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Lake Michigan Oil and Gas Drilli

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									Executive Summary
A Report From The Lake Michigan Federation


Overview of Lake Michigan Oil and Gas Drilling
In the spring of 1997, when Newstar Energy USA Company applied for permits to drill for oil and gas under Lake Michigan as close as 300
feet from the shoreline, the result was a firestorm of public protest. Newspaper headlines read: "Citizens raise concerns about new drilling."
"Oil drilling plan hits a gusher of protest." "Poll: Most oppose take drilling" "Critics rip plan to drill under Big Lake." Michigan citizens reacted
viscer- ally against even considering the proposal. State and federal legislators have since introduced bills to ban drilling under the take. The
huge public outcry temporarily hatted plans to access the oil and gas. But interest in the reserves is high among oil and gas speculators and their
plans are not likely to stay dormant for long. Newstar already owns the required leases of land under Lake Michigan, but does not have permits
to drill from Michigan's Department of Environmental Quality (DEQ). Another company that already has Lake Michigan bottomiands leases,
Aztec Energy, has begun a campaign to use its existing well sites in the city of Manistee to expand drilling under the lake. Likewise, plans by
the Engler administration to exploit the petroleum resources under Lake Michigan will not remain on hold permanently as the administration
has been a consistently vocal promoter of efforts to drill under the take
Drilling under Lake Michigan is a venture that has serious implications for the overall health and use of the take by its communities. The Lake
Michigan Federation has prepared this report to help citizens understand the public, environmental and economic issues related to oil and gas
drilling under Lake Michigan and offer recommendations to safeguard the lake.

Research Methodology

Over the last three years, the Lake Michigan Federation developed this report to lay the foundation for understanding Lake Michigan oil and gas development
issues by:


    •    Polling Lake Michigan community groups to determine relevant research topics;
    •    Corresponding with regulatory agencies to determine policies and procedures;
    •    Obtaining and reviewing available information on Michigan gas and oil activities, the role of regulatory agencies, and site-specific
         permit information, and;
    •    Coordinating a review of the report by interested groups and individuals.

Purpose of Report

This report explains:

    •    Where the drilling would take place - the ecological and geological settings;
    •    Background and context necessary to understand drilling proposals;
    •    Effects of Lake Michigan drilling;
    •    The local, state and federal regulatory framework for oil and gas development;
    •    Adequacy of regulatory oversight;
    •    Policy findings, and;
    •    Recommendations.
Table of Contents
Executive Summary…………………………………………………..1

Introduction…………………………………………………………………………...4

Effects of Oils and Gas Drilling……………………………………………………..7

Unconsidered Effects………………………………………………………………. 14

Regulatory Landscape……………………………………………………………....15

Michigan Fails to Protect the Lake from Oil and Gas Drilling Effects…………. 17

DEQ Oversight is Inadequate……………………………………………………... 18

Sweeping the Problem Under the Rug:
C3ovemors Appointees 'Recommendations Not Carried Out …………………. 20

No Room for Public Involvement in Drilling Decisions…………………………... 21

Oil and Gas Pipeline Oversight Grows Weaker …………………………………. 22

Federal Oversight Lacking…………………………………………………………..23

Limited Lake Michigan Oil and Gas Supplies are Not Worth the Risk………….24

Clean Energy and Energy Efficiency a Better Deal……………………25

Conclusion……………………………………………………………………………. 26

Endnotes……………………………………………………………..28-29
10

Lake Michigan Oil and Gas Drilling: Worth the Risk?

First identified in the U.S. in the 1960s, stress corrosion cracking (SCC) occurs on oil and gas pipelines, causing pipeline ruptures and failures.
SCC happens when tiny cracks occur on the outside of buried pipelines, in groups with all cracks positioned the same direction. Over time the
cracks become larger and join with others in the group to become longer cracks. If the crack becomes large enough, the pipeline will eventually
rupture. SCC has caused 22 pipeline failures in Canada since 1977. Canada's pipeline industry is currently conducting re, search to find ways to
detect and prevent SCC."
A review of recent incidents involving oil spills and leaks in other sensitive natural areas shows that it is plau- sible that the coast could be
damaged by a pipeline, tank leak, or blowout on Lake Michigan's shoreline.
In 1988, a four million gallon oil storage tank owned by the Ashland Oil Company split apart after being filled for the first time after it had
been dismantled and moved from another location. The spilled oil entered the Monongahela River and into the Ohio River, temporarily
contaminating drinking water supplies for an estimated one million people in Pennsylvania, West Virginia, and Ohio, damaging river
ecosystems, private property and impacting businesses in the area.13
In 1993, a rupture occurred in an oil pipeline in Fairfax County, Virginia, sending a 100-foot plume of oil into the air. The accident released
over 400,000 gallons of oil before it was fixed. The public water intake along the Potomac River was shut down. Nearby C3reat Falls National
Park was closed because of fuel odors. Forty-one area residents were evacuated from the homes as a precaution. Fish kills occurred in a nearby
creek 24
In the fall of 1999, a pipeline that originates in Canada, traveling south through the Upper Peninsula and under the Straits of Mackinaw, leaked
222,000 gallons of crude oil from a 4-inch crack in a section in Crystal Falls. Natural gas from the leak caused about 400 people to evacuate
their homes. The 46-year old pipeline was buried three feet underground and carried both oil and gas. The oil soaked into the soil, groundwater,
and wetlands and was cleaned up to some degree, by removing contaminated soils and putting them in a landfill, but oil that seeped into a
nearby peat bog and into an underground aquifer will be more difficult to remove."
In January of 2000, the United States Environmental Protection Agency (EPA) levied a $35 million dollar fine on Koch Industries for 300
violations, charging the company with contaminating numerous rivers, wetlands and groundwater with its pipelines, by leaks and various
accidentS.16 Yet again in January, a pipeline in Rio de Janeiro, Brazil sprung a leak and discharged 338,000 gallons of crude oil into
Guanabara Bay. The accident happened because of corrosion in the pipeline and faulty software that allowed the leak to go unnoticed for
several hours."


In early June of 2000, an underground pipeline carrying gasoline ruptured, sending thousands of gallons of the fuel into a drain that emptied
into the Grand River. Residents of Blackman Township in Jackson County living in a one square mile area of the pipeline rupture were asked
to evacuate the area shortly after Governor Engler declared a local state of emergency. Although there were no injuries, between 15,000 and
100,000 gallons of gas spilled into one of Michigan's largest river systems, potentially endangering wildlife, fish and other aquatic organisms,
and the communities along the river. The cause of the rupture is unknown.",
An accident on the Lake Michigan coast could conceivably damage drinking water supplies and the local economies of coastline communities,
all of which rely directly or indirectly on the lake for water. Although to date a major pollution incident has not happened on the Lake
Michigan shoreline, the potential will increase if oil and gas development is allowed to intensify, as the applications from Newstar Energy and
Aztec seem to indicate.
16

Lake Michigan Oil and Gas Drilling: Worth the Risk?

     •   Check the application for well site specifics, such as blowout prevention plans (blowouts can occur during drilling when a drill bit
         encounters a pocket of gas and pressure causes oil to back up to the well head and spray out) and plans for addressing hydrogen
         sulfide;
     •   Visit the site to verify application details and to evaluate the impacts from drilling and production, and;
     •   Contact other DEQ and/or DNR offices if assistance is needed in evaluating impacts to the environment. After the review, the
         application is permitted if all issues are resolved.


Nordhouse Dunes Taking Suit

The State of Michigan paid over $100 million to prevent oil and gas drilling in the Nordhouse Dunes, the only federally
designated wilderness area on notional forest land in the Lower Peninsula. The unspoiled dunes between Ludington and
Manistee were the subject of a bitter fight among environmental groups, state and federal officials, and the owners of mineral
rights under the dunes. In 1987, the Department of Natural Resources barred drilling in the dunes. In 1988, the oil company
that had leased the rights to the minerals and the mineral owners filed a lawsuit, arguing that their property rights were the
victims of a governmental taking. Eight years later, after a protracted court fight, a judge found for the plaintiffs and ordered
the state to pay $120 million in compensation to the oil company and mineral rights holders. Observers have argued that only a
small amount of oil ties beneath the dunes and that the case set an unfortunate precedent for citizens and governments seeking
to protect natural resources from destructive development."

Local Regulatory Process

Some local governments have forged ahead to develop local ordinances that seek to regulate oil and gas development in their own
communities. The Forest Home Township in northern Antrim County has developed an ordinance for use in its communities that could be used
as a model for other local governments.
In the mid-1990s, Forest Home Township conducted a survey in the course of developing its master plan. Sixty-two percent of township
residents responded and identified their top priorities. Protecting the area's natural resources was their top goal, followed by preserving the rural
character of their township. In the next several years, local town- ship residents became concerned about the increase of oil and gas
development in northern Michigan area and the impact it could have on the environment and their community. The residents, including
members of the Torch Lake Protection Alliance and several take associations, began researching ways to guide future such development in
their township. An early obstacle to developing an ordinance regulating oil and gas development was the perceived threat of litigation. The
group found out from the Michigan Township Association, there were already 15 townships in the state that had local ordinances regulating oil
and gas activities, only one of them had been sued and that for specifically prohibiting oil and gas drilling.41
The Forest Home Oil and Gas Ordinance, adopted in 1999, does not supersede state or federal regulations, but relates specifically to those oil
and gas activities over which local townships can legally exert their authority. The ordinance does not prohibit drilling for oil or gas, but
requires the oil gas developer to apply to the township for a special use permit which would then allow township officials to exercise standards
of environmental and land use control over drilling, processing and transport of the oil and gas. The township can halt oil and gas activities that
do not comply with the ordinance. Although there has been no real life test of the ordinance to date, township residents are relieved to have the
protections in place and are confident that their planning efforts will prove worthwhile. Several northern Michigan townships have requested a
copy of the ordinance to review, but none have yet adopted one similar to the Forest Home Township ordinances
17
A Report From The Lake Michigan Federation


Michigan Fails to Protect the Lake from Oil and Gas Drilling Effects

The Two Hats of DEQ: Drilling Promoter vs. Objective Regulator

Michigan's Constitution outlines the proper role of the DEQ as a defender of the state's natural resources from pollution, impairment, and
destruction. The agency has clearly declined that role, however. Its relationship with the oil and gas industry is too cozy, with an emphasis on
working with them to bring them into compliance, rather than expecting and obtaining compliance with state laws and regulations. When
controversial issues spring up, the agency sides with the oil and gas industry, not the public. For example, although the public raised the issue
of serious health threats from hydrogen sulfide a number of years ago, DEQ has not moved forward with strict standards for hydrogen sulfide
exposures. In addition, the public continues to lose out on payments for use of public bottomlands from the oil and gas industry, as abuses of
royalty payments continue.
Even more disturbing is that the agencies are advocates for oil and gas industries. In particular, the DEQ has proved to be an active supporter of
the exploitation of oil and gas reserves under the Great Lakes. That was made painfully obvious when Harold Fitch, the top official of the
Geological Survey Division, the DEQ division that oversees oil and gas drilling activities, aggressively lobbied for approval of accessing the oil
and gas under the Great Lakes. In mid-1998, Fitch requested a resolution of support for horizontal drilling under the Great Lakes from the
Interstate Oil and Gas Compact Commission (IOGCC), which promotes oil and gas production, to head off pending federal legislation that
would ban the drilling. The IOGCC, lacking background information, tabled the proposal, and requested input from the Great Lakes
Commission (GLC), an 8-state compact. Fitch brought the issue to the Great Lakes Commission in October of 1998, which eventually decided
to allow states to provide their individual input to the IOGCC. Finally, at the IOGCCs December 1998 meeting, Fitch, citing “significant
production” of the existing horizontal wells, gained their support for exploiting the reserves under the Great Lakes.14This blatant and persistent
advocating is a clear conflict of interest by the top agency official responsible for oil and gas decision making in Michigan.


DEQ Review of Environmental Impacts Is Inadequate
The environmental impact assessment used as part of the permit application by DEQ is not sufficient as a qualitative analysis. It is, rather, only
a checklist to record the well's location to waterways, dunes, or threatened and endangered species, land cover and land uses, distances to other
buildings, drinking water wells, roads, and power lines.
If DEQs environmental impact assessment is inadequate, its use by applicants is equally deficient. For example, on Newstar's most recent
application, in answer to the section that asks the applicant to describe measures to be taken to protect environmental and/or land use values,
Newstar's response is simply "No sensitive areas should be impacted." Other pages are simply boilerplate and request basic information such as
soil erosion and earth changes. Environmental impacts appear to be either ignored or understated. A proper environmental impact assessment
should thoroughly reveal all impacts of the drilling on coastal resources, including existing and future land uses, aesthetics, and quality of life
issues.


Violations Ignored

Newstar, a relative newcomer to Michigan's oil and gas industry, acquired its first U.S. oil wells in Ohio in 1994. In July 1997, the Lake Michigan Federation
provided comments on Newstar's Lake Michigan drilling proposal and noted that horizontal drilling was considered a serious undertaking, requiring substantial
expertise. Because of this, the Federation requested a full disclosure of Newstar's experience and track record related to horizontal drilling. The DEQ,
however, did not furnish the Federation or the public with the information and, further, stated its intention to grant current and future permits to Newstar. This is
an astonishing "ample of how the agency lacks the objectivity and intention to thoroughly evaluate individual oil and gas drilling applications.
20 Lake Michigan Oil and Gas Drilling: Worth the Risk?



Sweeping the Problem Under the Rug:
Governor Appointees’ Recommendations Not Carried Out
mm 91



The public protest that resulted when Newstar announced its plans quickly catapulted the horizontal drilling issue to the status of a political "hot potato."
Governor John Engler, in an apparent attempt to assuage the public, requested input from the Michigan Environmental Science Board, a committee of scientists
appointed by him to study environmental issues. The committee was charged with reviewing the horizontal drilling issue and reporting on the following issues:

• The potential for the drilling to cause contamination of the Great Lakes;

• Potential impacts on competing uses of Great Lakes shorelines, and;

• The adequacy of existing permits in protecting the shoreline environment.

The Board assessed the potential for a leak in horizontal well to migrate upward to the lake and after a number of meetings, determined there was "little to no
risk of contamination to the Great Lakes bottom or waters." According to the Board, however, the wells could impact the shoreline ecology from construction
activities or an accident, and damage natural areas such as wetlands, dunes and their habitat. Oil and gas wells could also threaten species and contaminate the
land and water. The largest area of concern expressed by the scientists was the potential incompatibility of oil wells with other uses of the shoreline, such as
residential, recreation, and tourism. Recommendations of the Board included:

        •   Establishing a setback for drilling operations of 1,500 feet from the shoreline;
        •   Prohibiting oil and gas development in sensitive natural areas, such as wetlands;
        •   Requiring the use of the best technology;
        •   Utilizing strict permit requirements,
        •   Encouraging an aggressive environmental impact assessment and stakeholder participation prior to the first step - the lease agreement. Leases that
            could not withstand the environmental analysis would not move on to the permit process;
        •   Mandatory use of existing infrastructure so that new roads and pipelines would not cause ecological and social impacts, and;
        •   Disposing of materials associated with oil and gas drilling, such as brines, drilling muds, or bulk fuels, off of the site.

Finally, the Board recommended that before any more leasing of Great Lakes bottomlands take place, compre- hensive coastal zone planning
be done for both Lakes Michigan and Huron to identify and evaluate areas al, ready impacted with oil and gas development, and to determine
areas that should be off limits, and those areas where drilling could be allowed with the recommended alterations to the leasing and permit
processes.
The Board's scope was limited and its review did not adequately address the broad considerations necessary for truly addressing concerns about
horizontal drilling proposals, such as:
• Pipeline integrity and safety;
• The highly toxic nature of the materials associated with oil and gas facilities; • The potential impact of contamination on the coast; • The
hazards of hydrogen sulfide;
• The objectivity and adequacy of state oversight and regulation, and;
• Future, more ill-defined issues such as earthquakes and glacial rebound or land shifting.

The Board's recommendations were significant, however, in that they would provide some protection to the Lake Michigan coast if
implemented. Unfortunately, both DEQ and DNR have implemented few of the Board's recommendations. The DEQ established rules in
November of 1999 that reflect the Board's recommendation of a 1,500 foot setback for wells, rigs, and processing facilities, but has not
incorporated the remaining recommendations into state rules or law. Rules on hydrogen sulfide standards are pending. in order to conduct a
review of its leasing policies, the DNR instituted a temporary moratorium on leasing C3reat Lakes bottomlands in the spring of 1998. The
moratorium on leases halted horizontal drilling projects under Lake Michigan by new appli-
23


A Report From The Lake Michigan Federation


which regulates pipelines up to the first point of sale. A 1993 map of existing pipelines in Michigan from the PSC
shows a number of existing pipelines along the Lake Michigan coast. Feeder pipelines to these major pipelines are not
mapped. The map does not include all pipelines and terminals and is scheduled to be updated electronically in 2001.

Like the OPS, Michigan pipeline regulators also do not typically impose fines for violations. In 1998, Michigan
imposed no fines, and in 1999, it imposed 3 fines of about $1,000 each.14 According to a Michigan official cited in the
recent government GAO report, "Michigan regulators have always believed that civil penalties are not a strong
deterrent to noncompliance and the few fines that Michigan does impose are for more serious violations." Other states,
Ohio, for an example, use fines as an integral part of their enforcement strategy. Over the past 8 years, Ohio has levied
a fine of about $50,000 each year. The penalties in some cases have reached $125,000.

Local activists call the Michigan Public Service Commission a "rubber stamp organization" and cite a number of
incidents in support of that belief. During a hearing of the PSC on a directionally drilled well in Manistee, the township
fire chief testified that their volunteer fire department could not respond effectively to a major pipe- line leak. Even
though his testimony stated that hydrogen sulfide would settle in the low lying valleys in the area if accidentally
released and that the township volunteers could not likely get to the affected people in time, the PSC approved the
permit. 55

In Oceana County, the Michigan Public Service Commission approved a sour gas pipeline from Oceana County to
Manistee that would pass through many populated areas and carry gas with up to 25,000 ppm of hydrogen sulfide gas
despite much public controversy. Some activists believe the pipeline carries up to 85,000 ppm of the gas.16

As the frequency of serious pipeline accidents increases and oversight by both the state of Michigan and the OPS
becomes correspondingly weaker, communities and natural resources are jeopardized. Expanding the net- work of oil
and gas pipelines along the coast at this time is an unacceptable risk to Lake Michigan.

Federal Oversight Lacking

There is limited federal oversight of horizontal drilling activities under the Great Lakes. The U.S. Environmental
Protection Agency has no jurisdiction, but the U.S. Army Corps of Engineers has aggressively asserted its authority
over horizontal drilling under Lake Michigan. The Corps contends that all companies wanting to drill beneath the
Great Lakes must obtain federal permits to drill within the boundaries of federally navigable waters. In answer to a
request for clarification of the Corps role by Paul Parks, an interested citizen, Gary Mannesto, of the Corp responded,
“To date, we have not received an application from Newstar for drilling under Lake Michigan. The letter also states
that “Aztec Producing will need to request and receive Corps authorization for work to be conducted under Lake
Michigan before they proceed with such work.” To date, however, the Corps authority has not been acknowledged nor
challenged by the state.

Dual jurisdiction over natural resource issues is critical when a state's environmental policies become weakened. In
particular, federal jurisdiction over coastal wetlands has protected valuable resources, such as Crystal River wetlands
and Humbug Marsh that the state of Michigan was willing to lose to development.

There have also been efforts to ban drilling under the Great Lakes at the Federal level by Representative Bart Stupak,
D. Stupak’s bill would prohibit any drilling activity to extract oil and gas from submerged lands in any of the Great
Lakes and would authorize the Attorney General to enforce the prohibition. In 2001, Representative Stupak will
reintroduce the bill in the new legislative session.

								
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