New York Marcellus Natural Gas is a Maybe

NEW YORK, Oct 1 (Reuters) - New York State's proposed new environmental rules allowing drilling for natural gas in the multi-state Marcellus Shale formation face opposition from environmental groups and, potentially, from New York City.

The proposed state rules would allow drilling around water wells but require extra reviews, depending on whether the work was within 2,000 feet or 1,000 feet of the well.

Some green groups want buffer zones created around upstate reservoirs to protect the city's water from pollution. Mayor Michael Bloomberg said he had not yet read the proposed rules, while executives for energy companies said the regulations would raise natural gas drilling costs but help calm public fears of water contamination.

Kevin Cahill, a Democrat who chairs the Assembly's energy committee, said the concept was controversial although new fuel supplies could shield consumers from price spikes. New York gets 95 percent of its natural gas from other regions with less strict environmental rules, Cahill said in a statement.

"The extraction of natural gas we extract from other states is not environmentally benign," he said. "New Yorkers simply cannot leave their environmental concerns at the state line," he said.

New York City's Council Speaker Christine Quinn said she was skeptical the state's rules would protect the city's water system, which carries a billion gallons a day for nearly 9 million people.

"We have already heard reports from Pennsylvania about the negative consequences of gas drilling on water resources in that state," Quinn, a Democrat, said in a statement issued late Wednesday.

The huge Marcellus Shale formation, which extends across much of Pennsylvania and parts of West Virginia, Ohio and New York, is likely the nation's largest shale reservoir.

Shale gas, or gas trapped in sedimentary beds, is seen as having the potential to provide the United States with affordable fuel that will help drive economic growth, reduce dependence on foreign oil and limit emissions for decades.

But concerns are growing that the drilling techniques used to fracture the gas-bearing rock could contaminate drinking water. Quinn called for amending the federal Safe Drinking Water Act to tighten rules for hydraulic fracturing.

In this process, also known as fracking, a mixture of water, chemicals and other materials like sand are pumped into the shale formation to split the rock and free the trapped gas.

While the chemicals used may be only a small part of the mix of fracking fluid, some are considered toxic or are known causes of cancer, raising concerns about the potential for ground water contamination.

Bloomberg told reporters the city has bought land in the watershed to protect the city's drinking water. "Unless we are satisfied, you can rest assured we will fight that," he said.

Brad Gill, executive director of the Independent Oil and Gas Association of New York, said the new regulations would increase costs but would not make gas drilling impossible.

"They certainly will increase the cost of exploring for and producing our gas," he said. "It's an increased burden but I think it's doable." (Reporting by Joan Gralla and Joseph Silha in New York, Jon Hurdle in Philadelphia; Editing by David Gregorio)