The Obama administration short- circuited its "all of the above" energy policy Friday by proposing regulations for the natural gas drilling process called fracking. Industry groups said the rules were redundant because the process is already managed at the state level and would only delay new projects. Environmentalists were frustrated that fracking is being allowed at all.

The proposed new rules require drillers to disclose the chemicals they use in the process, ensure that no seepage comes out of the wells and have processes in place to deal with fracking fluids that seep back to the surface. The rules apply to drilling on federal lands. Most drilling is done on private lands.

Interior Department Secretary Ken Salazar said in a statement that the rules were a necessary modernization. "It is critical that the public have full confidence that the right safety and environmental protections are in place.

The rules come the same day that TransCanada (TCP - News) reapplied for a permit for the Keystone XL oil pipeline. The administration had originally been expected to approve the project last year, but delayed and eventually rejected it after green groups objected.

National Association of Manufacturers President Jay Timmons chided the administration for the new rules: "Manufacturers are scratching their heads, curious why the administration's actions do not match their words on the potential of shale gas.

Redundant And Costly Jon Haubert, spokesman for the Western Energy Alliance, an industry trade group, called the rules redundant. State rules already require chemical disclosure. He estimated the federal regulations would cost the industry $130 million to $180 million in new compliance costs.

"It is already being done and when you have to do it a second time, there is no way to say it will not create delays," Haubert said. "And delays cost money.

Lee Fuller, top lobbyist with the Independent Petroleum Association of America, said the rules will require an overhaul of the well construction process.

He also called the rules redundant, but did credit the administration with appearing to favor a chemical disclosure process similar to the one states use and that industry is comfortable with.

"Well, they have tried to accommodate those issues," he said.

Fracking extracts natural gas from deep underground deposits that until recently were uneconomical to get. The process uses water, sand and certain chemicals to shatter shale rock, releasing the gas.

Technological advances have vastly expanded recoverable domestic natural gas reserves, reducing U.S. natgas futures to decade lows. The Obama administration has touted natural gas, cleaner burning than other fossil fuels, as a way to reduce carbon emissions until greener technologies become feasible.

Green groups fear cheap natural gas will delay development of renewables, a concern highlighted by the high-profile failures of federally backed projects like Solyndra.

Fears Overblown? Environmentalists have consistently raised fears that fracking chemicals will seep into groundwater and contaminate it. The Sierra Club said it was "carefully reviewing the proposed rules" and urged Interior to use the "toughest safeguards possible.

"(It) is deeply disappointing that fracking on sensitive public lands has been considered at all," it said in a statement.

But there is scant evidence of pollution from fracking. The most recent possible case, in Pavillion, Wyo., is still under investigation by the Environmental Protection Agency.

"We are not aware of any water-quality impacts on systems," Tom Beauduy, deputy executive director of the Susquehanna River Basin Commission, which monitors a major fracking site, told IBD late last year. "There have been incidents related to individual wells, but not to public water supply systems.

A 2010 study by the Pennsylvania Department of Environmental Protection admitted the "theoretical possibility" of contamination, but concluded: "no groundwater pollution or disruption of underground sources of drinking water have been attributed to hydraulic fracturing of deep gas formations."