Natural-gas producers fear rules blitz

With the Obama administration ramping up the pressure on natural-gas drilling companies, industry leaders fear a looming wave of federal regulations could strangle what has become one of the most vibrant sectors of the economy.

At least 10 federal departments and agencies are investigating or crafting new rules to govern “fracking,” the popular gas-extraction technique that has led directly to the creation of thousands of jobs in Pennsylvania, North Dakota, Wyoming and other states.

The Environmental Protection Agency is leading the way, and later this year will release its long-awaited report on the safety of the practice. Many analysts fear the study will indict fracking as unsafe and call for crippling regulations.

In addition, Interior Secretary Kenneth L. Salazar has proposed raising royalty rates by 50 percent for companies drilling for oil and gas on public lands. The Centers for Disease Control and Prevention has called for a wide study into potential health problems associated with gas drilling. The administration’s Agriculture, Commerce, Transportation and other departments have also gotten in the mix with a variety of studies and proposed regulations.

The spider web of potential rules has some insiders fearing that, despite public statements to the contrary by President Obama and other officials, the administration is intent on slowing down the industry.

“The direction they’re headed won’t be conducive to the development of energy we know our nation will need,” said Kyle Isakower, vice president for regulatory and economic policy at the American Petroleum Institute, in a conference call with reporters on Thursday. “This appears to be unprecedented. When you see 10 agencies working on one issue, in my experience, that is not the norm. The president himself has called for federal agencies to review their regulations to try and reduce and streamline requirements from the federal government. That’s what they should be doing in this case as well.”

The administration’s policies are already having an effect. Since 2008, the number of oil and gas wells on public lands in Western states - Colorado, Montana, New Mexico, North Dakota, Utah and Wyoming - has dropped by at least 39 percent, according to API. A huge hike in royalty rates, as proposed by Mr. Salazar, would likely hamper production even further.

“It’s a basic economic principle: If you want less of something, tax or charge more for it,” Barry Russell, president and CEO of the Independent Petroleum Association of America, said in a recent statement.

While the most severe regulations could be down the road, the EPA may have already caused significant damage in the public relations arena. Last year, it released a draft study blaming fracking for water contamination in the small town of Pavilion, Wyo. The report has yet to undergo an independent, third-party review, as is typically the case. EPA Administrator Lisa P. Jackson and other officials have stressed that it applies only to the situation in Pavilion, and shouldn’t be used to draw conclusions about fracking in other areas of the country.

But those statements, Mr. Isakower said, do little to stop environmental groups and other fossil-fuel critics from latching onto the report and using it to demonize the gas business.

“We don’t feel that the draft report should’ve been released before it had gone through peer review,” he said. “A great many groups have used that study, touted it, for justification for why [fracking] needs to be under much greater regulation at the federal level.”