Cracking the dome

International trade agreements threaten area fracking bans and moratoriums

Joel Dyer | Boulder Weekly

These days, if you take a drive down County Line Road, the narrow strip of pavement dividing Weld and Boulder counties, it might just remind you of an episode of Under the Dome, assuming that you’re familiar with that poorly acted, made-for-TV sci-fi show.


The point is that on the eastern, Weld County side of the road, drilling rigs, producing wells and production platforms, with their off-gassing tanks and burners, butt right up to the pavement. But they don’t cross over, for the most part. It’s as if some invisible barrier is keeping the oil and gas industry at bay. And, in fact, that’s pretty much the case.

The tsunami of drilling that has sent Colorado’s Wattenberg Field roiling with its 22,000-plus wells and production platforms, forever changing the air and water above and below every community in its path, is for now having its western advance blocked by an invisible wall composed of the area’s fracking bans and moratoriums that have been put into place by Boulder County, Broomfield and the cities of Fort Collins, Boulder, Lafayette and Longmont.

Unfortunately, this citizen-driven legal maneuvering that has, for the time being, prevented the irreversible destruction of the Front Range landscape may itself now be threatened by another unseen power, the secret tribunals that oversee the investor/state arbitration process that occurs when lawsuits are filed under the provisions of our nation’s international trade agreements.

On Jan. 1, 1994, the North American Free Trade Agreement (NAFTA) went into full force and effect. While the agreement has resulted in hundreds of billions of dollars in trade among the U.S., Canada and Mexico, it has also created its share of problems, particularly for the environment and the poor.

NAFTA’s 1,700 pages of legalese contain many provisions that are rarely talked about, let alone understood by the general population.

To put it into layman’s terms, NAFTA was supposedly intended to create a level playing field by ensuring that corporations in any one of the three signatory countries could operate in the other two countries under the same rules and regulations.

For instance, Canada can’t make a U.S. corporation abide by any restraints that are not being equally applied to Canadian corporations in the same industry. And if Canada has stricter rules than the U.S. when it comes to a particular industry, then the U.S. corporation can choose to take legal action against Canada for making it too difficult and expensive for the corporation to do business in that country.

NAFTA, like the other international trade agreements, literally elevates the rights of corporations and their investors to the same status as the nations themselves — and far above the status of mere citizens or their duly-elected local governments.

The section of the trade agreement that seems to most often come up in disputes filed by corporations is NAFTA’s Chapter 11, and more specifically articles 1105 and 1110.

These sections of the trade agreement provide a corporation with a guarantee that it will be treated fairly in accordance with international law and make it illegal to expropriate the rights or property of investors unless there is a public purpose, due process and the payment of compensation.

All of this sounds at least somewhat reasonable until you look at the types of lawsuits being filed by corporations under NAFTA and realize that the outcomes of these disputes are being determined by secret three-judge tribunals that bypass the signatory nations’ court systems entirely.

In a report titled “Trading Away Our Climate? How Investment Rules Threaten the Environment and Climate Protection,” the Sierra Club states, “Among the most harmful components of investment rules are vaguely worded provisions that guarantee investors a ‘minimum standard of treatment’ and ‘fair and equitable treatment.’ When a corporation feels that its rights have been violated or the monetary value of its investment has been reduced by the introduction of a new law or policy, the investor-state dispute settlement mechanism allows foreign firms to bypass domestic court systems and sue governments in private trade tribunals that lack transparency and public accountability. Corporations have used investor-state dispute settlement provisions to challenge environmental, land-use, energy and other socially beneficial laws passed by democratically elected governments.”

As a result of the secrecy provisions of NAFTA and the other trade agreements, the public is never made privy to the existence of the lawsuits or the legal arguments being made unless there is a leak of some sort. Even the outcomes of the lawsuits are rarely publicized, despite the fact that hundreds of millions or even billions of taxpayer dollars are being handed over to private corporations. At this time there are more than $6 billion worth of lawsuits pending against the U.S. government as a result of our international trade agreements.

If you’re wondering how this affects you beyond the taxpayer burden, consider that more than 500 lawsuits have been filed under trade agreements, the majority in an effort to overturn laws that have been put in place to slow or reverse global warming or to protect us from other environmental calamities.

These are hardly the types of binding legal decisions that most people believe should be determined on their behalf in secret tribunals run by unknown and unaccountable political appointees.

Sadly, global warming isn’t the only corporate target under the trade agreements. Removing local environmental regulations on oil and gas extraction and even dispensing of the right to study the environmental impacts of exporting natural gas seem to be the latest targets in the corporate crosshairs. This includes the attempt to use NAFTA and other trade agreements to overturn local bans and moratoriums on hydraulic fracturing.

To understand this process of undermining local fracking laws by way of international trade agreements, there are a couple of case studies that shed light on the subject.

First, there is the case of Canadian corporation Glamis Gold Inc., which used Chapter 11 of NAFTA to challenge certain California mining regulations that were created to protect the environment as well as the rights of Native Americans who had cultural resources located in and around the Glamis mining claim.

Glamis said in its NAFTA claim against the U.S. government that the California laws — which dealt with the final remediation of the Glamis mining site and were passed after the company acquired its lease — would make gold mining the lease so expensive that it would be considered an illegal “taking” of its property under the rules of the trade agreement.

In the end, Glamis lost its $50 million arbitration case in part because the price of gold nearly tripled by the end of the NAFTA proceedings. The tribunal found that at more than $900 per ounce of gold, Glamis could comply with the California environmental and cultural protection laws and still operate a profitable mining business, or sell its lease for a profit if it chose not to commence mining operations.

Despite this finding, the NAFTA tribunal overseeing the Glamis case set a dangerous precedent for future arbitrations concerning environmental laws.

Remarks from the arbitrators made it clear they agreed with the Canadian corporation that if California’s new environmental laws had caused the Glamis mining claim to be unprofitable to operate, it would likely have found in the corporation’s favor.

This interpretation of the Glamis ruling has led to several recent claims under NAFTA based on similar circumstances, including the recent notice of arbitration filed by Lone Pine Resources, Inc. against the government of Canada as a result of Quebec’s moratorium on fracking.

The Lone Pine/Quebec fracking case has Front Range roots. It all started when Denver-based oil and gas company Forest Oil decided to get into the Utica shale gas play in Quebec by first partnering with a Canadian company and then taking over the bulk of the play.

To make a complicated chain of title simple, suffice it to say that the Denver-based company eventually formed a Canadian offshoot called Lone Pine and eventually distributed its interest in Lone Pine to its shareholders.

Lone Pine subsequently became a publicly traded company and created its own subsidiary called Lone Pine Resources that at least had an office in the United States.

This is important because it demonstrates how simple it is for companies to create entities in other countries, which makes it possible for virtually any oil and gas company to file for arbitration, even against the country where it is primarily located.

In other words, with the filing of the right paperwork, Canadian companies can make claims against Canada under NAFTA and, of course, U.S. companies can make claims against the U.S., simply by creating a Canadian or Mexican subsidiary, which can be as insignificant as a single rented office.

The Utica Shale gas play in Quebec that first interested Forest Oil is similar to the shale gas plays occurring all across the U.S. The wells are drilled to the depth of the shale and then curved to drill horizontally for substantial distances through the shale formation.

After drilling, the wells are hydraulically fractured along the horizontal portions to crack open the formation with a highly pressurized mixture of more than 500 toxic chemicals, sand and water.

On July 28, 2006, Lone Pine applied to the Quebec Ministry of Natural Resources for an exploration permit covering approximately 11,600 hectares (28,664 acres) of land located under the St. Lawrence River. It was the company’s intention to drill and frack the shale formation under the river itself.

Well, it turns out that the people of Quebec and Boulder County have a good deal in common. The idea of drilling and fracking under the St. Lawrence was as motivating to the citizens of Quebec as the idea of fracking under Longmont’s Union Reservoir was to Longmont residents in 2011. The people of Quebec became concerned about the impacts of drilling and fracking and its potential for air and water contamination.

As a result, they took to the streets, and eventually their democratically elected government responded with a moratorium on drilling and fracking so that the whole shale gas extraction process could be studied.

Quebec’s citizens liked the idea, but Lone Pine wasn’t so enthusiastic about it. The company saw the moratorium as an illegal taking under Chapter 11 of NAFTA and used its U.S. subsidiary to file a $250 million lawsuit against the Canadian government.

So what happens to Quebec’s fracking moratorium now? Should the Canadian government lose the case before the NAFTA secret tribunal it will have two choices: It can pay Lone Pine the $250 million or it can settle the case, which is the far more concerning outcome. When the federal government of a nation settles a case under NAFTA or any of the trade agreements, it is basically committing to use its power to remove the offending laws or statutes that caused the original corporate lawsuit to be filed. In other words, in a settlement, the federal government sides with a corporation over a democratically elected government at the state, county or community level.

Lone Pine’s NAFTA case demonstrates just how vulnerable Colorado’s fracking bans and moratoriums really are to international trade agreement suits.

Consider that in Boulder County, Encana is the oil and gas company with the most pending drilling permits that have been put on hold due to the county’s five-year moratorium on fracking.

Encana is a Canadian corporation and therefore could file for arbitration under NAFTA at any time.

But it’s not just Encana. As the Forest Oil/Lone Pine/Lone Pine Resources case shows, any company owning mineral leases under Boulder County, Broomfield, Longmont, Fort Collins or Lafayette could potentially file suit under NAFTA. Anadarko Petroleum recently sold its Canadian subsidiary, but there is nothing stopping it from starting a new one, which would give it the ability to sue under NAFTA.

ConocoPhillips, ExxonMobil, Shell, British Petroleum and literally hundreds of other oil and gas companies, large and small, have subsidiaries in every North American country, as well as many other countries around the world.

Any oil and gas corporation wanting to challenge local fracking laws along the Front Range need only to own a mineral lease that it can no longer develop due to a fracking ban or moratorium, transfer all or part of the interest in that lease to a foreign subsidiary, and then file suit under one of the many international trade agreements to which the U.S. is a signatory.

It likely hasn’t happened yet only because the arbitration process is both long and expensive, and there is no need to venture down this path until the outcomes of the current lawsuits against Longmont, Fort Collins and Lafayette, which have been filed by the State of Colorado and/or the Colorado Oil and Gas Association and certain companies, are determined.

If the fracking bans and moratoriums are still standing at the conclusion of the current lawsuits that are being argued publicly in front of actual judges in an actual court system, then the secret tribunals of the trade agreements will likely be the next step by an industry that tends to be able to buy its way to its desired political outcomes.

Ilana Solmon, trade representative for the Sierra Club, told BW that such “investor-state arbitration offers corporations a second bite at the apple,” referring to the fact that when a company fails in the real court system it can always take its case before a tribunal under trade agreement provisions.

The pressure to overturn local bans and moratoriums on fracking is only going to increase with the signing of the Trans-Pacific Partnership (TPP), which, like natural gas extraction and fracking, is enthusiastically supported by President Barack Obama.

The TPP trade agreement will initially include 12 Pacific Rim countries:

Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam, but could eventually include every Pacific Rim nation. Obama has asked Congress for fast-track authority on trade agreements, which would allow him to sign the TPP into law while limiting Congressional debate and eliminating any possible amendments to the trade agreement.

It is an understatement to say that TPP is the oil and gas industry’s dream come true. In many circles the TPP is being referred to as the “gas export agreement.”

Once signed into law, the TPP would likely make any local laws restricting the drilling or fracking of gas illegal under federal law. Even doing research on the significant environmental impact of exporting gas would be prohibited as a result of TPP. That’s because of a little-known change in wording to a 1938 Congressional act.

In 1938, Congress passed the Natural Gas Act. The act was originally created because pipeline companies had monopolies on gas transport and were charging exorbitant prices to move gas. As an additional provision of the act, exporting or importing natural gas to or from any other country was expressly forbidden.

But in 1982, New York wanted to import natural gas from Canada, so the act was amended to allow for such imports. So when it comes to international trade agreements, the language of the Natural Gas Act has been radically altered to the following:

(c) Expedited application and approval process For purposes of subsection (a) of this section, the importation of the natural gas referred to in subsection (b) of this section, or the exportation of natural gas to a nation with which there is in effect a free trade agreement requiring national treatment for trade in natural gas, shall be deemed to be consistent with the public interest, and applications for such importation or exportation shall be granted without modification or delay.

What this means is that once TPP is enacted, it becomes illegal to create any U.S. law at the federal, state or local level that would restrict or even delay the exporting of natural gas.

Once TPP is law, environmental impact studies of gas exporting become illegal, as they would cause delay or even potentially disallow gas exports. Once TPP is in effect, U.S. citizens lose their right to have any say over how much of our nation’s gas reserves the private oil and gas industry is allowed to export.

With prices of natural gas in Asia and Europe ranging between three and five times higher than prices in the U.S., some experts are predicting that more than half of all the gas produced in the United States will eventually be exported under trade agreements.

Not only will the oil and gas industry extract massive profits as a result of higher prices overseas, but with so much gas being exported, domestic natural gas prices will likely double or even triple as availability dwindles due to the demands of the export market. That will undoubtedly be very bad for the average citizen, but it will create a double windfall for the gas industry. And at what price?

This huge increase in domestic gas prices will result in major increases in the prices paid by consumers for many common goods.

The chemical industry and other major manufacturers have been warning for several years now that their products’ prices will skyrocket as the result of unfettered gas exports, and these price increases that will be passed on to consumers could be a threat to the current, soft economic recovery.

In addition, if domestic gas prices increase significantly, then coal will once again be the fuel of choice for generating power, effectively eliminating the last contrived excuse for why we should be viewing natural gas as a bridge fuel to a sustainable energy future.

According to a Sierra Club report titled “Raw Deal,” “Large-scale [liquefied natural gas] exports, which the TPP would facilitate, would put more pressure to frack in the United States in order to feed foreign markets; require significant new investment in fossil fuel infrastructure, such as pipelines and LNG terminals, at a time when we should be investing in renewable energy;

increase climate emissions; and shift the energy markets back toward coal due to the increase in natural gas prices that would result from significant LNG exports.”

The TPP’s threat to Front Range fracking bans and moratoriums far exceeds that posed by NAFTA and other existing international trade agreements for several reasons.

Canada and Mexico are both oil and gas exporters, meaning that they have more than enough fossil fuels to meet their own needs. So their willingness, along with that of U.S. oil companies, to file for arbitration under NAFTA is really limited to a big-picture desire to protect the industry’s future by swatting down any citizens’ initiatives that might prove a threat to future profits, should they proliferate throughout the country.

But the countries signing on to TPP need our natural gas badly. And they know that TPP’s passage will give them the right to sue the U.S. if any community passes any law that gets in the way of their gas imports. And one can only assume that with tens, if not hundreds, of billions of dollars worth of Front Range oil and gas at stake, the U.S. oil and gas industry has plenty of incentive to use its Asian subsidiaries to bring suits before TPP’s secret tribunals, where the outcomes are almost guaranteed.

That’s because it is highly unlikely that the federal government will choose to spend billions of taxpayer dollars to pay off oil companies, as opposed to simply settling the suits by agreeing to eliminate local drilling, fracking and environmental laws that could be viewed as an impediment to the gas-exporting business under the industry-friendly TPP.

Barring some miracle of grassroots activism that halts the TPP process, Front Range communities may soon find themselves the subject of international trade agreement lawsuits filed by oil and gas corporations with offices spread from China and Japan to Chile and Peru.

The vote to fast-track TPP, the vote that will effectively eliminate any Congressional oversight of the controversial trade agreement, could come any day now.

Colorado Reps. Jared Polis and Ed Perlmutter are among a handful of House Democrats who did not sign onto a letter stating their opposition to the president’s request to fast-track the TPP. The fast track vote is currently too close to call.

Polis can be contacted at 202-225- 2161. Perlmutter’s number is 202-225- 2645.