Study Analyzes Costs of Increased Setback Regulations

Setbacks are just one of the many regulatory mechanisms used to control natural gas extraction. Using Colorado as a case study, researchers found sharp increases in resource unavailability, and thus revenue, when setbacks exceed a certain distance.

What is a setback?

For the purposes of this article, a setback is specified distance from a road, water source, property line, or structure within which building a gas well pad is prohibited. Setbacks in Pennsylvania are largely determined by local ordinance, but Act 13, which regulates some aspects of gas wells in the state, mandates a setback of at least 500 feet from a building or water well.

The study found that up to a certain distance, setbacks have a small to moderate effect on resource unavailability (the ability for an unconventional well to access the gas pocket). More specifically, the study found that setbacks up to 1,500 feet would cost the gas industry approximately a half-billion dollars in lost revenue due to resource unavailability. However, once the threshold of 1,867 feet is reached, resource unavailability rises sharply. At 2,500 feet, revenue losses from resource unavailability jump to approximately $4.5 billion.

This study validates the narrative surrounding Colorado’s failed 2018 Proposition 112, which called for increasing setbacks from 500 to 2,500 feet, that many called a “ban on drilling”. Opponents of the proposition lobbied that the increased setback rules would end the industry in the state.

In Pennsylvania, discussion on increasing setback requirements has been sparked by Attorney General Josh Shapiro. In a lengthy report that found

“systemic failures” in the state’s regulatory agencies with the gas industry under their purview, Shapiro listed eight recommendations for better oversight, one of which was to increase setbacks from homes and buildings that are not schools or hospitals from 500 feet to 2,500 feet. A change in regulation this drastic could seriously impact the industry in the Commonwealth, based on the results of the Colorado research.

There is inherent value to setbacks. They exist to promote quality of life and public and environmental health, which is the pinnacle of regulatory oversight. However, as the study indicates, there is room for compromise between the goals of industry and government. Though the study does not provide a perfect “sweet spot” distance, as it is largely subjective to the land in question, it does indicate that there is a point of no return on the industry side.