Anti-fracking win in N.Y. court may deal blow to industry

ALBANY, New York — New York’s cities and towns can block hydraulic fracturing within their borders, the state’s highest court ruled, dealing a blow to an industry awaiting Gov. Andrew Cuomo’s decision on whether to file a 6-year-old statewide moratorium.

The case, closely watched by the energy industry, may invigorate local challenges to fracking in other states and convince the industry to stay out of New York even if Mr. Cuomo allows drilling. Pennsylvania’s highest court issued a similar ruling last year, striking down portions of a state law limiting localities’ ability to regulate drillers.

“This sends a really strong and clear message to the gas companies who have tried to buy their way into the state that these community concerns have to be addressed,” Katherine Nadeau, policy director for Environmental Advocates of New York, an anti-fracking group, said in a phone interview. “This will empower more communities nationwide.”

The ruling may lead the oil and gas companies to further abandon efforts to extract gas in New York. Thomas West, an attorney for Norse Energy, one of the companies involved in the case, previously said the industry may turn its back on the state if local bans are allowed.

By a 5-2 vote, the Court of Appeals upheld the dismissal of lawsuits challenging bans in the upstate towns of Dryden and Middlefield. The towns engaged in a “reasonable exercise” of zoning authority when they banned oil and gas extraction and production, Judge Victoria Graffeo wrote.

The towns were within their rights to find that drilling “would permanently alter and adversely affect the deliberately cultivated small-town character of their communities,” she said.

The ruling is “one more nail in the coffin” for fracking in the state, Brad Gill, executive director of the Hamburg-based Independent Oil and Gas Association of New York, said in a phone interview. Chesapeake Energy and other firms that divested New York assets “could see the writing on the wall.”

Fracking, as hydraulic fracturing is known, is the creation of fractures in rocks and rock formations by injecting fluid into cracks. The larger fissures allow more oil and gas to flow out of the formation to be carried to the surface.

The process, used in states from North Dakota to Pennsylvania, has helped push U.S. natural gas production to new highs in each of the past seven years, according to the U.S. Energy Information Administration. It has also come under attack from environmental advocates, who fear it may contaminate water supplies and destroy farmland.

Parts of New York sit above the Marcellus Shale, a rock formation that the Energy Information Administration estimates may hold enough natural gas to meet U.S. consumption for almost six years. The state barred fracking in 2008 while studying the environmental effects of the drilling method, which is allowed in more than 30 states.

Since then, more than 75 New York towns have banned fracking while more than 40 have passed resolutions stating they support it or are open to it, according to Karen Edelstein, an Ithaca consultant affiliated with FracTracker Alliance, which analyzes the effects of oil and gas drilling.

With the U.S. poised to surge past Saudi Arabia as the world’s largest supplier of oil in 2015, states are now regulating the drilling process.

In Ohio, new permitting rules require placement of seismic monitors and a drilling-shutdown in the event of an earthquake. In Colorado, where at least five communities voted to restrict fracking, rules to limit the release of methane have been put in place, and the state may give local governments the right to ban or restrict oil and gas drilling.

California and Illinois have moved to require companies to identify the chemicals that are forced below ground to bust up the shale.

“Practically speaking, municipal-fracking bans in New York may have little more than symbolic value given that state fracking policy has been on hold since 2008,” Christine Tezak, managing director at ClearView Energy Partners, a Washington-based energy consultant, said today in a research note.

“On the other hand, today’s finding has potential to be a powerful symbol, as it represents a second court ruling upholding municipal primacy in a state overlying the Marcellus Shale,” she wrote, citing the Pennsylvania decision.

Dryden, a town of about 14,000 residents about an hour’s drive south of Syracuse, and Middlefield, a town of about 2,000 about 75 miles further east, passed bans on oil and gas exploration in 2011.

Later that year, Anschutz Exploration, an affiliate of billionaire Philip Anschutz’s closely held company that had bought about 22,000 acres worth of gas leases, challenged Dryden’s ban. Norse Energy. ASA, a Lysaker, Norway-based explorer whose U.S. unit filed for bankruptcy in December 2012, later replaced Anschutz Exploration as plaintiff.

Meanwhile, a dairy farm that had signed leases to explore and develop resources under its property sued Middlefield.

Attorneys for the towns said they have the right to enact zoning laws as long as they don’t impede state oil-and-gas regulations. Industry lawyers said New York’s Oil, Gas and Solution Mining Law superseded the local bans.

Separate judges in 2012 dismissed the lawsuits challenging the local bans. Those rulings were upheld by an intermediate appellate court last year and again Monday by the Albany-based Court of Appeals.

Two judges dissented. The zoning ordinances “go above and beyond zoning and, instead, regulate those industries, which is exclusively within the purview of the Department of Environmental Conservation,” Judge Eugene Pigott wrote.

Mr. Gill, of the Independent Oil and Gas Association, said the decision may create conflicting laws across the state.

“We’re just going to have to do the best we can with those towns and municipalities that want us,” he said. “It creates a patchwork of green lights.”

Scott Kurkoski, the lawyer for the Middlefield dairy farm, called on Mr. Cuomo to issue a final ruling on the statewide moratorium and to allow natural gas development to proceed in towns where it’s favored.

“Now, more than ever, we need real leadership from our state,” he said in a statement.

As he weighs whether to permit fracking, Mr. Cuomo, a Democrat, is seeking to balance the prospect of robust economic development, as in Ohio and Pennsylvania, against claims by environmental groups that drilling is harmful.

Joe Martens, head of the state’s Environmental Conservation Department, told lawmakers in January that he won’t issue fracking regulations until at least April 2015, signaling that Mr. Cuomo probably won’t make a decision before he faces re-election in November.

Rich Azzopardi, a spokesman for Mr. Cuomo, didn’t respond to a request for comment on the decision.

First Published June 30, 2014 12:00 AM

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