By Ian Talley
Of DOW JONES NEWSWIRES
WASHINGTON (Dow Jones)--U.S. lawmakers Tuesday unveiled a bill that industry warns could prevent development of trillions of cubic feet of natural gas by putting regulation of a key production technique under federal oversight.

It is unclear how much support the proposal could get in Congress or from the White House, but the oil and natural-gas industry has already geared up for a fight to oppose the provision given its potential impact on the sector.

The legislation would repeal an exemption for the process of "hydraulic fracturing" in the Safe Drinking Water Act that requires disclosure of the chemicals used the production process.

By forcing hydraulic water, sand and a small percentage of lubricating chemicals into unconventional types of reservoirs called tight sand and shale gas, companies are able to fracture underground rocks and release the trapped gas not traditionally accessible. States' offices, such as Pennsylvania's Department of Environmental Protection, currently regulate the 60-year-old practice.

Despite its history, "fracking" has gained recent attention as geologists have discovered massive unconventional natural-gas resources around the U.S., multiplying estimates of the nation's future production. For example, the Marcellus deposit that lies under Pennsylvania, Virginia, Ohio and New York is estimated to hold more than 500 trillion cubic feet, compared to total conventional natural-gas resource estimates in the U.S. of around 378 trillion cubic feet, according to the U.S. Geological Survey.

Critics of the exemption say federal oversight is needed to protect drinking-water supplies, but proponents say state regulation is sufficient. Industry officials say the EPA isn't prepared to administer oil and gas permitting and federal regulation could lead to long delays, court cases and possible permit rejections.

That's why companies such as Range Resources Corp. (RRC), EOG Resources Inc. (EOG), Devon Energy Corp. (DVN), Royal Dutch Shell PLC (RDSA) and Chesapeake Energy Corp. (CHK) are lobbying against the measure.

Anadarko Petroleum Corp. (APC) spokesman John Christinansen said given state oversight, federal regulation is unnecessary and could at the very least delay new development of unconventional natural gas. "It would result in higher energy costs because it will discourage production," he said.

Jay Ewing, the manager of completion and construction at Devon Energy's Barnett field in North Texas, says the ultimate fear of federal regulation "is totally eliminating hydraulic fracturing, and that would eliminate a lot of resources."

Pressed at a recent congressional hearing, Environmental Protection Agency Administrator Lisa Jackson said her office would review the EPA's previous decisions not to push for federal regulation.

Under Carol Browner, currently President Barack Obama's energy and climate czar, the EPA in the mid-1990s decided that federal regulation was unnecessary. "There is no evidence that the hydraulic fracturing at issue has resulted in any contamination or endangerment of underground sources of drinking water," Browner wrote in 1995 as head of the EPA in a letter rejecting federal oversight of a potentially precedent-setting case in Alabama.

In the House, the bill was introduced by Rep. Diana DeGette, D-Colo., and Rep. Maurice Hinchey, D-N.Y., and in the Senate, by Sen. Bob Casey, D-Pa., and Sen. Charles Schumer, D-N.Y.

Hinchey said the exemption "enabled energy companies to pump enormous amounts of toxins such as benzene and toluene into the ground that then jeopardize the quality of drinking water." Also, some environmentalists and lawmakers are concerned the water supplies needed for the fracking process could over-tap sources used for drinking.

But the natural-gas industry says that operators are required by law to report the chemicals they use to the state authorities and wouldn't be granted permits if their operations threatened public health, safety or supplies.

Devon's Ewing said the three main chemicals used in the process besides water and sand are guar - which is used in chewing gum - soap similar to what's used in dish detergent, and biocides that kill bacteria in the reservoir. Chemicals such as benzene can be released from the reservoir, but are contained and regulated by the state.

Industry officials also say most of the reservoirs are thousands of feet below drinking water tables, with massive rock barriers preventing any type of contamination.

Anadarko's Christiansen said "Since 1947, there's been a million applications of hydraulic fracturing and not a single documented case of water contamination credibly tied to fracking."

It is unclear how much support the bill will received in both chambers, as lawmakers have been so far unsuccessful in their attempts to include the legislation in energy bills considered in the key committees. Although House Energy and Commerce Committee Chairman Henry Waxman, D-Calif., has indicated he supports federal regulation, he didn't allow it to be added as an amendment to the energy and climate bill his panel passed last month, not wanting to upset the delicate compromise he had crafted.

The proposal also isn't included in the oil and gas section of the broad energy bill the Senate Energy and Commerce Committee is near completing.

Furthermore, it's unclear whether the Obama Administration would want to place a hurdle of any sort in front of natural gas development. Natural gas has much lower carbon dioxide emissions compared to oil and coal, and is vital to the administration's goal of cutting greenhouse gases in a low-carbon economy. In their congressional offices, both Obama and his now chief of staff Rahm Emanuel sponsored legislation encouraging natural gas vehicles, which would largely rely on unconventional resources.

- By Ian Talley, Dow Jones Newswires; (202) 862-9285; ian.talley@dowjones.com;