Until relatively recently, natural gas-rich shale formations throughout the United States were not considered to have significant resource value because no technologies existed to economically recover the gas. Development and deployment of advanced drilling and reservoir stimulation methods have dramatically increased the gas production from these "unconventional gas shales." The Marcellus Shale formation of the Appalachian basin, in the northeastern United States, potentially represents one of the largest unconventional natural gas resources in the United States. Natural gas prices have fallen significantly in the last five years, but particularly since mid-2008 due in large part to the development of shale gas. Prices briefly exceeded $13 per million Btu (MBtu) in 2008, but fell below $4 per MBtu by the summer of 2009. The Energy Information Administration (EIA) expects that the Henry Hub spot price for natural gas will average $3.53 per MBtu in 2012, a drop of $0.47 per MBtu from the 2011 average. However, increased drilling activity in Pennsylvania and West Virginia and industry presence in New York and Maryland reflect strong interest in the Marcellus Shale. As a result, natural gas reserves in the United States may show a significant increase. Low natural gas prices have raised expectations that demand for natural gas will increase. Moreover, unlike the natural gas found in some regions, the gas produced from the eastern portion of the Marcellus formation is of high enough quality that it requires minimal treatment for injection into transmission pipelines. Multiple gas transmission pipelines already serve the northeast United States. The Millennium Pipeline project in southern New York could accommodate increased shale gas production from New York and parts of Pennsylvania to serve the natural gas needs of the region. West Virginia may face obstacles to developing additional pipeline capacity and other infrastructure, as its terrain is more rugged. Gas producers would also have to construct an extensive network of gathering pipelines to bring the gas out of the fields to market. One study by the Interstate Natural Gas Association of America estimated that almost 60,000 miles of gathering pipelines would be needed in the Marcellus area. Directional drilling and "hydraulic fracturing" are essential to exploiting shale gas resources. Although oil and gas developers have applied these technologies in conventional oil and natural gas fields for some time, recent improvements in both technologies have allowed them to be applied effectively to unconventional gas shales on an industrial scale. As a result, gas development has expanded in traditional gas producing areas, and has moved into areas that may have rugged topography, dense vegetation, higher population densities, and where residents may be less familiar with the oil and gas exploration and production industry. Shale gas development in the Marcellus region has been particularly controversial. The potential economic benefits from both the drilling activities and the lease and royalty payments compete with the public's concern for environmentally safe drilling practices and protection of groundwater and surface water resources. Water supply is an important issue because hydraulic fracturing requires large amounts of fresh water, but contamination of water resources is also a major concern to many across the region. As with oil and gas production generally, development of the Marcellus Shale is primarily subject to state law and regulation, and requirements for well construction and operation differ among the states. Additionally, provisions of two federal laws—the Safe Drinking Water Act (SDWA) and the Clean Water Act (CWA)—can apply to some activities, specifically those related to wastewater disposal through underground injection or discharge to surface waters. The SDWA exempts from regulation the underground injection of fluids (except diesel fuel) for hydraulic fracturing. Two bills introduced in the 112 th Congress (as in the last Congress) would remove the exemption and explicitly authorize regulation of hydraulic fracturing under the SDWA. As exploration and production activities have increased, so has concern that development of the Marcellus Shale could harm human health and the environment. One concern is that hydraulic fracturing or faulty well construction might damage groundwater and drinking water wells by introducing chemicals, natural gas, and other contaminants into aquifers. A second issue is the potential contamination of water wells from surface activities related to gas production. Accidental spills, leaky surface impoundments, equipment failure, or careless surface disposal of drilling fluids at the natural gas production site could increase the risk of contaminating a nearby water well or run off to surface water. Managing the wastewater produced from the fracturing process has emerged as a major water resource issue in the Marcellus region. Critics maintain that improper treatment and disposal of the large quantities of water used for, and resulting from, the hydraulic fracturing process may harm local and regional water supplies and that disposing the "flowback" and brine extracted from the shale after fracturing may affect the water quality of lakes, rivers, and streams and potentially damage public wastewater treatment plants and water supplies. Gas producers have pointed out that virtually all oil and natural gas production, including all the historical conventional production in the United States, requires wells that penetrate the local groundwater aquifers. Several shale gas contamination incidents have been attributed to poor well construction or surface activities that would be associated with any oil or gas drilling and production operation, and not just with the unique techniques associated with the hydraulic fracturing process. However, these observations emphasize the importance of good well design and construction for any wells that penetrate local aquifers, regardless of their purpose. (See " Well Construction and Casing ," below.) Incidents of well-water contamination have been reported as Marcellus Shale development has expanded. In one case, Pennsylvania regulators confirmed that methane had migrated from drilling sites to private drinking water wells, and issued notices of violations to a drilling company for, among other things, "failure to prevent gas from entering fresh groundwater." In this case, state regulators attributed the contamination to faulty well construction. In some cases of well-water contamination attributed to gas development in various gas producing areas, the source of contamination remains undetermined. Identifying the cause of contamination can be difficult for various reasons, including the complexity of hydrogeologic processes and investigations, and a lack of baseline testing of nearby water wells prior to drilling and fracturing, as well as the confidential business information status historically given to fracturing compounds across the states. Major oil and gas producing states have asserted that the hydraulic fracturing process has not been linked directly to groundwater contamination. However, contamination incidents attributed to poor well construction have raised concerns regarding the adequacy and/or enforcement of state well construction regulations for managing oil and gas development that increasingly depends on fracturing. This report discusses the Marcellus Shale resource, technical methods used to develop it, and associated groundwater and surface water issues. The report also discusses relevant federal and state regulatory authorities, recent developments at the federal and state levels, and pending federal legislation. Unconventional gas shales are fine-grained, organic-rich, sedimentary rocks. The shales are both the source of and the reservoir for natural gas, unlike conventional petroleum reservoirs. In the shales, gas freely occupies pore spaces, and organic matter adsorbs gas on its surface. The shales' extremely small pore sizes make them relatively impermeable to gas flow, unless natural or artificial fractures occur. Major gas shale basins exist throughout the lower 48 United States. There are at least 21 shale basins in more than 20 states. Based on a recent assessment of natural gas resources, the United States has a resource base of 1,836 trillion cubic-feet (tcf). Shale gas made up an estimated one-third of this resource base, roughly 616 tcf. The U.S. Geological Survey (USGS) estimated in 2011 that the Marcellus Shale holds 84 tcf of undiscovered, technically recoverable natural gas and 3.4 billion barrels of natural gas liquids. Annual U.S. dry natural gas production has improved significantly in the last half decade. The 22.4 tcf produced in 2010 matched the peak production of the early 1970s, due in large part to unconventional resources, particularly gas shales. In 2009, the United States reclaimed the top spot as the world's largest natural gas producer, the first time since 2001. EIA, in its 2011 Annual Energy Outlook reference case, forecast shale gas production to grow from about 25% of total U.S. natural gas production in 2011 to 46% in 2035. The Marcellus Shale is a sedimentary rock formation deposited over 350 million years ago during the middle-Devonian period on the geologic timescale. Geologic strata deposited in the Appalachian basin during this period are more likely to produce gas than oil. Regional oil production is associated with Pennsylvanian age strata (of the later Carboniferous period). The black, organic-rich, Marcellus Shale lies beneath much of West Virginia, western and northeastern Pennsylvania, southern New York, eastern Ohio, and parts of Virginia and Maryland. It is an estimated 95,000 square miles in areal extent and ranges from 4,000 feet to 8,500 feet in depth, running deeper the farther north it goes along the cross section. The shale's thickness varies from 50 feet to 250 feet. Some reports indicate that the shale may be as much as 900 feet thick in places, however. (See Figure 1 .) Typically, thicker shales with greater organic material yield more gas, and thus are more economically desirable to produce. Shale in northeast Pennsylvania and southeast New York has these characteristics and produces dry pipeline quality natural gas. Shale in western New York and western Pennsylvania produces a wetter gas that contains natural gas liquids that must be removed from the gas before it can be piped and used. Natural gas liquids (NGL), such as ethane, butane and propane, add to gas shale profitability and increase the incentive to produce the shale when natural gas prices are low. (See Figure 2 .)