Thursday, September 18, 2014

Drew EGC Report

Fight Escalates Over Chemical Secrecy in Hydraulic Fracturing

The following is a two-part series by published by EnergyWirewhich looks at the debate in the United States over the disclosure of the components of hydraulic fractuing fluid

Part One: Fight escalates over chemical secrecy in hydraulic fracturing

The Burgett well in the Marcellus Shale gas area southeast of Canton, Ohio, was fractured Oct. 3 with 8.3 million gallons of water and a relatively small percentage of chemicals that were pumped deep underground to free the gas and smooth its flow to the surface.

About two dozen of the chemicals were identified on a public website by their unique formulations, together with their maximum concentration in the mix. But the identities of four other chemicals, including a "gelling" agent and a corrosion inhibitor, were concealed from the public as trade secrets by the supplier, 

Together, the confidential ingredients made up a minuscule part of the water volume pumped underground -- no more than 0.17 percent or 13,800 gallons, according to the information provided by Weatherford on the chemical tracking website FracFocus created by state regulators. The company did not respond to questions about the makeup of its proprietary chemicals.

Despite their comparatively small share of the total injections, secret fracking liquids like these are at the center of a fierce debate between environmental groups and energy companies, as state governors, legislators and regulators write new rules for unconventional oil and gas production.

As the pace of shale gas development and hydraulic fracturing operations has surged in the past four years, so have public demands for more information about the chemicals used in the process. "Chemicals, or more precisely, the lack of disclosure of chemical identities, have probably received and deserved the most vitriolic attacks in the 'anti-frack' literature," said petroleum engineer George King, a consultant with Apache Corp. "This is a problem to be addressed and solved, not ignored."

A central industry argument for the safety of hydraulic fracturing is the depth of the fracking operations, which typically take place several thousand feet or more below water aquifers. King says in a report on fracking risks: "Although there is virtually zero chance of fracturing into a fresh water supply from a deep well, there is valid concern about even low incident potential events ... such as spills, leaks, cement channels and traffic accidents that could contaminate either surface or subsurface water."

"You have to know what you're dealing with in order to have a rational conversation on risk and then develop standards to protect against those risks," said Matt Watson, senior energy policy manager for the Environmental Defense Fund.

"Yes, it is highly unlikely that you are going to get groundwater contamination through the fracturing if you have an adequate confinement layer," Watson said, speaking of the cement barriers pumped around well piping to isolate aquifers from the chemicals used in fracking operations thousands of feet farther down.

"But it is plausible, and even likely, that you could get contamination with these fracturing chemicals if you have bad well integrity. And even more frequent is the problem of surface spills, which happen all the time."

State legislatures and regulators recently have strengthened chemical disclosure requirements and online access to drilling information on specific wells.

Earlier this month, Ohio became the 10th state to require drilling companies to list fracking chemicals by their unique Chemical Abstracts Service number, according to a compilation by the nonpartisan Congressional Research Service. The CAS number provides a level of detail required to identify potential health risks if chemicals intrude in public water supplies, disclosure advocates say, and the Ohio statute goes beyond the more generic descriptions some states require. The Ohio law advances fracking regulation in other areas as well, including pre-drilling water quality testing.

But as in Ohio's case, several states recently also enlarged the right of drilling companies to shield chemicals from disclosure when the chemical manufacturers invoke trade secret protections.

Safeguards or loopholes?

Halliburton Co., a leading supplier of fracking liquids, strikes a common argument in the industry for the protection of proprietary fracking fluid formulas. "Differences in [shale] formations can be very subtle. Understanding the differences and then designing fluid additives to prevent damaging the formation and limiting production" is key to its competitive success, a representative said.

"While Halliburton supports disclosing our ingredients, it is critical to our business that we protect our proprietary information, including the recipes of our products," which represent millions of dollars in R&D investment, the representative added.

"The trend is for greater disclosure of the chemical constituents. Part of the question is how to balance the legitimate interest of public health on one hand, and the commercial and proprietary interests on the other," said Stephen Davis, an attorney with Akin Gump in Houston whose firm represents industry clients. "The more information you provide, the easier it is for competitors to figure out the recipe, and the greater the commercial risk."

There is no national policy on the disclosure and trade secret issue, although the Bureau of Land Management has proposed rules for federally controlled lands. The policies of the states vary all over the map, and so does the degree of regulation, oversight and enforcement, as a special E&E News report documents.

A new report by the Congressional Research Service describes the disparity. It notes that at one end of the spectrum, Colorado requires companies to provide CAS numbers with the maximum concentration of each ingredient in fracking fluids. At the other end, West Virginia requires only a list of additives. Louisiana requires CAS details on hazardous ingredients, but not all chemicals. Montana says companies must provide the chemical family name for fracking fluids that are covered by trade secret protection.

"The level of detail required to be disclosed often depends on how states protect trade secrets, as these protections may allow submitting parties to withhold information from disclosure at their discretion or to submit fewer details about proprietary chemicals, except, perhaps, in emergencies," the CRS said in its report this month.

Modeling disclosure

Two years ago, Southwestern Energy Co. and several other drilling companies joined with the Environmental Defense Fund in attempting to draft "model" best practices strategies for chemical disclosure.

"The gold standard for what a disclosure statute should look like is what was developed by EDF and Southwestern and introduced in Texas," said Richard Liroff, founder and director of the Investor Environmental Health Network, and principal author of a report on fracking regulation. "That was backed initially by six companies including Southwestern.

"In Texas, the bill got watered down. It was a step forward. It accomplished a lot. It didn't go as far as it could have. My impression is the changes were compromises necessary to get it enacted," Liroff said.

The final Texas law was adopted as a model by the American Legislative Exchange Council (ALEC), a politically conservative lobbying group with industry support and a states'-rights mission. ALEC is mounting a high-priority campaign to gain state-by-state adoption of its model while lobbying against a nationwide federal standard and attacking the Obama administration's environmental regulations.

The ALEC model legislation limits trade secrecy court challenges to owners of property where wells are located, adjacent property owners and relevant state agencies -- the Texas formula.

Todd Wynn, director of ALEC's Energy, Environment and Agriculture Task Force, noted this year that ALEC's model bill was a template for Pennsylvania's fracking rules. "Four other states -- Illinois, Indiana, New York and Ohio -- have introduced versions of the bill for consideration this session," he added.

"That has been a battle in basically every state in Texas and since," Watson said. "It has been a big issue, with public interest advocates pushing for tighter control for trade secrets and industry resisting."

Thomas Cmar, an attorney with the Natural Resources Defense Council's Midwest office, said, "The Ohio law is strikingly similar to language we've seen in other states. In both Illinois and Ohio, it would be virtually impossible for a public citizen even to get into the door of a courthouse to get information on drilling and fracking."

As in Texas, the debate in Ohio began with a bill that in many ways tracked the EDF-Southwestern model. As the legislation moved through the Ohio Senate and House, public access to trade secret information was tightened, at the insistence of the oil and gas industry.

Ohio's statute expressly permits property owners where wells are located, or adjacent owners, to challenge a claim of trade secret protection. All others -- including state agencies "having an interest that might be adversely affected" -- would have to convince a judge that they faced a credible threat from the fracking operation in order to get "standing" for their suit, Cmar said. The law also permits medical personnel to obtain trade secret information to treat patients exposed to the chemicals but forbids public disclosure of the information, subjecting them to potential liability suits by companies, NRDC says.

"You have to show you have been adversely impacted by the chemicals, when the whole point of bringing the challenge is to find out what the chemicals are" before harm is done, Cmar said.

The Ohio law's final version also takes the determination of trade secrets claims outside well-defined paths followed by Ohio's Public Records Law, creating a mountainous barrier to public challenges, says Richard Sahli, a lawyer in Columbus, Ohio, representing NRDC.

As introduced by Ohio Gov. John Kasich (R), the initial version of the Ohio law required that drilling companies provide the state Division of Oil and Gas Resources Management with the name of the chemical class of any proprietary chemicals they used. The final version added language that this requirement would apply only to the upper part of a well, until it passed beyond water aquifers. It is only after that point that potentially harmful chemicals are introduced in the drilling operation, Sahli said.

"First, the material that the industry claims to be trade secrets does not have to be submitted" to the state, he said. "Since it isn't submitted, it isn't subject to the normal process for adjudicating trade secrecy issues." Under the state public records process, anyone could file a court action to obtain a public record, and a judge would decide the issue in closed session. That approach has been eliminated for fracking fluids disputes in Ohio as a result of the industry's lobbying success, he said.

In long-standing legal practice in water pollution disputes, a complainant has to show there is a pathway leading to exposure to a chemical and a reasonable basis to fear that exposure, Sahli said. Establishing such a pathway in a fracking case could take thousands of dollars' worth of expert testimony about geology and chemical risk. The research to back up such a claim may not even exist, he said.

"The industry is going to be bringing in the best lawyers, with the best connections that exist, to fight a claim like this," Sahli said. "Who's going to be on the other side? A township, a county or a family or a small citizens group. Those people cannot begin to shoulder the financial burden of proving that they are adversely affected."

That view from the environmentalist side is challenged by attorneys with industry clients. "The Ohio Department of Natural Resources has the ability to challenge a trade secrecy claim under the statute," said Jason Yearout, an attorney with Baker Hostetler in Columbus and author of a blog on Marcellus Shale hydrocarbons. "It embodies existing law as to standing. It doesn't differ significantly from what has been required."

Davis said, "Basically, I don't believe the law would change the rights of litigants in that area. If you want to get to review the chemical details, you have to get standing and show damages. It appears to me the Legislature in Ohio has decided that it wants to get the information available to the medical professionals, but not to change the process [for challenging confidentiality claims]. It may well be a compromise not everyone is happy with.

"Some of the controversy candidly is legitimate," he added. "Some of it is designed to reduce development of energy resources."

State scorecard

As the debate has moved around the country, the results have varied. Liroff said he considers disclosure regulations in Colorado, Wyoming and Montana to be relatively good and among the best.

Watson says Pennsylvania and Wyoming require companies to disclose trade secret information to state agencies -- which must keep it confidential. "You want the state agencies to have that at their fingertips," he said. The initial disclosure provides an easier path for the public to challenge trade secret claims -- the path Ohio blocked, he said.

"Overall within the industry, we have seen a response in the past three years," said Michael Passoff, senior strategist for As You Sow, a corporate accountability organization. He was co-publisher of "Extracting the Facts: An Investor Guide to Disclosing Risks from Hydraulic Fracturing Operations," with Liroff as the principal author. Now, Passoff added, most companies are saying, "There are problems and we are addressing them." With some exceptions, companies "seem to be working both sides of the street. On the one hand, they may agree to more chemicals disclosures. On the other hand, they are lobbying for more loopholes."

Liroff said, "I think it represents the pulling and tugging among different forces, with the reality that the industry itself is split. There are companies that are more progressive on disclosure than others."

Some leading drilling companies that must lease acreage for well sites and have considerable public exposure have gone furthest in support of disclosure. Companies that supply the fracking fluids are digging in to protect the intellectual property rights of the small percentage of the mix that they say gives their product an edge.

Industry-backed lobbies led by ALEC are squaring off against environmental organizations and public interest groups like Common Cause in the battle to influence state legislation, pulling the disclosure issue into the inflamed political debates over federal regulation, environmental protection and states rights.

"At the end of the day," Liroff said, "it comes down to what is the balance of power in the state legislature and what is the influence of the various players."

Part Two: What's a secret in the fracking world, and who says so?

In 2010, oil and gas companies engaged in hydraulic fracturing operations in Wyoming faced a new state rule requiring detailed disclosure of the chemical additives and compounds they used.

Suppliers of fracking fluids claimed exemptions authorized by the law, stating that scores of their products were protected as trade secrets and that disclosure would violate commercially important intellectual property rights.

The Wyoming Oil and Gas Conservation Commission approved 50 exemption requests by the fracking fluids suppliers in 2010 and 2011, among them Baker Hughes, CESI Chemical, Halliburton Energy Services and Weatherford International, according to a lawsuit challenging the trade secret claims.

The lawsuit, brought by Earthjustice, the Powder River Basin Resource Council and other organizations, alleges that the Oil and Gas Conservation Commission rubber-stamped the trade secrecy claims instead of requiring the companies to justify their requests. The groups also claim that the commission withheld all information about the proprietary products instead of shielding only the parts of their mixtures that truly contained trade secrets.

The case, which is moving through Wyoming's 7th Judicial District Court, highlights central issues in the debate over public disclosure of fracking fluids: Are the protected chemicals truly the "secret sauce" that makes one supplier's product more effective than another's? Or does the protection mainly serve a commercial purpose, concealing mystery ingredients that justify a higher price? Can trade secrecy protection be claimed just for the asking, or must companies adequately justify their requests to state regulators?

"The litigation is designed to determine whether the companies have made a sufficient showing and whether the commission had enough information to grant the exemptions under the Public Records Act," said Shannon Anderson, an attorney with the Powder River Basin group.

"We don't want the formulas, but we are interested in getting the ingredients," she said.

A new report on the fracking fluids controversy by the nonpartisan Congressional Research Service reviewed disclosure laws in 15 states where shale oil and gas development is going on. More than half contained a trade secrets exemption.

New Mexico's law apparently allows each company to decide what is, and is not, a trade secret, for example, CRS said. "The [New Mexico] division does not require the reporting or disclosure of proprietary, trade secret or confidential business information," the state says.

Other states ask for more. Montana says companies seeking trade secrecy protection should furnish the state with the "trade name, inventory name, chemical family name, or other unique name and the quantity of such constituent(s) used," according to the CRS report.

Arkansas requires companies claiming a trade secret to file a "claim of entitlement" justifying confidential treatment, state rules say. However, in Montana, Louisiana and Colorado, state regulators who are dissatisfied with such basic information apparently lack the authority to compel companies to provide more details in ordinary circumstances, CRS reports. (Some states require companies to divulge chemical ingredients to medical personnel if there is a spill or medical emergency, but not the public.)

Industry officials defend their confidentiality demands by saying their propriety mixtures are instrumental to the success of drilling operations. The geology and hydrocarbon resource are different in each of the shale regions around the United States. The ability to tailor fracking fluids to each drilling challenge is a crucial advantage, company officials say.

John Walker, CEO of oil and gas producer EnerVest Ltd., told securities analysts this spring about the challenges of completing the Buell well in Ohio's Utica Shale zone. Five different well completion methods were tried with different mixtures of proppant, the combination of sand and fluids that eases the movement of gas through the fractured shale rock. "Some have worked, some haven't," he said.

"The point was -- in any of these shale plays -- the rock is different. You take what worked in Barnett and take it to Fayetteville, then to Haynesville, and you modify it. You had to experiment by using these different completion techniques ... and finally you determine what works in the new well," he said in an interview.

Searching for consensus

Scott Anderson, a senior policy adviser with the Environmental Defense Fund, notes that his organization has been working for more than two years with a number of companies to come up with a blueprint for safe and responsible drilling techniques.

"The majority of the chemicals being used really don't have any proprietary issues associated with them. There are a few chemicals in which the mere fact they are being used is innovative enough, so they deserve some proprietary protection.

"The formulas can be another matter. In many cases, even if people knew the exact formula, there is no trade secret. In some cases, the formulas do make a difference and there is a competitive advantage," Anderson said.

"We've discovered that the industry's fear about losing trade secrets can be greatly reduced as long as they aren't required to report the exact formulas," he said. The additives can be named, and the concentrations of the chemicals as part of the entire volume of the fracking fluids can be given, without much fear of reverse engineering, provided the details of a particular component are not disclosed, he said.

"It's possible for us to get the information we want but in a format that reduces the industry's trade secret concerns. Our preference is that they should disclose it up front, and the agency should protect it if and only if it's a trade secret," Anderson said.

In March, the federal Bureau of Land Management issued proposed regulations for hydraulic fracturing on BLM-managed lands along similar lines. After completing a well, a federal lessee would have to supply the trade name and purpose of each additive, the precise Chemical Abstracts Service Registry number for each chemical and the percentage of each ingredient in the total volume of fracking fluids, the CRS noted. The format "does not link additives ... to chemical composition of the materials to minimize the risk of disclosure of any formulas of additives," BLM said.

The FracFocus Chemical Disclosure Registry run by the Groundwater Protection Council and the Interstate Oil and Gas Compact Commission -- organizations of state regulators -- lists chemicals additives by CAS number, also giving the maximum percentage of each chemical in the fracking mix, for states that require this disclosure. Recently, some states have expanded disclosure requirements to cover all nonproprietary chemicals regardless of whether they are listed as hazardous substances on federal reports. Some environmental groups say FracFocus leaves out critical pieces of the picture by reporting chemical usage on a well-by-well basis, and not aggregating the total amounts of chemicals used.

Despite long-running discussions with companies, the Environmental Defense Fund's search for a consensus blueprint for fracking liquids disclosure is itself not ready for public viewing, and EDF officials don't put a timeline on when it may be.

"EDF tends to be more supportive of the business position, and I wonder whether it goes as far as shareholders, environmental groups and other concerned groups would go," said Michael Passoff, senior strategist for As You Sow, a corporate accountability organization.

Richard Liroff, another shareholder activist, is hopeful a consensus may be found.

"The key issue with CBI [confidential business information] is the reluctance of fluid manufacturers to identify the exact percentages of secret stuff in each particular product," said Liroff, executive director of the Investor Environmental Health Network and principal author of a report on fracturing issues co-published by IEHN and the Interfaith Center on Corporate Responsibility.

The way around the problem is to require public listing of the exact chemicals in the additives but not associate them with a particular ingredient used in the fracking process, he said.

This is the way to advance the search for nontoxic additives, he said. "That is behind the whole rationale of pushing the drilling companies to understand what's in the material they are buying, and begin to ask questions, to work up the supply change and foster the demand for safer chemicals."

Republished from EnergyWire with permission.  EnergyWire covers the politics and business of unconventional energy.  “Click here for a free trial.”

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