The way is now open for oil and gas companies to start drilling in North Carolina, but no wells are going to pop up any time soon. Besides the time lag automatically built into the permitting process, low natural gas prices will likely discourage development and a pending lawsuit challenging the legitimacy of the very commission that wrote the rules could invalidate them.
The rules automatically went into effect March 17 when no bill striking them down passed the General Assembly during the first 60 days of its session, but that doesn’t mean a flood of drilling rigs is on its way to North Carolina.
To get started, oil and gas developers must request permission for a drilling unit from the Mining and Energy Commission at least two months before the next MEC meeting. As of now, July 23 is the earliest meeting where such a request could be granted. Then, the operator would have to apply for a drilling permit with the N.C. Department of Environment and Natural Resources, which would have up to six months to act and could require another hearing with the MEC — which at that point would be reconstituted as the Mining Commission and the Oil and Gas Commission — to increase the bond.
A fizzle on fracking?
At the moment, it looks like that bureaucratic time lag could be more than a finger in the dam holding back a flood of applications. Two weeks after the window opened, MEC Chairman Vikram Rao said he hasn’t received any requests for drilling units.
“We think the rush to frack that started in 2011 has really been turned into a fizzle with this big drop in gas prices and with the continued community resistance to fracking across the state,” said Sally Morgan, energy and water justice organizer for Clean Water for North Carolina.
Morgan, whose organization has staunchly opposed fracking in North Carolina since it was first discussed, hopes that prices will stay low and that North Carolina’s mineral reserves will prove disappointing enough to redirect operators to more profitable fields.
That might not be an unrealistic outcome, Rao said.
“A new operator would have difficultly being profitable at these natural gas prices unless there was substantial quantity of liquid,” he said.
Natural gas is made of three components: methane, butane and propane. While butane and propane, the liquid parts, are selling for about three-fourths the price of oil, methane is selling for just about one-third the price of oil.
There’s not much data on North Carolina’s mineral reserves, but the U.S. Geologic Survey estimates that the state contains only about 2 gallons of liquid natural gas per thousand cubic feet, Rao said. Typically, companies expect a minimum of 4 gallons per thousand cubic feet — or, more comfortably, 7 to 10 gallons — before investing. He doesn’t anticipate handling many permit applications until there’s been some exploratory drilling to see what North Carolina’s got.
“I personally think that there are other areas in the country which are already known to be more prospective and that’s where the interest will go, but anything is possible,” Rao said. “Some people may feel that this is a new horizon and they want ownership of it. It’s possible, but it’s risky.”
Waiting on the courts
A pending lawsuit could also impact the future of fracking in North Carolina. In January, the Haw River Assembly — a water quality advocacy group based in Chatham County — filed a lawsuit claiming that, because the majority of MEC members were appointed by the Legislature and not the executive branch, the commission violates the constitutional separation of powers. The case is still awaiting its day in court, but lawyers for Haw River say a recent ruling bodes well for the outcome.
In March, a three-judge panel heard a lawsuit brought by Gov. Pat McCrory claiming that a trio of commissions the Legislature set up were illegal — because their members were appointees of the Legislature, not the executive branch. The panel sided with McCrory, and though the case has been appealed to the N.C. Supreme Court, the fact that Mark Martin, the chief justice of that court, appointed the three-judge panel is an encouraging sign, said Brooks Pearson, attorney for the Southern Environmental Law Center, which is representing Haw River.
“The court in the governor’s case held that the Legislature cannot appoint anyone to boards and commissions that are primarily administrative or executive in nature,” Pearson said. “We ask whether the Legislature can appoint the majority of members to such commissions. If the Supreme Court, on appeal, feels that the governor’s case goes too far, ours could provide a middle ground.”
But in another sense, the Haw River case goes further than McCrory’s because it also asks whether the actions of an unconstitutionally appointed body should be null and void. If the court accepts Haw River’s point of view, the MEC’s fracking rules would fall down along with its membership.
Though Donna Dupree, a member of the Jackson County Coalition Against Fracking, is disappointed the rules are going into effect at all, she’s holding out hope for the lawsuit and other efforts to mitigate the negative effects she expects from the industry.
“I can’t say that we have accomplished what we wanted to accomplish, which would be a moratorium or a ban, but we’re continuing to work,” she said. “We’re not giving up.”
Refining the rules
Though the Mining and Energy Commission’s rules are now officially in effect, they’re not static. Since their adoption, committees under the MEC have been investigating the pros and cons of various changes to the existing rulebook, including:
• Air pollution. A state law passed March 16 mandated that the MEC write regulations addressing air emissions — if the commission determines that existing federal rules and the state air toxics program are “inadequate.”
“The ‘if’ is the key part,” said Sally Morgan of Clean Water for North Carolina.
“It’s making it optional to monitor toxic air emissions,” she said.
MEC Chairman Vikram Rao said he doesn’t see the problem. All the law says is that rules should be written if they’re needed but should not if they’re not, he said.
“I’m not clear on all the furor over this,” he said. “Why would you add rules if you thought the existing rules completely covered what you were trying to achieve?”
The legislation does not change how the MEC’s Environmental Standards Committee will handle the issue, he said. They’re currently researching the air quality question and spent last week listening to reports and testimony from Department of Environment and Natural Resources representatives.
• Open pits. One of the major beefs environmentalists had with the MEC’s finished rule set was its OK of open, below-ground pits for storing fracking wastewater awaiting disposal. Why, environmentalists asked, shouldn’t the rules require waste to be stored in closed containers, ensuring that it doesn’t leach into nearby groundwater sources?
A valid argument, Rao said at the time, and one that the MEC would study. They are.
“This is a tough issue,” he said, “but when you say no to something, which is what the public wants us to do, you have to really research it because saying no to something is implicitly saying yes to something else.”
Rao said he’s requested a report from McKim & Creed, a company that makes both open and closed-circuit wastewater containers, detailing the costs associated with each.
“I’m going to give it to my staff [at DENR] who is then going to bolster it with further facts, and we will almost certainly put it out there for public review before we as a commission consider it,” Rao said.
There’s no guarantee, however, that the research will result in a rule change, Rao said, and it’s quite possible the process won’t finish up before July 31, when the MEC will dissolve and reform as two separate entities: the Mining Commission and the Oil and Gas Commission.