A rig drills for natural gas at a hydraulic fracturing site owned by EQT Corp. located atop the Marcellus shale rock formation in Washington Township, Pennsylvania, U.S., on Thursday, Oct. 31, 2013. Output from shale deposits including the Marcellus has surged 10-fold since 2005 to account for a third of the countrys gas production, government data show. The increase in production is bringing development to an economically depressed region that lies atop the Marcellus shale, a rock formation that produces more natural gas than Saudi Arabia. Photographer: Ty Wright/Bloomberg via Getty Images

By Valerie Volcovici

WASHINGTON, Jan 5 (Reuters) - Federal regulators are unlikely to step up enforcement of potential water contamination cases linked to natural gas drilling - despite new concerns about water safety - given a lack of political will and limited resources to pursue such cases, analysts said.

A report quietly made public on Christmas Eve by the U.S. Environmental Protection Agency's internal watchdog brought back into the spotlight concerns about the effects on water quality from the drilling technique known as hydraulic fracturing, or fracking.

The report said the EPA was justified in issuing an emergency order in 2011, asking the oil and gas driller Range Resources to improve monitoring and provide clean water to a family in Parker County, Texas, whose water supply had been contaminated with methane as a result of nearby fracking.

The EPA Inspector General also criticized the agency for backing off enforcement of the complaint in 2012.

At the time, the EPA said that as a compromise for dropping its lawsuit it would work with Range to examine the effects of fracking on drinking water in a future national study on fracking and groundwater.

An EPA spokeswoman said the agency will continue to share any additional sampling data and relevant information provided by Range and other parties with the state regulator, the Texas Railroad Commission. A spokesman for Range said the company has not heard back from the EPA regarding the study.

Some see the inspector general's report as justification for the EPA to more aggressively enforce pollution cases related to fracking, but other analysts and former officials say the agency lacks both the desire and capacity to do so.

Fracking is regulated on a state-by-state basis. The only national EPA rule so far, on air emissions from operations, known as "green completions," will take effect in 2015.

The Texas contamination case was the third instance in which the EPA backed off of an initial assertive stance and instead deferred to local regulators.

"As a result of three relatively unflattering outcomes, EPA may aim before it shoots in the future, but politics has been a factor, too," said Kevin Book, an energy analyst at Clearview Energy Partners. Ahead of congressional elections in November, Book said "similar activism from EPA is fairly unlikely."

GOOD NEWS, BAD NEWS

Amy Mall, a senior policy analyst with the Natural Resources Defense Council, an environmental group, said she doubts the agency will reverse what she called the trend of "systematically pulling back from high-profile investigations" because fracking is the "third rail" of U.S. energy policy.

Specifically, she said, President Barack Obama may be hesitant to send any signal that federal regulators will step in to slow the expansion of natural gas production.

The natural gas boom has been a bright spot for the Obama administration. Lower gas prices have helped create a domestic manufacturing renaissance and lower household energy bills while cutting greenhouse gas emissions.

The administration is also aware of industry groups sounding the alarm over prospects for a national study of fracking and groundwater due to be finished in 2015 to open the door to new federal rules on fracking.

U.S. Chamber of Commerce President Thomas Donohue warned last month that the study could be used to justify clamping down on the drilling techniques that have sparked a surge in U.S. oil and natural gas output.

Steve Everly, a spokesman for pro-fracking group Energy in Depth, said energy firms worry about EPA overreach.

"There may be a culture of 'shoot first, ask questions later' that even the Office of the Inspector General sadly thinks is permissible," Everly said. "I always thought EPA's mission was to protect the environment, not attack productive industries."

At the same time, fracking draws strong opposition from environmental groups that constitute part of the political base for Obama as well as Democrats in general.

"I do hope the agency sees the particular inspector general report as providing them some additional validation and support to take future actions when necessary," said Al Armendariz of the Sierra Club, a former regional EPA official.

Armendariz was head of the EPA's Dallas regional office when the original order was made against Range Resources. He resigned in 2012 after Sen. James Inhofe, Republican of Oklahoma, released a video of him saying the agency should "crucify" oil and gas firms that violated environmental laws.

While Armendariz called for a more assertive EPA, he told Reuters that technical challenges dog the agency's enforcement efforts. Cases related to energy extraction are more of a challenge than those related to clean air regulation because there are more "technical hurdles and challenges in the subsurface," he said.

The EPA has had a much lower rate of enforcement at energy extraction sites than it does at power plants or industrial facilities that have polluted the air, for example.

In 2012, the EPA inspected 870 energy extraction sites and concluded enforcement actions against just 53. The agency investigated 836 coal-fired electric units for potential air pollution incidents and controlled 461 of them.

One former EPA official said investigating energy extraction sites requires a lot of money and thousands of staff - both in short supply given tight budgets.

"To do a case where it involves taking significant environmental samples in the field - it is very expensive," the official said.