Test drilling at the state Department of Transportation maintenance yard in Hoke County in 2015.
Test drilling at the state Department of Transportation maintenance yard in Hoke County in 2015.

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North Carolina’s Oil and Gas Commission returns to work today for the first time in two years. Whatever resources were underground when the commission was last in business have gone untapped, so that the same resources remain buried today.

Above ground, however, things are very different.

Once expected to join to join the fracking boom, North Carolina is now farther away from taking the plunge and is now more remarkable for its growth in alternatives like solar and wind.

The Oil and Gas Commission, created by the legislature in 2014 during a headlong rush to open up the state to oil and gas exploration, was effectively shut down in 2016 as one of three commissions ruled unconstitutional in the landmark case McCrory v. Berger.

The case, filed by then-Gov. Pat McCrory against the legislature, hinged on whether the legislature could make the majority of appointments to a body carrying out executive-branch functions. The outcome of the case, eventually decided by the state Supreme Court, effectively ended the work of the three commissions.

In the case of the Oil and Gas Commission, the successor to the state’s Mining and Energy Commission, the main executive-branch function was overseeing inland oil and gas exploration through hydraulic fracturing, or fracking. This form of exploration involves horizontal drilling, a practice that was previously banned in the state under a 1945 law. When the legislature lifted the ban in 2014, the change was heralded as transformational to the state’s economy.

McCrory and other supporters of both offshore and onshore oil and gas development said the state would soon be among the top energy producing states.

When new rules were announced in 2015, following a public comment period that took in tens of thousands of comments and included four public hearings around the state, North Carolina Petroleum Council (NCPC) Executive Director David McGowan said the shale energy industry would lead to job creation and additional state revenues.

“Energy is essential for economic growth and job creation,” said McGowan said in a statement. “Today’s announcement is a win for the people of North Carolina, putting the state on the cutting edge of energy production in America.”

Now, just shy of three years later, a court ruling continues to block the state from issuing any drilling permits or receiving applications. The running count for both items remains at zero. Although not specifically addressed by the court, the fracking rules themselves are also on hold and would require further legal action by the state to take effect.

An even bigger change has taken place in the executive branch.

While McCrory and then Department of Environmental Quality Secretary Donald van der Vaart were enthusiastic supporters of both offshore exploration and fracking, Gov. Roy Cooper and DEQ Secretary Michael Regan have been openly opposed to them, most recently threatening a legal fight against the U.S. Department of Interior should the state not receive an exemption from offshore exploration similar to one promised recently to Florida.

While Cooper has taken steps to revive the Oil and Gas Commission, the move should not be read as a shift in policy.

“Governor Cooper does not support fracking in North Carolina and does not think it is necessary,” Cooper spokesperson Jamal Little said in an email to Carolina Public Press on Tuesday. “His goal is to move our state toward a fully renewable energy future, which helps the environment and the economy.”

Molly Diggins, executive director of the North Carolina Sierra Club, said she thinks the governor is fulfilling the legal requirements of a modification to the law passed by the legislature last year.

“I think the administration is simply implementing the law,” Diggins said.

“This is a purely political commission put into play by the legislature to cater to those who are committed to a future of fossil fuels for our state.”

The reality of fracking in North Carolina, she said, remains the same.

McCrory and other supporters promised that “money would rain down upon the state” should fracking be approved, Diggins said. “Of course, we know there has been no activity and there doesn’t seem to be an expectation of activity.”

Economic consensus

U.S. Natural Gas Prices
This graph shows that prices for natural gas have fallen substantially from their 2010 highs.

If you want a simple explanation of why the industry did not come rushing into North Carolina once fracking became legal, look no further than the price of natural gas.

In 2008, during the Great Recession, prices peaked. They rose rapidly again coming out of the recession in 2015, but then steadily began to fall as production ramped up in Pennsylvania, Ohio and other states in the Marcellus Shale region.

This year, the price of natural gas is roughly one third what it was in 2015. More importantly, estimates are that even with an increase in use and distribution, the production from the country’s already developed gas plays will keep it that way.

Sarah Carmichael, an associate professor with the Department of Geological and Environmental Sciences at Appalachian State University, said there are a number of barriers to fossil fuel exploration and development in North Carolina, but the main one is the relatively small return on any investment.

“Our geology is just wrong for fossil fuel development,” she said. The most recent assessments of the state’s Triassic basins, mid-state areas thought to be the most likely to be productive, give some perspective, she said.

“When we look at these Triassic rift basins, the amount of gas in there is absolutely minuscule compared to some of the major gas plays like the Marcellus and Bakkan.”

The United States Geological Survey’s most solid estimate is that the Deep River basin near Lee and Chatham counties hold 22 billion cubic feet, of recoverable gas in total. Compare that, Carmichael said, to the 100 billion per year being pumped out of the Marcellus play.

“So, why would any gas company invest in anything in NC?” Carmichael said. “There’s just not enough return on investment.”

The price of gas at all the major plays in the country would have to skyrocket, she said, for North Carolina to even be considered a viable play.

If that ever did happen, Carmichael said, development would face barriers ranging from a lack of distribution infrastructure to the disposal of millions of gallons of fracking wastewater.

“The start-up costs would be enormous,” she said. “One of the major problems that would happen in North Carolina if they did start fracking in these gas basins is there’s no place to dispose of the formation water.”

The water would have to be trucked offsite, she said. The only place in state that would be able to handle the volume of wastewater is in the coastal plain, but state law specifically bans the practice of using well injection for wastewater, a move taken by the legislature after contamination of aquifers near Wilmington in the 1960s and ’70s.

An early version of the 2014 law that legalized hydraulic fracturing exempted wastewater from the process from the state ban, but that provision was removed from the final version of the bill after objections from coastal area legislators.

“Not only do you have the upfront cost for fracking but you have to get the material out and you have to get the wastewater out,” Carmichael said. The political will to make the infrastructure investments and the legal changes doesn’t seem to be there, she said, and the cost versus benefits aren’t enough to draw in the private sector. “I don’t see how a gas company would want to put the money up front needed to get a tiny fraction of the gas they could get compared to the other places.”

Even proponents of a so-called “all of the above” energy policy acknowledge things have changed considerably in the market.

Sen. Paul Newton, R-Cabarrus, co-chair of the Joint Legislative Commission on Energy Policy, said it’s clear that onshore oil and gas exploration in North Carolina isn’t going to happen unless there’s a compelling economic case for it.

Paul Newton and John Szoka
Sen. Paul Newton, R-Cabarrus, and Rep. John Szoka, R-Cumberland, co-chairs of the Joint Legislative Commission on Energy Policy, review a presentation at the commission’s most recent meeting. Kirk Ross / Carolina Public Press

But that’s no reason, he said, to abandon efforts made over the past few years to draft the necessary regulations. Newton has been pushing for Gov. Cooper to revive the Oil and Gas Commission and get the legal framework ready.

In an interview after a recent legislative energy meeting, Newton, a former president of Duke Energy North Carolina, gave a reserved double fist pump when asked what he thought of the announcement that the Oil and Gas Commission would be meeting at last.

“That was goal number one for us,” he said, “just to ensure they are meeting and performing their statutory obligations.”

He said he wants to see the commission move ahead with getting oil and gas rules in place, saying the state has an opportunity to be able to do so without the economic pressure to get them in place.

“I just think we have the luxury of time right now to get the rules of the road settled for the potential for oil and gas exploration in the state,” Newton said. “Now is a great opportunity for us to get that network of rules established so that if and when that day comes people know what steps to take and we’re not in a regulatory quagmire.”

Rep. John Szoka, R-Cumberland, the House co-chair of the energy commission said he’s “100 percent in agreement” with Newton that the rules for hydraulic fracturing need to be in place. He said he’s disappointed with court actions aimed at preventing them from taking effect.

“We need to get the rules in place. If it wasn’t for this court action they would be in place,” he said. “This is the time to do it, to make sure they are well thought out.”

Szoka, a career U.S. Army officer, said his experiences in the past two decades in the military seeing the cost in lives of relying on a foreign source of energy drives his desire to find sources at home. The national security argument, he said “resonates deeply with me.”

“If we can become energy independent and we don’t have to worry about whatever is going on in some third-rate country in the Middle East, I would feel we’re more secure as a state and as a nation,” he said.

Szoka, a former skeptic of solar and wind who last year brokered a breakthrough agreement between power producers and environmental groups updating solar rules, said the cost of energy has to be taken into account.

“The other thing that people seem to forget about, whether it’s the protesters of the Atlantic Coast Pipeline — who don’t like fracking — or it’s people who don’t like drilling offshore, is that this country runs on energy. That’s the basis of a good, free economy: cheap energy.”

Tests and challenges

The first meeting of the new Oil and Gas Commission is scheduled for 1 p.m. today at in Raleigh. Billed as an orientation meeting, it includes an election of officers and review of ethics and public records rules.

A roster provided by DEQ shows eight current members for the nine-member board with one vacancy and one member yet to be confirmed by the Senate.

Under a law passed last year to satisfy the outcome of McCrory v. Berger, it’s a new commission. However, the law included a provision allowing it to inherit the 120 rules on hydraulic fracking adopted by its predecessor, the Mining and Energy Commission.

Those rules took effect when they were adopted by the MEC on March 17, 2015. But a court order that May in a lawsuit filed by Haw River Association prevented the MEC and its successor, the first Oil and Gas Commission, from “processing any drilling applications and creating any drilling units,” eliminating most of what the rules were intended to do. That order remains in effect and the legal issues surrounding the rules, which were not specifically addressed in the court order, are still unsettled.

The new law passed last year does give the oil and Gas Commission some leeway, allowing the commission to amend or repeal them.

While the legal fights played out, other parts of the state’s oil and gas efforts to move forward, including a state-funded testing program first proposed in 2013.

Although most of the testing proposed was focused in the state’s Triassic basins, state environmental officials detailed several other potential areas around the state to be surveyed for potential petroleum resources. They included reviewing old test cores from previous work on Hatteras Island and Pamlico Sound and studying rift basins in mountains.

Triassic basins in North Carolina

The announcement of the studies raised awareness and fanned opposition to the state’s plans for inland exploration, evidenced by a heavy turnout at the MEC public hearing in Cullowhee, the farthest point from areas most suitable for fracking. Anti-fracking road signs have dotted the highways of Western North Carolina since.

A review of the studies compiled for Carolina Public Press by State Geologist Kenneth Taylor showed that many of them were never done as DEQ focused its work on the most likely areas.

Studies were completed on rock mechanics, the Cumberland-Marlboro Basin and Dan River Basin. The old coastal borings on file were reviewed. But plans for testing in the western region and Camden, Pasquotank, Bertie and Anson counties were listed by Taylor as “not performed.”

In all, Taylor notes, the North Carolina Geological Survey has produced 55 publications on oil and gas exploration and development since 2008.

They can be found at DEQ’s Oil and Gas Research page at https://deq.nc.gov/about/divisions/energy-mineral-land-resources/north-carolina-geological-survey/oil-gas-research.

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Kirk Ross

Kirk Ross was the former capital bureau chief for Carolina Public Press. To contact the Carolina Public Press newsroom, email info@carolinapublicpress.org.

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