Natural Gas Industry Pressured by States

By Jon Hurdle

PHILADELPHIA, Dec 30 (Reuters) - As U.S. energy companies scramble to mine natural gas from shale deposits, state regulators are struggling to keep pace amid criticism that they lack the resources to enforce environmental laws.

Shale gas trapped deep underground is considered one of the most promising sources of U.S. energy and one that is generating jobs, royalties for landowners and tax revenue for cash-strapped state governments.

But environmentalists and small-town neighbors of drilling operations say officials have been slow to respond to their complaints of air and water pollution resulting from drilling, production or gas processing.

Neighbors of drilling sites complain their claims are often dismissed as insignificant or outside state control, though they received a morale boost last week when New York City asked New York state to ban shale gas drilling in the city's watershed. [ID:nN22207119]

Energy companies say they work hard to prevent spills and note that science has yet to link the chemicals used in the controversial technique to break through layers of rock to illness.

Agencies such as Pennsylvania's Department of Environmental Protection, which is monitoring the rapid development of the massive Marcellus Shale, argue that they keep a close watch on gas companies and don't hesitate to penalize rule-breakers.

"We are not turning a blind eye to the problem," DEP Secretary John Hanger told Reuters. "Our role is to maximize the benefits and minimize the costs."

Shale gas is being tapped by advances in horizontal drilling, and by hydraulic fracturing, or "fracking," a technique that critics say contaminates drinking water with chemicals that can cause cancer and a range of illnesses.

Hanger rejected claims the agency is facilitating Marcellus development with minimal regulation. He said the number of drilling inspectors has risen to 120 from 75 in February 2009. They regulate more than 800 Marcellus wells that have been drilled since 2005.

In September, the DEP fined Cabot Oil & Gas Corp. (COG.N) $56,500 for three spills of a drilling lubricant and banned it from hydraulic fracturing until it bolstered safeguards.

The increased oversight is being paid for by higher fees levied on energy companies, the secretary said.

WYOMING, NEW YORK

In Wyoming, whose economy is heavily dependent on oil and gas, some in the farming community of Pavillion say the state's Department of Environmental Quality has shown little interest in complaints about trucks spilling drilling fluids on roads or requests to test water.

"There's a lot of pressure from the government to allow industry to proceed," said John Fenton, a Pavillion farmer whose water well is contaminated. "They are not hindering the industry in any way."

In New York state, 17 inspectors and other officials monitor about 15 traditional vertical wells in the Marcellus Shale, and the state is considering opening the formation to the type of horizontal drilling that critics fear.

Stephanie Hallowich, from the southwest Pennsylvania town of Hickory, said the DEP has downplayed or ignored her complaints about air and water contamination from a complex of gas installations near her home.

In October, a compressor station experienced what she said was a sudden, violent release of gas that shook her house and filled the air around it with foul-smelling gas. "It sounded like a jet engine," Hallowich said.

State inspectors found the incident to be a routine albeit loud depressurization of compressor station equipment.

"The company is now being required to alert area residents when they are doing scheduled blow downs," said Teresa Candori, a spokeswoman for the DEP.

Hallowich rejected the DEP's statements that it is adequately regulating the Marcellus boom.

"They have not been responsive," she said. "There have been no violations, and they have not been keeping up with inspections." (Reporting by Jon Hurdle; Editing by Daniel Trotta and Cynthia Osterman)