The Bureau of Land Management (BLM) proposed new rules on hydraulic fracturing to extract oil and natural gas on federal and Indian lands. I guess after watching EPA and the Department of Transportation go after shale energy, they wanted to get in on the action too.

In her response to BLM, Institute for 21st Century Energy president and CEO, Karen Harbert pointed out that the proposed rule is unnecessary, duplicative of state regulatory efforts, and will harm the job-creating energy industry.

First, BLM doesn’t offer a reason to issue a new rule. They don't explain how current federal and state rules are inadequate. “This underlying work is the minimum one would expect from the agency before proposing regulations, and without such a minimal foundation, it is premature to propose this rule,” comments Harbert.

Second, unlike many state regulations, the proposed BLM rule lacks clear standards. “The rule focuses on information which needs to be submitted by the applicant or permit holder, rather than the underlying performance requirement or standard which needs to be met,” Harbert says. This could delay well construction and operations by having companies “complete additional tests or to wait for BLM to review information.”

For example, under the proposed rule, drillers would have to submit a cement bond log to BLM to demonstrate that the well was constructed properly, but BLM doesn’t provide a standard upfront for a properly-constructed well. It’s possible that BLM could declare that the work wasn’t good enough after a driller invests considerable sums into the well. Another possibility is that the driller would have to wait for BLM’s sign off before continuing work. In either case, this increased uncertainty would raise well construction costs and “has the potential to significantly retard investment.”

Third, BLM’s proposed rule would be an additional and unnecessary regulatory layer. Mark Green at Energy Today sums up the arguments from state leaders opposing the rule:

Governors and state regulators in energy-producing states see problems with the BLM rule as proposed – including duplication of existing and effective state regulation/oversight, the lack of scientific justification for the new rule and a top-down regulatory approach that fails to acknowledge the unique drilling conditions that exist from region to region across the country.

Finally, BLM doesn’t adequately weigh the costs and benefits of the proposed rule. The agency doesn’t estimate the costs of delays in permitting and well construction that could reduce investment, and they could be substantial. Harbert cites a 2009 IHS Global study that estimates “that significantly increasing regulations on hydraulic fracturing for the oil and gas industry had the potential to reduce the number of wells drilled by 20%.”

In a House Energy and Commerce hearing on increasing North American energy development, Energy and Power Subcommittee Chairman Ed Whitfield (R-KY) pointed out that 96% of the increase in U.S. oil production since 2007 has been on non-federal lands. Also, it’s been noted here that the American energy boom has been a story of increased production on private and state-managed lands. Oil and natural gas production on federal and Indian lands decreased by 11% and 6% respectively from 2010-2011 [See the chart below].  More federal rules are unlikely to improve that situation.

The shale energy boom has been a job-creating star in a grey economy. The August jobs numbers show that oil and gas extraction payrolls grew by 1,100 employees to 197,300 on a seasonally adjusted basis, up 0.6% from July and nearly 12% from a year ago. Much of this is because of hydraulic fracturing. Jobs are being created in North Dakota and other parts of the country, including jobs supporting hydraulic fracturing. [Check out Shale Works for US to learn more.]

Policy focused on job creation should support what’s working, and energy development is working. But as Harbert warns BLM, “This benefit will only happen if investment is not inhibited by ineffective and unnecessary regulation.”