Gas Damage Recovery Fund Proposal Premature, Official Says

- Gas Damage Recovery Fund Proposal Premature, Official Says

Thursday, August 11, 2011
Rigzone Staff
by Karen Boman

A bill proposed by New York Comptroller Thomas P. DiNapoli to establish an energy industry-supported fund to cover damages caused by natural gas production seems premature since the Department of Environmental Conservation (DEC) has not completed work on the state's new permit requirements, said Brad Gill, executive director of the Independent Oil & Gas Association of New York.

"The proposal does not take into account existing permit requirements, which address bonding for site reclamation, and it does not acknowledge existing environmental, criminal and civil law, which holds businesses accountable on many levels," Gill said, noting that the state's new permit requirements would likely be the strictest in the nation.

"The industry's outstanding record of environmental protection in New York should give the public the assurance that we operate with the best interests of the environment in mind," said Gill. "There is simply no basis for such a fund at this time."

DiNapoli on Aug. 9 proposed Comptroller's Program Bill #20 to remediate contamination related to gas production; the proposed legislation would apply to current drilling operations as well as to proposed high-volume hydraulic fracturing.

"Preventing accidents and contamination should always be our first priority," said DiNapoli. "If an accident does occur, the State needs to be ready with a rapid response and a reliable mechanism to hold polluters responsible. New Yorkers should not have to bear the burden from contaminations that damage their air, water and property. Whatever final decisions are made regarding high-volume hydraulic fracturing, this program and new fund will provide the necessary resources to respond to any accidents."

DiNapoli's program is modeled after the New York State Environmental Protection and Spill Compensation Fund (Oil Spill Fund), which draws on the expertise and collaborative efforts of the DEC, the Office of the Attorney General and the Office of the State Comptroller.

Under the program, strict liability would be imposed on owners or operators of drilling sites that cause contamination. The DEC would be empowered to order immediate clean-up by owner or operator or take over sites for immediate clean-up, or would impose a surcharge on drilling permits to create the Natural Gas Damage Recovery Fund similar to structure to the existing Oil Spill Fund.

Oil and gas companies also would be required to post surety bonds to cover any shortfall between fund resources and remediation costs. Additionally, the program would create for the first time an online registry of all gas drilling related incidents in New York State.

The Natural Gas Damage Recovery Fund would pay for any remediation of contamination undertaken by DEC where a responsible party could not be identified, responsible parties refused or responsible parties were unable to pay for needed remediation, according to a statement from the comptroller's office.

The Office of the Attorney General would determine who is legally responsible for the contamination and, if necessary, commence civil damage-recovery litigation against responsible parties. Any recovered funds would be returned to the Natural Gas Damage Recovery Fund to cover cleanup of future contaminations.

DEC on July 1 released its revised recommendations on high-volume hydraulic fracturing, including the prohibition of high-volume fracturing in New York City and the Syracuse watersheds, including a buffer zone. DEC also is recommending the prohibition of drilling within primary aquifers and within 500 feet of their boundaries. Additionally, surface drilling also would be prohibited on state-owned land including parks, forest areas and wildlife management areas.

Previous recommendations had permitted drilling in the New York and Syracuse watersheds, as well as in primary aquifers and forest areas. DEC said the new recommendations would protect the state's environmentally sensitive areas while realizing the economic development and energy benefits of the state's gas resources, and that approximately 85 percent of the state's Marcellus shale resources would be accessible to gas extraction under these recommendations.

DEC plans to hold a 60-day public comment period on the recommendations beginning this month.

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