The First Real Crisis Hits Shale Drilling

"Crisis" may be a little hyperbolic. But shale production of oil and gas in America suddenly got a lot riskier this week.

That's because of a landmark decision from one of the highest state courts in the land. Upholding the right of individual towns to regulate shale drilling, trumping state or federal regulatory regimes.

The ruling came down yesterday in New York. Where the State Court of Appeals voted 5-2 to reject challenges to fracking rules imposed on the oil and gas industry by two municipalities in the state: Dryden and Middlefield.

The saga started in 2011. When the two towns amended their zoning laws to prohibit fracking--citing the technique as a risk to the "health, environment and character" of the communities.

Would-be local drilling companies took issue. And filed suit against the town councils, looking to overturn the rules on the grounds that state rules should preempt local regulations.

But that argument has now died on the table. A lower court previously rejected the drillers' arguments, finding that municipalities indeed have the right to regulate drilling within their boundaries. And this week's decision exhausts the final appeal in the case--siding once and for all with local officials.

In the case of New York the effect is somewhat moot. Given that the state has had a complete moratorium on fracking in place for years--with no development of shale resources having yet taken place.

But the implications of the case for other shale-producing regions are critical. With the decision setting a precedent that will now be more difficult to argue anywhere in the country.

This will likely give towns much greater power in setting their own rules going forward. Potentially leading to more anti-fracking rules in places like Pennsylvania and Ohio--where a number of states have recently made such moves.

It looks like this patchwork of regulation is only going to get more fragmented. We'll see what the ultimate effect is on drilling and production.

Here's to acting local,

By Dave Forest