Friday, April 14, 2017

Global Shale Law Compendium: Shale Governance in Maryland

Written by Chloe Marie – Research Fellow

The Global Shale Law Compendium series addresses legal developments and other issues related to the governance of shale oil and gas activities in various countries and regions of the world. The articles published thus far have highlighted governance actions within the European Union and its Member States. In this article, however, we will shift our focus to legal, policy, and governance issues related to shale gas development in the United States, and more specifically in the state of Maryland.

On April 4, 2017, Maryland Governor Larry Hogan signed a law prohibiting the use of hydraulic fracturing for exploration or production of oil or natural gas in the state.  As a result, Maryland became the third state in the United States, joining New York and Vermont, to ban shale oil or gas development. The Appalachian region of the eastern U.S. is home to substantial Marcellus shale gas resources, and such resources are located within the western part of Maryland, in Garrett and Allegany Counties. Unlike its neighboring states of Pennsylvania, Ohio, and West Virginia, no development has taken place in Maryland despite some level of interest by the industry. The Maryland Department of the Environment has received a total of 11 applications to construct a total of 7 wells since 2009, but no permits have been issued.

In an effort to study the impacts of shale gas development upon the state, on June 6, 2011, Former Governor Martin O’Malley issued Executive Order No. 01-01-2011-11 establishing the Maryland Marcellus Shale Safe Drilling Initiative.  This Initiative was designed to “assist State policymakers and regulators in determining whether and how gas production from the Marcellus Shale in Maryland can be accomplished without unacceptable risks of adverse impacts to public health, safety, the environment and natural resources.” The Executive Order provided for the creation of an Advisory Commission to analyze, in consultation with the Maryland Departments of the Environment and of Natural Resources, the appropriateness and need for specific regulations addressing shale gas development.

In December 2011, the two Departments released the results of Part I of the study addressing findings and related recommendations regarding sources of revenue and standards of liability for damages caused by gas exploration and production. The report recommended, among other things, that the Maryland legislature should create a severance tax in order to generate revenue to be deposited in a Shale Gas Impact Fund. This Fund would be used for impact monitoring purposes. In addition, the report suggested that the legislature pass a law establishing a rebuttable presumption that damages occurring closely in space and time to hydraulic fracturing activities are caused by those activities.

Part II of the study was released in July 2014 and provided recommendations for best practices for all aspects of natural gas exploration and production in the Marcellus Shale in Maryland. Interestingly, the Departments recommended that operators be required to develop a comprehensive plan of action addressing the entire project scope of a company or multiple companies in order to focus on “multiple aspects of shale gas development from a holistic, broad-scale planning perspective rather than on a piecemeal, site-by-site basis.”

In November 2014, the Departments released a draft of Part III of the study providing findings and recommendations on the potential economic and environmental impact of Marcellus Shale drilling in Maryland and found that “it is the judgment of the Department of the Environment and the Department of Natural Resources that provided all the recommended best practices are followed and the State is able to rigorously monitor and enforce compliance, the risks of Marcellus Shale development can be managed to an acceptable level.” The final version of the study’s Part III was then released on December 19, 2014. Based on the conclusions of this study, it appeared that development would be authorized in western Maryland as the Department of the Environment published, on January 9, 2015, in the Maryland Register a notice of proposed action to update and adopt new regulations addressing new technologies for oil and gas exploration and production. The proposed regulations, however, were not finalized prior to the expiration of Governor O’Malley’s time in office on January 21, 2015. The incoming governor, Larry Hogan, had expressed support for shale development during his campaign for office.   

In the early days of Governor Hogan’s administration, the Maryland legislature began to pursue a ban on hydraulic fracturing in the state. By a veto-proof margin, the legislature passed House Bill No. 449, which became law on May 29, 2015, without the Governor’s signature after he refused to sign or veto the bill.  This legislation had the effect on temporarily banning shale gas development using hydraulic fracturing until October 1, 2017. The legislation required that the Maryland Department of the Environment adopt oil and gas regulations addressing hydraulic fracturing by October 1, 2016. The regulations were not to become effective until October 1, 2017, and the Department was prevented from issuing permits for the exploration or production of natural gas until that date.

The Maryland Department of the Environment issued and published proposed regulations in the Maryland Register on November 4, 2016. The proposed regulations addressed the protection of aquatic habitat, air quality, public safety, public participation, waste management, well plugging and site reclamation. According to the Department, “the intended beneficiaries of the proposed regulations are residents of and visitors to Garrett and Allegany Counties or other areas where oil and gas development may occur in the future.”

Prior to the end of the temporary moratorium established in 2015, the debate over whether or not the state should authorize shale gas development using hydraulic fracturing once again arose. Thus, in February 2017, House Bill No. 1325 was introduced to address these concerns by prohibiting the hydraulic fracturing of a well for the exploration or production of oil or natural gas in the state. The House of Delegates passed the bill on March 10, 2017, with a vote of 97 in favor and 40 against before sending it to the Senate on March 13, 2017.

On March 17, 2017, during a news conference, Governor Larry Hogan surprisingly, based upon his prior statements, declared that “the possible environmental risks of fracking simply outweigh any potential benefits” and that “this legislation, I believe, is an important initiative to safeguard our environment.” Ten days later, the Senate passed the bill by a vote of 36 to 10. The legislation establishing a permanent ban will become effective on October 1, 2017, on the day that the 2015 temporary moratorium will lapse.

Prior articles in the Global Shale Law Compendium series:
·       France (March 30, 2017)
      England (April 6, 2017)

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