A natural gas-rich rock formation in the Southern Tier could be New York's next economic bonanza, but without care it could be an environmental bust.

It's all thanks to Marcellus Shale.

Scientists and energy companies have known about the formation and its natural gas reserves for decades, but it was always more trouble than it was worth to extract the gas.

Now that energy prices have hit once-unimaginable highs - natural gas prices have increased by about 40 percent in the last five years - the reserves are starting to attract domestic developers. The formation is also close to big natural gas markets - cities - and there's a pipeline through the Southern Tier.

Demand for natural gas has been steady; it's used for everything from home heating and cooking, to power plants, and even cars. Among fossil fuels, it's the lesser evil, since it burns much cleaner than coal or oil; in particular, it emits smaller amounts of greenhouse gases. In the case of power plants, it's become something of a compromise to coal or nuclear fuel.

That popularity is driving a rush for land rights in the Southern Tier, where the shale is especially rich. That, in turn, is driving a host of concerns. Landowners have questions about property rights and environmental groups say that there's the potential for ecological damage.

New York State has around 13,000 active oil, gas, and mineral wells, says data from the State Department of Environmental Conservation. So reviewing and monitoring them is nothing new. Because of the environmental questions, however, Governor David Paterson directed the DEC to develop additional environmental review criteria for certain drilling activities in the Marcellus  - the request accompanied legislation he signed about gas well spacing. In New York, a state-issued permit is needed to drill new oil or gas wells and environmental reviews are part of that process.

"There's a lot of benefits to be gained here. But we've got one chance to get it right," says Katherine Nadeau, water and natural resources program associate for Environmental Advocates of New York.

The Marcellus Shale is a rock formation that, in most spots, lies between a few thousand feet to more than a mile underground. It stretches from West Virginia up through Pennsylvania and Ohio and ends in New York - in this region it stops around the southern border of Monroe County. Much of the gas drilling in the state will be done in the Southern Tier.

The black shale, which is hundreds of millions of years old, was formed by fault activity and seaway sediments. Lots of organic matter mixed in with the sediment and decayed, forming the gas in tiny pockets inside the rock.

Energy companies want to drill in the formation because of its potential as a natural gas resource. Scientists say the formation could contain enough natural gas to meet the needs of the entire country for two years.

For an example of how interested the companies are, take a look at the lease holdings of Oklahoma-based Chesapeake Energy. The company now holds leases on more than 1 million acres of land across the state - most of the land is in the Marcellus formation. And Chesapeake's not the only company prospecting.

For their part, the energy companies are touting the potential economic benefits. The natural gas buried deep below the surface could generate thousands of jobs and billions of dollars for the state, a Chesapeake official told the State Assembly's Environmental Conservation Committee in October. Communities in the Southern Tier, many of which are struggling, could especially benefit because that's where the richest parts of the shale formation are located, the official said.

It's also clear that the energy companies see a profit to be made.

Extracting the natural gas from the shale will be done through the combined use of horizontal drilling and hydraulic fracturing - hydrofracking or fracking for short. Both methods have been used before in New York and there have been wells sunk in the Marcellus. But the two techniques haven't been used together in the Marcellus formation, and that's what makes this situation unique.

In horizontal drilling, a well is bored deep down into the shale layer, and then across in that same layer, making an L shape. Hydraulic fracturing entails injecting a water-based slurry into the well at high pressure, cracking the rock. The idea is to increase the exposed rock surface in the bore hole, which allows more gas to be collected. In other words, it boosts well productivity and therefore makes the well more economical.

But the method will require large amounts of water - between 1 to 5 million gallons per well.

Environmental watchdogs and the state are concerned about where that water will come from; possibilities include wells, lakes, and streams. Under the DEC's proposed supplemental environmental review, energy companies that want to drill the shale will have to say where they will get the water when they apply for gas well permits.

DEC Commissioner Pete Grannis has said that his agency wants authority to regulate water withdrawals for mining. When the governor directed the DEC to beef up its environmental review, water use was Paterson's chief concern, Grannis said. And while much of the Marcellus is located in river basins where water withdrawals are tightly regulated, there's no such protection for water in other areas. The DEC, Grannis said, only has jurisdiction over drinking water withdrawals.

In Pennsylvania, companies have been cited for illegally withdrawing water from streams. Improper withdrawals from streams can seriously impact water levels and flow.

But the issues go beyond water use and withdrawals. There are also questions about what will be done with the used water after drilling and the potential for underground aquifer contamination.

"None of these questions have been answered so far," says Adrienne Esposito, executive director of Citizens Campaign for the Environment.

In the drilling process, operators would add chemicals and sand to the water to aid in boring and gas extraction. Once the water is used and drawn back out of the well, it would be stored in tanks or lined pits. The State Department of Environmental Conservation considers the water to be industrial waste, so it must be treated. Among the possible contaminants the water may contain are brine, chemicals, minerals, and heavy metals.

Disposal is becoming a problem in Pennsylvania. The state has too few treatment plants that are capable of handling the waste.

In New York, under the proposed additions to the environmental review, the companies will have to identify how they will dispose of the waste water.

Modern drilling and fracturing processes are generally considered safe, say state environmental officials. Since the wells are lined and the fracking takes place well below groundwater-level, the chances for aquifer contamination are generally small, say scientists and DEC officials.

Contamination reports in other states have most often faulted surface-level spills or leaks from waste pits. Fuel spills are another reported problem.

"If someone does a very sloppy job of drilling and they let drill fluids escape into local streams, they could cause some local damage," says William Brennan. "Realistically speaking, the way things are done today, someone like that would end up in jail very quickly."

Brennan is a retired SUNY Geneseo geology professor who now works as a mining consultant.

Watershed contamination from spills or leaks is a concern for New York City, because its drinking water supply overlaps a large chunk of the shale formation. The city has pushed for the state to exclude drilling near its upstate water supplies.

It's not likely that Lake Ontario or its watershed would be affected by Marcellus drilling; because of the region's geology, a spill is unlikely to make it to those water sources, says Stephen Lewandowski, program director of the Lake Ontario Coastal Initiative. Same goes for the northern Finger Lakes and their watersheds, he says. For the southern tips of Keuka, Seneca, and Cayuga Lakes and their watersheds there is some potential for risk because they dip down into areas where the companies are interested in drilling.

Lewandowski's major worry is radon. The gas develops from radioactive materials in the shale and has been detected with some frequency in homes in Ontario and southern Monroe County, where the Marcellus nears the surface. He's worried that the drilling and fracking could bring to the surface radioactive materials bound up in the bedrock.

The DEC's Division of Mineral Resources oversees natural gas drilling and wells in New York. But the department as a whole has suffered from large-scale staff losses in recent years. By the end of the Pataki administration, the DEC had 800 fewer employees - a result of retirements and job cuts. Former Governor Eliot Spitzer added a fraction of the staff back. But anticipated retirements this year combined with a statewide hiring freeze may further deplete DEC's staff resources.

Environmentalists worry that if well applications ramp up, the DEC won't have the staff necessary to do thorough reviews of applications or to aggressively enforce regulations. Grannis told the Assembly committee that fewer staffers won't mean a lower-quality permit review, but the process will take longer.

There's another question that state officials may want to ask: Is encouraging drilling at odds with other state energy policies?

New York has established renewable energy goals - 25 percent of the state's electricity is supposed to come from renewable resources by 2013. It also has goals to decrease energy demand.

Developing more fossil fuel sources would seem out of line with those initiatives.

That being said, statewide environmental groups do not oppose drilling in the Marcellus, they simply want to make sure that it's done safely.

It's up to citizens and the state to make sure that drilling is done responsibly, to ensure that sensitive areas are protected, and to shield pristine areas. It's imperative that energy companies are held to high standards and monitoring.

"If we do it wrong, it's going to cost us far more than we could ever gain," Nadeau says.