Could Pennsylvania's Approach to Fracking Affect Your Energy Stocks?

While much of the nation's attention seems to be focused on the fracking moratorium in New York state, investors would be wise to keep an eye on what's happening right next door. Pennsylvania has run the gamut -- at times being staunchly anti-fracking, at times taking a more nuanced view that provides enough wiggle room to satisfy energy companies, environmentalists, and citizens.

The opposition

Source: Flickr/VideoPhotoholic

In June, Democrats in Pennsylvania drafted a resolution calling for a fracking moratorium in the state. While Republicans didn't enter the fray, they didn't have to, as splits within the Democratic caucus became heated.

In essence, representatives from the state's western and southern communities -- where the Marcellus and Utica shales are located -- were pitted against those from the eastern side of the state, where there is less economic gain to be realized from fracking. The opposition was coming not from those in the shale-rich plays, but those outside of it.

In fact, two separate groups of Democrats from the former group got together to write letters saying the call for a moratorium were "short sighted" and "dumbfounded".  

A middle ground
With Republicans likely in favor of maintaining fracking within the state, and Democrats split on the issue, the moratorium isn't likely to be passed any time soon. In fact, a more productive solution seems to be taking place, one that joins environmentalists with energy companies to find common ground.

In March, a new program was announced that would form a 12-person advisory board consisting of four industry officials, four environmental officials, and four independent members. As USA Today reported, the board would set standards on "emissions of methane ... flaring ... groundwater monitoring and protection; improved well designs; stricter wastewater disposal; the use of less toxic fracking fluids; and seismic monitoring before drilling begins."

The environmental seats would likely include officials from the Environmental Defense Fund, Clean Air Task Force, and the Pennsylvania Environmental Council. For the energy industry, Shell, Chevron, Consol Energy and EQT (EQT 0.03%) were all involved in the formation of the group. All four companies have a considerable presence in the Marcellus and Utica shale states of Pennsylvania, Ohio, and West Virginia.

Preliminary results from state study
One of the key pieces of information the new advisory board will consider is the result from the Southwest Pennsylvania Environmental Health Project's recent report. The group studied cases where individuals reported ailments that were not caused by underlying conditions, and started only after the commencement of drilling operations in nearby locations.

The group's findings were somewhat surprising. Instead of pointing a finger at possible water contamination because of the fracking process, the report said that air pollution caused by processing stations that connect to large, national pipelines were of greater concern.

This could mean that further attention may be directed at these stations, their locations, and emissions moving forward.

What this means for your investments
Because the Marcellus and Utica shales are largely natural gas -- and not oil -- plays, determining who the state's biggest players are is straightforward. These are the companies that averaged producing the most cubic feet of natural gas per day during the first six months of 2013:

Source: Pennsylvania Department of Environmental Protection 

If a moratorium were ever to take place, Chesapeake and Cabot would be the biggest losers in terms of production.

But the bottom line is that as long as Democrats remain divided on the issue, and scientific studies continue to support the theory that fracking itself isn't as big an environmental concern as previously thought, major changes that would affect your investments are unlikely.