Session Includes Twin Bills Concerning Municipal Fracking Bans

Posted in Oil and Gas, Texas

With the opening of the 84th Session of the Texas Legislature on January 13, 2015, two of the more closely watched bills in the energy arena will be House Bill 539 (HB539) and House Bill 540 (HB540).

HB539, filed on December 17, 2014, by Representative Phil King (R) of Weatherford, relates to “the procedural requirements for the adoption of a municipal regulation, limitation, or prohibition on the production, storage, or transportation of oil or natural gas.” The bill proposes to require any municipality seeking to enact an “oil and gas measure,” which the bill defines as “a municipal ordinance or other municipal measure … to regulate, limit, or prohibit the production, storage, or transportation of oil or gas,” to prepare a Fiscal Note and an Equalized Education Funding Impact Statement.

The Fiscal Note must state the fiscal implications of the potential oil and gas measure for the state and local governments; the probable cost to the state that will result from the measure, including potential lost tax revenue, lost fees, lost royalty income, and diverted state funds; and the amount of money the municipality adopting the measure will be required to annually remit to the state as reimbursement for the cost to the state resulting from the oil and gas measure. Continue Reading

Layoffs in the Energy Sector – Are Employers Prepared?

Posted in Oil and Gas

Over the past few weeks, the media has focused intently on the oil and gas industry’s extensive layoffs. Well known energy companies have made front-page news with their announcements of their significant layoffs that have often resulted in the termination of thousands of employees or a significant percentage of their workforce. This trend, it appears, is only beginning, and many employers in the industry or that work closely with the industry will face tough decisions regarding their employees. This is, by and large, common knowledge. As a result, employees, plaintiffs’ attorneys, and government agencies charged with upholding labor and employment law are paying close attention. As companies prepare to conduct future layoffs, they must be vigilant in ensuring that they are complying with federal and state laws and tackling the layoffs in the most efficient and practical way possible. Below are some quick tips for employers to consider as they contemplate and plan actions affecting their workforce. Continue Reading

The “LNG Permitting Certainty and Transparency Act”—A Positive Step Toward Expediting U.S. LNG Export Projects

Posted in Natural Gas

Restrictive regulations and permitting processes that operate at glacial speed (as opposed to market speed) pose the primary hurdles to greater U.S. exports of liquefied natural gas (LNG). In response to a chorus of complaints from industry, Senators John A. Barrasso (R-WY) and Martin Heinrich (D-NM) recently introduced the “LNG Permitting Certainty and Transparency Act,” the 114th Congress’s first legislation aimed at increasing U.S. exports of LNG.[1] Along with Barrasso and Heinrich, Senators Cory Gardner (R-CO), Heidi Heitkamp (D-ND), John Hoeven (R-ND), Tim Kaine (D-VA), Shelley Moore Capito (R-WV), and Michael Bennet (D-CO) also served as original cosponsors of the Act.[2]

Rep. Bill Johnson (R-OH) subsequently introduced H.R. 351, an identically named bill with virtually identical legislative language, in the House on January 14, 2015.[3] Both bills aim to create an anvil upon which prospective LNG exporters can use the courts to hammer the Department of Energy (DOE) into making faster decisions on project approvals.

At present, U.S. federal regulators have given full and final approval to four LNG projects with a combined export capacity of approximately 7 billion cubic feet per day (BCF/d)—Cheniere Energy’s Sabine Pass facility, Freeport LNG, Cameron LNG, and Carib Energy.[4] Several other projects appear sufficiently advanced that passage of the LNG Permitting Certainty and Transparency Act would accelerate their ability to get shale gas-based LNG into the global marketplace.

The Bill’s Core Provisions

The latest version of the proposed Act would force the Secretary of Energy to make a final decision on any application for authorization to export natural gas under Section 3(a) of the Natural Gas Act within 30 days (versus 45 days for the earlier Barrasso/Heinrich version) of:

(1) the conclusion of the review to site, construct, expand, or operate the liquefied natural gas export facilities required by the National Environmental Policy Act of 1969 (42 U.S.C. 4321 et seq.);

(2) or the date of enactment of this Act, if the NEPA review for a proposed export project has already concluded.[5]

The bill would consider NEPA review “concluded” when the lead agency (typically the Federal Energy Regulatory Commission or FERC):

(1) Publishes a Final Environmental Impact Statement (EIS);

(2) Publishes a Finding of No Significant Impact; or

(3) Determines that an application is eligible for a categorical exclusion pursuant to National Environmental Policy Act of 1969 (42 U.S.C. 4321 et. seq.) implementing regulations.[6]

In a civil suit brought under the Act, if the court found that the Secretary of Energy failed to issue a decision on the application as required under subsection (a), the Court would be required to order the secretary “to issue the decision not later than 30 days after the Court’s order.”[7] Additionally, courts would be required to set civil actions brought under the Act for expedited consideration and would have to set the matter on the docket “as soon as practical after the filing date of the initial pleading.”[8]

The Act’s Practical Impacts

Despite the robust enforcement levers the Act proposes, it would not address a major obstacle to expanding U.S. LNG exports: the ponderous environmental review process for export projects, which can take between 18 and 30 months and cost $100 million for proposals to export LNG to countries with which the U.S. does not have free trade agreements (FTAs).[9]

However, it would force the DOE to make much faster decisions on whether to grant commercially advanced facilities permits allowing them to export gas to countries that do not have free trade agreements with the U.S., a cohort that includes Japan, Ukraine, and other large potential customers for U.S. LNG.

At present, the DOE takes much longer than 30 days to issue final approvals. For instance, Cheniere’s Corpus Christi export facility—which will have the ability to ship 2.1 BCF/d of gas—received its final environmental approval from FERC nearly four months ago but the DOE has still not granted it final approval to export gas to countries that do not have FTAs with the U.S.[10]

Bottom Line: The Act Is a Positive First Step Toward Reducing Regulatory Impediments to Greater U.S. LNG Exports

Industry players recognize that U.S. LNG exporters can capitalize on abundant domestic gas supplies and a large base of pre-existing pipeline and terminal infrastructure to become highly competitive, low-cost global suppliers. Key members of Congress, meanwhile, increasingly view U.S. LNG exports as a form of geopolitical leverage that can help a number of European countries potentially reduce dependence on gas supplies from Russia.[11]

Hammering this point home, Russia is again using natural gas supplies to manipulate Europe. On January 15, 2015, Gazprom announced it plans to shift all Russian gas that currently transits Ukraine to a pipeline through Turkey.[12] If carried through, this will isolate Ukraine and force EU consumer countries to build costly new pipelines connecting Turkey to the EU gas distribution network.

World-class U.S. geology and infrastructure, geopolitical events, and two powerful industry and political interest constituencies are creating a more permissive environment for LNG exports from the U.S. The House and Senate already display healthy bipartisan support for LNG exports, and it is likely that a reasonably strong form of these bills—or at least the objectives they seek to attain—will survive the legislative process and pass in the next few months.


[1] Nick Snow, “Barrasso, Heinrich introduce bill to increase LNG exports,” Oil & Gas Journal, 7 January 2015, http://www.ogj.com/articles/2015/01/barrasso-heinrich-introduce-bill-to-increase-lng-exports.html

[2] “Barrasso-Heinrich Introduce Bipartisan Bill to Speed Up American LNG Exports,” John Barrasso Senate website, 6 January 2014, http://www.barrasso.senate.gov/public/index.cfm/2015/1/barrasso-heinrich-introduce-bipartisan-bill-to-speed-up-american-lng-exports

[3] H.R. 351, http://energycommerce.house.gov/sites/republicans.energycommerce.house.gov/files/114/BILLS-114hr351ih.pdf

[4] Ayesha Rascoe, “UPDATE 1-U.S. approves LNG exports from Sempra, Carib Energy projects,” Reuters, 10 September 2014, http://www.reuters.com/article/2014/09/10/usa-lng-exports-idUSL1N0RB1XC20140910; “Freeport LNG Receives Final FERC and DOE Approvals,” 17 November 2014, http://www.freeportlng.com/PDFs/11172014FreeportApprovalsfinal.pdf

[5] Draft Senate Bill, http://www.barrasso.senate.gov/public/Files/LNGPermittingCertaintyandTransparencyAct.pdf, accessed 15 January 2015.

[6] Ibid.

[7] Ibid.

[8] Ibid.

[9] Jennifer A. Dloughy, “Industry pans feds’ plan for gas exports,” FuelFix, 22 July 2014, http://fuelfix.com/blog/2014/07/22/industry-pans-feds-plan-for-gas-exports/

[10] “FERC Staff Issues Final Environmental Impact Statement on the Corpus Christi LNG Project (Docket Nos. CP12-507-000 and CP12-508-000),” 8 October 2014, https://www.ferc.gov/industries/gas/enviro/eis/2014/10-08-14-eis.asp

[11] “Hoeven, McCain, Murkowski, Barrasso Introduce the North Atlantic Energy Security Act,” 11 July 2014, http://www.hoeven.senate.gov/public/index.cfm/2014/7/hoeven-mccain-murkowski-barrasso-introduce-the-north-atlantic-energy-security-act

[12] “Gazprom Tells the EU It Will Shift All Gas From Transiting Ukraine to Going Through Turkey,” (“Газпром” обещал ЕС перевести весь украинский транзит газа в Турцию), oilcapital.ru, 15 January 2015, http://www.oilcapital.ru/export/260382.html