HYDRAULIC FRACTURING and LIQUID PROPANE FRACKING for Natural Gas

1. HYDRAULIC FRACTURINGand LIQUID PROPANE FRACKINGfor Natural Gas Issues for Local Government and Community Consideration April 2012

2. COMPETING INTERESTS AND ISSUESAre they accurate and reliable? Are they mutually exclusive or can they be reconciled? Cheaper Fuel Jobs and Training Income for Landowners Greener than Oil and Coal Revenue for Local Communities and New York State Reduced Reliance on Imported Oil/National Security Implications Impacts on Water, Public Health and Safety Infrastructure Maintenance Costs Financial Impacts and Burdens Character of the Community Advocacy and Actions Quality of Life Vs.

3. U.S.A. SHALE GAS MAP

4. WHERE ARE THE GAS RESERVES IN NEW YORK? • Marcellus Shale • Finger Lakes • Southern Tier • Current focus • Utica Shale • Albany to Buffalo • Includes Monroe County • Future interest • Depends upon the price of natural gas and the cost of deeper drilling

5. What is High Volume Hydraulic Fracturing or Hydrofracking? • Hydrofracking is a water-based process used by gas companies to extract natural gas trapped in shale formations. • Shale is a fine-grained sedimentary rock formed from the compaction of silt and clay-size mineral particles we commonly call “mud”. Shale (“mudstones”) has many layers and splits readily into thin pieces.

6. THE HYDROFRACKING PROCESS • Older method of drilling • vertical well shafts • Newer method for deep well drilling • high pressure, high volume horizontal drilling • in use for about a decade

7. DRILLING MODELS Average Well Depth in the Marcellus Shale is 5,300 ft. (more than 4 times the height of the Empire State Building)

8. Well Pad Construction Site ~ 4 to 10 wells/2.5 acre pad ~ 2 to 8 weeks to construct ~3 weeks to hydrofrack

9. HYDROFRACKING PAD

10. THE PROCESS (cont.) High Volume Hydraulic Fracturing (HVHF) • For deep shale deposits • Uses high pressure infusions of • water • sand • chemical additives • Fractures the rock to allow natural gas to flow

11. GRAPHIC OF HYDRAULIC FRACTURING

12. FRACKING FLUID • Water, sand, and chemicals = fracking fluid; specific composition depends upon the conditions of the specific well being fractured • Friction-reducing additives create “slickwater” to allow the fracturing fluids to be pumped at a higher rate and reduced pressure vs. plain water • Sand allows the fractures to remain open so the gas can escape • Slickwater Ratio: 98% to 99.5% water, 0.5% to 2% additives (U.S. Department of Energy)

13. FRACKING FLUID (cont.) • Some of the toxic and hazardous materials used in hydrofracking are known carcinogens and/or can cause other health problems in humans and animals, e.g.kerosene, benzene, toluene, ethylbenzene, xylene, and formaldehyde • Low level radioactive tracers may be used in the process • Flowback (wastewater) may contain other toxic and hazardous materials difficult to dispose of • naturally occurring radioactive material (NORM) • heavy metals and chlorides

14. CHEMICAL ADDITIVES • Disclosure: gas companies withheld the ingredients as proprietary information, but governmental and public demands led to disclosure. • From a public health perspective, posting the contents of fracking fluid and flowback is useful but insufficient. • Loopholes in federal law have excluded oil and gas companies from regulation of toxic and hazardous material.

15. A NEW ALTERNATIVE PROCESS:LIQUID PROPANE FRACKING • Injects propane gel under high pressure into shale instead of water • Uses 90% propane and a diester phosphoric acid gelling agent for viscosity to carry chemicals and sands • Propane gasifies and returns to the surface during the process, leaving the chemicals behind • Recovered propane is sold or reused; propane is more expensive initially, though it can be resold.

16. LPG Well Pad inside climate news: GasFrac

17. Comparison of fracking methods

18. LPG FRACKINGQuestions and Concerns • No empirical analysis or scientific study yet • Liquid propane is highly combustible • Requires large quantities of additional but different chemicals, currently unknown • Potential problems with migration of methane and other chemicals into groundwater?

19. LPG FRACKINGQuestions and Concerns (cont.) • Heavy industrial compressors may be needed on site to re-condense returned propane for reuse initially; may contribute to air pollution • Uses about one quarter the number of truck trips of water-based fracking, thus less impacts on roads, neighbors, and company costs • Propane is more expensive initially, though it can be resold

20. STATUS OF PROPANE FRACKING IN NEW YORK STATE • Landowner group has an agreement with gas drillers • Is it included under the current state moratorium? • Chevron tested this process—says it has economic and environmental performance potential • Initially the LPG method can cost 20-40% more than water fracking, but this doesn’t include ongoing costs for HVHF water handling and disposal • Further testing and study are needed. Will a NYSDEC environmental study be required? • NY has a source of propane via a pipeline that runs from Pennsylvania through the heart of the Marcellus Shale in the Southern Tier en route to New England

21. ECONOMIC BENEFITS VS. ENVIRONMENTAL IMPACTS From the perspective of gas companies, the HVHF method has economic benefits, i.e. fewer wells are needed to access trapped natural gas; however, significant community concerns about negative environmental and health impacts exist.

22. PUBLIC SAFETY Hydraulic Fracturing • Accidents and aging of sites happen. What mitigations will matter? • How will on-site accidents and aging wells impact groundwater and aquifers, surface water resources, public water systems and private well water? • What about air quality from burn-off during the process, e.g. methane, and evaporation from on-site flowback storage ponds? • The experience of other states is informative.

23. TAP WATER WITH METHANE CONTAMINATION Shery Vargson, Granville, PA, since June 2010

24. Marcellus Shale Gas Development DRILLING AND PUBLIC SAFETY Presented by Chesapeake Energy February 22, 2012, New York Association of Towns Meeting • Site preparation with zero discharge: berm and decking material over 2/3 of the 2.5 acre pad • Pre-drilling water testing to 4000 ft. • Closed-loop system for drilling • 7 layers of cement and pipe casing • List of additive chemicals posted on site

25. PUBLIC SAFETYChesapeake Energy Presentation (cont.) • “Flowback“ water: recycle, storage, transportation, treatment, discharge • Safe work Practices: equipment built to industry standards and routine inspections • Emergency Response Plan: use third party contractor, train local first responders, 24 hour emergency contact number, Incident Command System used • Reclamation: restore site surface, fill well with concrete • “Brownfield” and groundwater contamination concerns not addressed

26. PUBLIC SAFETYNY Local Government’s Primary Responsibility • Drinking Water: This issue is not just about the potential environmental, health and financial costs to communities or the perceived economic and energy benefits to individuals, our communities and the State of New York; clean, safe drinking water is about life itself. • Huge Volume of Water Needed for the Process: 1.5 to 5 million gallons/well (other estimates are higher, e.g. 3 to 9 million gallons/well). Wells may be fractured up to 18 times.

27. Monroe County Water Supply

28. PUBLIC SAFETY (cont.) • Pre-Drilling Testing of Public Water vs. Well Water • Waste Water Treatment Capability and Capacity • Seismic Activity: Infusion Wells for Disposal of Waste Water (recent earthquakes in Ohio led to new restrictions and regulations) • Recycling Waste Water: Reuse in Drilling and Post Drilling Uses, e.g. brine for snow and ice control • Disposal of drilling waste material in local landfills? Will this create a “brownfield” condition?

29. PUBLIC SAFETY (cont.) • Hazardous Material: Type and Volume, Public Notice (Ground Water Protection Council/Interstate Oil and Gas Compact Commission website: www.fracfocus.org now; site specific information on the New York State Department of Environmental Conservation (NYSDEC) website in the future: www.dec.ny.gov) • Impact on Human and Animal Health • Impact on Agriculture, e.g. the wine industry • Emergency Management and Local Emergency Responder Training • Traffic Congestion, Safety and Control

30. INFRASTRUCTURE • Traffic Volume and Loaded Vehicular Weight • Approximately 500 one-way trips per well for all three phases of a gas well—drilling, fracking, maintenance and disposal. With 3 to 10 wells/pad, total truck trips can run between 3,000 to 10,000. • Some trucks weigh as much as 80,000 to 100,000 lbs. when fully loaded with water or sand • Capacity of Current Infrastructure • Road Construction and Maintenance • Consider Road Use and Preservation Laws • Cannot charge a fee for use of public roads, but can seek damages • Establish a baseline via an engineering evaluation • Consider Road Use Agreements/Contracts: voluntary negotiations to address impacts to roads; not all gas companies will enter into such agreements

31. INFRASTRUCTURE • De-icing Material • Hydrofracking Waste and Wastewater Storage, Transportation, Treatment and Disposal • NORM (Naturally Occurring Radioactive Material): Comes up in the flowback; NYSDEC says more study is needed

32. FINANCIAL ASPECTS • Increased Public Costs for Infrastructure/Roads and Bridges, Public Safety Services, Water, Waste Water Treatment, Landfills, Public Health Services • Voluntary Road Use Agreements • Some agreements provide for gas companies to construct new roads to meet vehicle weight and trip frequency demands • Some agreements provide for repair of roads • Impact on Property Values for Homes with Contaminated Wells/Drinking Water, and Agricultural Industries Dependent upon Clean Water

33. FINANCIAL ASPECTS (cont.) • State Taxing Options and Status: New York has no Severance Tax • Property Tax Implications • Taxes Paid by Landowners • Taxes or Other Payments by Gas and Drilling Companies • Tax Abatements and Exemptions from IDAs ? • Compulsory Integration

34. PROPERTY TAXATION AND COMPULSORY INTEGRATIONPresented by NYS Dept. of Taxation and Finance, and Hinman Straub, PC, February 22, 2012, NY Association of Towns Meeting Valuation: • 14,000 active wells in NYS now, “income approach” is the most applicable using a discounted rate to convert projected income. • The economic unit includes everything except the land. • For a copy of the presentation, visit www.tax.ny.us/research/property/valuation/ oilgas/index.html

35. PROPERTY TAXATION ANDCOMPULSORY INTEGRATION (cont.) Compulsory Integration: • Relates to subsurface factors, NYSDEC requires at least 60% control of property, income/expense options for landowners with and without leases, not a “taking” • For more information, visit www.dec.ny.gov/energy/1594.html

36. MORTGAGE ISSUES • Residential mortgages contain a provision prohibiting hazardous activity and the release of hazardous substances. A residential property owner may be in default by merely entering into a drilling lease. • People who have signed oil and gas leases may find it more difficult to borrow against the property--for a second mortgage, to refinance loans, or to purchase property that is subject to a gas lease.

37. MORTGAGE ISSUES (cont.) • If a buyer cannot get a mortgage and the seller cannot sell the property otherwise, then the property value would likely decrease significantly, impacting personal equity and property tax revenues. • US Department of Agriculture: the rural loans program may no longer finance homes with gas leases, and the NYDOA is now considering requiring an extensive environmental review before issuing mortgages to people who have leased their land for oil and gas drilling.

38. ECONOMIC CONSIDERATIONS • Low cost natural gas and gasoline in the USA compared with much higher costs in Europe and Asia • US Department of Energy has approved exporting natural gas to Europe and Asia via new pipelines to terminals on the Gulf Coast and East Coast. • Companies outside of the USA are acquiring US natural gas companies or shares of companies, increasing international control of our natural gas resources. • Domestic and foreign companies will extract our natural gas and sell the product abroad at a higher profit, but we won’t achieve the shift to greener energy we seek in the USA.

39. ECONOMIC CONSIDERATIONS (cont.) • An “all of the above” transition makes sense now (if natural gas can be extracted safely), but neither that nor “drill baby drill” are true energy policies. • The USA needs to become more self reliant and use clean, sustainable energy resources, e.g. solar and wind, in the interest of our economy, national security, and environmental safety and health. • NYS needs to have an energy policy as it relates to taxation, subsidies, regulations, monitoring and enforcement, local considerations, etc.

40. TRANSPORTATION USING COMPRESSED NATURAL GAS (CNG) • Trucks, buses, and other large vehicles have the physical space to hold CNG tanks • Cars are already designed for CNG • No current distribution system exists in the U.S.A. • CNG fueling stations will need to be installed across the country. • There is no national policy to facilitate this transition.

41. CHARACTER OF THE COMMUNITY • Zoning Laws • Comprehensive Plans • Environmental Protection Overlay Districts (EPODs) • Citizen Participation • NYSDEC Consideration During Permit Application Reviews

42. QUALITY OF LIFE • Water Resources • Traffic Congestion • Local Jobs • Accommodations for Out-of-area Workers • Training of Local Residents – Community Colleges, other

43. QUALITY OF LIFE (cont.) • Timeline for Construction of Drilling Sites (about 4 to 6 weeks) • Site Maintenance • Percentage of Wells That Are Productive • Lifespan of Wells (20-30 years), Closure, and Mitigation Measures

44. LEGAL ACTIONS NYS Supreme Court Decisions on Home Rule vs. Preemption • Anschutz Exploration Corporation v. Town of Dryden* • Cooperstown Holstein Corporation v. Town of Middlefield Both ruled in favor of municipal Home Rule, i.e. “…local governments may exercise their powers to regulate land use to determine where within their borders gas drilling may or may not take place, while DEC regulates all technical operational matters on a consistent statewide basis in locations where operations are permitted by law.”

45. LEGAL ACTIONS (cont.) • NYS Attorney General v. US Government Complaint: Army Corps of Engineers and other federal agencies failed to commit to a full environmental review of proposed regulations in the Delaware River Basin. Response: Delaware River Basin Commission is a multi-state but not a federal agency and the EPA is studying the possible impact of hydrofracking on water quality. Result: No court decision has been made at this time.

46. dSGEIS: What Wasn’t Included in the Study The draft Supplemental Generic Environmental Impact Statement (dSGEIS) has many deficiencies, and the NYSDEC is currently reviewing more than 61,000 comments. The draft SGEIS: • DOES NOT prohibit the use of toxic and carcinogenic chemicals in the fracking process; • DOES NOT prohibit drilling in or around all aquifersin order to protect everyone’s drinking water; • DOES NOT contain a health impact assessment; • DOES NOT have a comprehensive cumulative impact analysis but, instead, only looks at impacts on a well pad-by-well pad basis; • DOES NOT look at pipeline and compressor station impacts;

47. dSGEIS: What Wasn’t Included in the Study (cont.) • DOES NOT protect drinking water infrastructure; • DOES NOT close the hazardous waste loophole, which allows hazardous fracking waste to be sent to our ill-equipped sewage treatment plants and municipal landfills; • DOES NOT prohibit spreading fracking wastes on roads; • DOES NOT address the potential for seismic impacts; • DOES NOT consider mortgage lending impacts on properties with drilling leases; and • DOES NOT respect local zoning (but NYS Supreme Courts have ruled in favor of Home Rule for land use decisions • Said propane fracking was “not mature enough” to support drilling in New York; will review when NYSDEC gets a proposal

48. A POTENTIAL NYSDEC REGULATORY APPROACHPresented by the NYSDEC, February 22, 2012 NY Association of Towns Meeting • Supplemental Generic Environmental Impact Statement (SGEIS): following review of approximately 61,000 comments, the FGEIS (final statement) will be issued and Findings made • NYSDEC regulates activity: high volume, horizontal drilling, large well pads • Will apply to all such activity, including the Marcellus Shale and Utica Shale • Concerns: well pads crowded with people, large amount of water used, industrial activity; water contamination, ecosystems and wildlife, air quality, greenhouse gas emissions, naturally occurring radioactive material (NORM)

49. DRAFT REGULATIONS (cont.) • Will local governments be able to do their own environmental review (EIS)? NO, but NYSDEC will include local input in decision making on permits • Mitigation and conditions: Storm Water Regulations; Road Use Agreements; pad setbacks; supplemental permit conditions; no water contamination; not in flood plains, New York City and Syracuse watersheds, state lands (local governments will decide if they wish to allow leases local public lands) • Spreading of brine for snow and ice control can’t be done without further study re: chemicals and NORM • Community Character: NYSDEC will use a consultation procedure for local governments to advise on this aspect, and based upon the advice, NYSDEC will slow down the permitting process on certain applications • Anticipate a NYSDEC decision in 2012; April 1, 2012?

50. OTHER STATE ACTION? • Extend the moratorium until further studies can prove that HVHF can be done safely • NYS Legislature and Governor – legislation on local control (yea or nay) • Funding for NYSDEC staffing to review permit applications, monitor projects, and enforce regulations • Enforcement penalties for violations, damages – to the state, to local governments, to individuals