By Christie Smythe and Tiffany Kary on September 24, 2012 Bloomberg Business Week

New York state can’t pursue a lawsuit seeking a full environmental review of hydraulic fracturing, a federal judge ruled in a case that might have held up natural gas development in the Delaware River Basin.

U.S. District Judge Nicholas G. Garaufis granted a request by the Environmental Protection Agency and other U.S. agencies to throw out the case, finding that the development plans are in the early stages and the threat of harm is speculative.

“The court has no way of judging reliably how probable it is that the regulation will be enacted and thus no way of judging whether risk that natural gas development may create are more than conjecture,” Garaufis said in his ruling.

The lawsuit, brought by New York Attorney General Eric T. Schneiderman, pitted arguments for environmental conservation against those for a domestic energy source and new jobs.

The New York City Council and environmental groups have sided with the state, warning of breathing problems for city residents and risks to fish in the Chesapeake Bay. Organizations representing companies including Exxon Mobil Corp. (XOM) sided with the federal government, arguing that the lawsuit is based on “speculative fears.”

River Compact

Schneiderman sued the Delaware River Basin Commission , the EPA and other federal agencies in May 2011 to force a fuller assessment of the environmental impact that gas development could have on the state’s water supply.

The river commission, created in 1961, is a compact among New York, Delaware, New Jersey, Pennsylvania and the federal government. It is responsible for water quality in the Delaware River Basin, which supplies drinking water to the four states.

“Everyone in this room drinks New York City water,” Garaufis said during a July 24 hearing. “I’m dealing with a real serious issue that may occur here with regards to the drinking water of 15 million people.”

Schneiderman said in the lawsuit that the commission’s proposed regulations would allow the natural gas-extraction process known as fracking at 15,000 to 18,000 gas wells without a full environmental review. If the regulations are issued, a moratorium on fracking in New York, already in effect for more than 18 months, will be lifted.

State Findings

New York says it has shown that fracking generates millions of gallons of wastewater contaminated with toxic metals and radioactive substances, and that companies using the process in Pennsylvania have violated the law 1,600 times, harming the state’s water.

“It was very clear to us that the judge understood that this was a very serious issue and we are absolutely the right organizations and individuals to be pursuing this litigation on behalf of the public,” said Maya van Rossum, leader of the Delaware Riverkeeper Network, which was also a plaintiff in the case.

The Marcellus Shale beneath parts of New York, Ohio, West Virginia, Pennsylvania, Maryland and Virginia, has an estimated 400 trillion cubic feet of natural gas, one of the largest such formations in the world, according to the trade groups, which represent companies with natural gas-leases in New York State.

The lawsuit might have shut down gas development in the river basin “for many years to come,” the trade associations said in court papers.

In Pennsylvania, natural gas and related industries have generated 72,000 jobs, 3,143 well permits and more than $1 billion in tax revenue since 2009, the trade groups said.

New York City has spent almost $1.5 billion to protect the drinking water that flows from the watershed, Schneiderman said in his complaint. The money has gone to buying land to serve as a buffer for pollutants, upgrading sewage plants and regulating human activity.

The case is New York v. U.S. Army Corps of Engineers, 11- cv-02599, U.S. District Court, Eastern District of New York (Brooklyn).

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