The bill wouldn’t allow drilling to begin until 60 days after rules currently being written by the Mining and Energy Commission are adopted, but the act lifts the moratorium on hydraulic fracturing that had been in place in North Carolina and outlines a legal framework to pave the way for energy development in the state.
“I think it’s really important that we use all our resources,” said Sen. Jim Davis, R-Franklin, who co-sponsored the bill. “It’s going to be a boon to our economy. It’s going to add more jobs, and we can do all that and be environmentally responsible as well. That bill is going to have the toughest environmental regulations of any state in the country.”
That’s not a universal opinion, however. Though the bill passed the Senate 33-12, the House vote was closer, 64-50. Rep. Joe Sam Queen, D-Waynesville, believes the bill was pushed through too hastily, including too many concessions to the energy industry and not enough time for constituents to react.
“There are a lot of loose ends and there is no need to rush this at all,” Queen said. “It is foolhardy. The risks far outweigh the gain.”
The path through the capital
The first version of the bill was filed in the Senate on May 15, and it passed first reading on May 19. By May 22, it had passed the third and final reading before being sent to the House. The House then took up the bill May 27 and passed the third reading May 29. Later that same day, the Senate concurred on the House’s changes, and by May 30 the Energy Modernization Act was on the governor’s desk. As of press time, it is still there.
“We had a heck of a time just meeting their deadline, so they succeeded in having our backs to the wall,” Queen said.
“It happened quickly,” said Katie Hicks, assistant director of Clean Water for North Carolina. “It happened without enough time for constituents to make their feelings known to the legislature.”
Davis, however, takes issue with that assertion.
“This has been in the works since at least two years ago,” he said.
Over that time, the chief sponsors of the bill visited Pennsylvania and Arkansas, both states that have recently become high-producing gas states, to gather information, Davis said, and the Mining and Energy Commission has been working on its rules since it was formed in July 2012.
And this bill isn’t necessarily the starting gun for fracking and horizontal drilling in North Carolina, Davis said. According to the bill, no development can happen until permits are issued, and no permits can be issued until two months after the MEC’s rules are adopted. The rules must be written by Jan. 1, 2015, and they will be subject to legislative review in the next regular session. That means that legislators will be able to introduce bills to disprove any portion of the rules.
“That whole process is going to be dynamic,” Davis said. “It’s always going to be open to revision.”
The 26-page bill changes the deadline for the MEC’s rules from Oct. 1 to Jan. 1, 2015, establishes an Oil and Gas Commission under the Department of Environment and Natural Resources and reconstitutes the current MEC under the name North Carolina Oil and Gas Commission, with different rules for naming members. It establishes minimum bonding requirements and permitting fees, states that companies will be responsible for water contamination within a half-mile of each well and outlaws injecting waste associated with fracking into the ground, to name some of the ground it covers. The bill includes a section outlining who will have what information when it comes to the chemical composition of fracking formulas and makes it a misdemeanor to disclose information protected as a trade secret.
Debating local control
But it does all this while invalidating any local rules that would “prohibit or [have] the effect of prohibiting oil and gas exploration, development, and production.” Fracking and horizontal drilling themselves are hot-button issues that bring out passionate people on both sides, but this section of the bill has likewise elicited some heated opinion.
“We have totally voted against it, done a resolution opposing the fracking bill,” said Swain County Commissioner David Monteith. Monteith, Chairman Phil Carson and County Manager Kevin King even traveled to Raleigh to tell Davis and Queen just that.
“There’s not enough information, and one of the things we did tell our legislators is that something that takes place in the eastern part of the state may not work on our mountains, and we need to look to make sure,” Monteith said.
“Until there’s more information comes out, our board has instructed me that the county needs to be opposed to it,” King said. “We alerted our legislators that’s the position Swain County is taking.”
Not all counties are following Swain’s lead, however. The energy industry comes with a steep learning curve, so some leaders are taking the middle road for now, stepping back from an opinion until they’ve had time to educate themselves a little more.
“I think there’s probably a lot of education that needs to take place for a lot of folks, including myself, because I don’t understand the issues enough to know what I should be concerned about,” said Jackson County Manager Chuck Wooten.
“I’m concerned about the environmental aspects of it, and I’ve heard conflicting messages on it,” said Haywood County Commissioner Kevin Ensley. “I’d probably study it more as a commissioner before I made up my mind, but I think it’s America’s future, really, natural gas.”
“Conflicting messages” is probably an accurate statement. When it comes to fracking and horizontal drilling, environmental groups tell horror stories of contaminated drinking water, air polluted from heavy truck traffic and decimated land left behind from irresponsible energy companies walking away from too-low bonds. Meanwhile, proponents promote it as a panacea, a technology that has progressed so far as to be nearly infallibly environmentally safe, an industry that promises easy money and abundant jobs.
“I would like to get evidence that fracking is safe for everyone before it’s done, and I’m not willing to take the industry at its word,” said Robert Smith, acting board chair of the Jackson-Macon Conservation Alliance.
With a nearly limitless number of questions to ask and issues to explore, some local leaders see wisdom in the bill’s clause disallowing counties from banning the industry in their boundaries.
“Local control is the best, but it almost seems like there would be too many things involved to make a decision on,” Ensley said. “The state has the ability to hire scientists to come in and make a decision, and the county wouldn’t have the expertise. I hate to say the state could make a better decision, but they definitely have more resources.”
“I certainly think the state does have the resources we don’t have,” Wooten agreed.
That’s precisely why, Davis said, the bill includes that provision.
“You can’t have different regulations in all 100 counties, so we had to have a template to operate it from the state,” he said. “For example, counties don’t have the experts to know how to deal with this issue. They don’t have the geologist on staff, they don’t have the particular environmental staff, they don’t have the legal issues. This is a complicated issue, and as such it needs to be regulated by the state.”
Queen, however, disagrees.
“There might be some local government issues,” he said, citing needs such as increased law enforcement, fire protection and road crews that could accompany a boomtown. “But they’ve pretty much tied local government’s hands. Local government will have to be first responders, they’ll have to deal with the cleanup.”
An amendment to delete that section of the bill was introduced in the Senate but defeated by a 30-16 party-line vote.
Chances for development
But in practice, natural gas drilling won’t necessarily become a statewide reality. When it comes to fossil fuels, not all formations are created equal, and wells cost millions of dollars to drill, so energy companies would concentrate their efforts where a return was most likely.
Though the wells aren’t producing since North Carolina put a moratorium on oil and gas drilling, the piedmont region of the state already has some exploratory wells. That region of the state contains part of the Deep River basin, which the U.S. Geological Survey named in the top three of the five East Coast basins it assessed for energy potential.
“I doubt we’re going to get an commercial enterprise to invest the time and the effort and the money in to harvest that natural gas resource if there’s only a small limiting supply,” Davis said.
However, it’s all but impossible to know for sure what’s under the ground until you start poking holes. Even in a productive region, a well drilled in one location could pump up a fortune while one drilled a mile away comes up dry.
In a few months, though, the USGS will start the research to take its best stab at the resource potential in Western North Carolina. Testing will begin in late summer or early fall using rock samples taken from Department of Transportation rights-of-way. The General Assembly has appropriated $300,000 statewide in 2014-15 and $250,000 for 2015-16, with $11,725 earmarked for the seven western counties. If the initial work indicates potential for shale gas development, an additional $128,000 will become available for WNC.
Planning for the future
Until those numbers come in, the future will remain an elusive guess to local leaders and planners.
“I would say we’re probably looking through the summer months before we really know how this will impact us,” said Rich Price, director of the Jackson County Economic Development Commission.
Though the bill, as written, doesn’t give counties the ability to opt out, local governments do get to decide how to address whatever situation the mineral resources below bring forth in their jurisdiction. But it will be a while before it’s possible to make a plan.
“Right now we don’t know enough to be able to say, ‘OK, we feel like this is going to impact Jackson County, so let’s take all these steps to be ready for it’ when it might not even be present,” Price said. “It’s way too early for us to be able to say anything definitive with how we feel like this is going to impact Jackson County.”
“We just have to follow the process closely,” agreed Mark Clasby, Haywood County’s economic development director.
And, potential economic impact isn’t limited to the reality of what’s under the ground. It also depends on the marketplace, and natural gas prices are historically volatile. According to the U.S. Energy Information Administration, the March 2014 citygate price for natural gas was $6.56 per thousand cubic feet, just about half of its historic high, recorded in July 2008 when natural gas sold for $12.48 per thousand cubic feet. But it’s risen substantially from just one year ago, when that number was $4.75.
With so many unknowns milling around, then, local leaders are waiting for the dust to settle before they plan for the future.
“It is just a wait and see approach for us now,” Price said.
A timeline of the Energy Modernization Act
May 15: Bill is filed in the Senate as Senate Bill 786
May 19: S786 passes first reading.
May 21: S786 passes second reading.
May 22: S786 passes third reading.
May 27: S786 passes a first reading in the House. It is referred to the Public Utilities and Energy Committee and then to the Finance Committee.
May 28-29: S786 passes second and third reading, with seven of 20 proposed amendments adopted.
May 30: S786 is sent to Gov. Pat McCrory.
Summer/Fall 2014: U.S. Geological Survey to assess fossil fuel potential in Western North Carolina set to begin.
Jan. 1, 2015: Deadline for the Mining and Energy Commission to present their rules for drilling in North Carolina. S786 extended the deadline, which was previously set for Oct. 1, 2014. Permitting could begin starting 60 days after the rules are adopted.
How they voted
Sen. Jim Davis, R-Franklin
Rep. Michele Presnell, R-Burnsville
Rep. Roger West, R-Marble
Rep. Joe Sam Queen, D-Waynesville
The dynamic duo of fracking and horizontal drilling
If you’re looking to extract fossil fuels from the ground, you’ve got your pick of ways to do it. But the technology that’s exponentially expanded the U.S.’s energy potential over the past decade or so is the combination of horizontal drilling with fracking, both of which have been the subject of media attention and scrutiny. If energy exploration did eventually occur in Western North Carolina, that’s probably how it would be done.
Horizontal wells typically start out plunging one to two miles underground before hitting the oil- or gas-bearing formation, called the pay zone, and then turn to extend horizontally through it, sometimes as far as two miles.
During the fracking stage of the operation, explosives are injected to create fissures in the pay zone rock, and frack fluid — a combination of water, chemicals and sand — is added to prop the cracks open, allowing any oil or gas the rocks contain to flow into the wellbore and up to the surface.
But while horizontal drilling and hydraulic fracturing have been around individually for decades — the first experimental hydraulic fracturing treatment in the U.S. took place in 1947 and the first horizontal well was completed in 1929 — it’s only been the last 10 or 15 years that the two have been used together.