Study: Local ordinances will not hurt gas market

OREANDA-NEWS. Local ordinances to regulate natural gas drilling — including bans on hydraulic fracturing — will have little impact on the broader US gas market, a Rice University study found.

The "depth and efficiency" of the US gas market would buffer it against potential local policies that seek to limit access to shale gas resources, the authors of the research concluded.

The study, by energy economists at Rice's Baker Institute for Public Policy, was released yesterday.

Several factors in the US gas market, including deep market liquidity, robust infrastructure, relative ease of infrastructure development, and significant connections to Canada "renders local policies largely irrelevant," said Kenneth Medlock, who co-authored the study.

The researchers considered a range of possible policies from the federal to the local level. They included various supply-side actions, such as local regulations to limit gas flaring, local bans on hydraulic fracturing, and a federal ban on hydraulic fracturing perhaps spurred by concerns about water quality, water scarcity and seismic activity.

Local policy interventions have "a discernible impact on local production, local price, and local demand, but the broader impact across the entire market is small," the study said.

The research also suggested that even local tax adjustments, such as the introduction of new severance taxes, appear to have little impact on the larger market because it is relatively easy to replace the affected supplies with different upstream opportunities.

But any federal policy that substantively lowers US supplies would have major domestic supply and price implications, the study found. It would also limit the volume of US natural gas in global markets, as the US is emerging as a supplier to global LNG markets. This would include a reduced presence of gas-indexed supplies in the global LNG market.

Local governments' ability to ban or restrict oil and gas development is being litigated in a number of states in recent years. Pennsylvania's Supreme Court in December 2013 overturned a state law setting statewide drilling zones, and New York's highest court upheld local zoning authority in June 2014.

Meanwhile, the city of Denton, Texas, in November voted to ban hydraulic fracturing within its city limits, a move that triggered an immediate legal challenge from the oil and gas industry. Texas lawmakers are threatening to ban such local action.