* Green completions not required till 2015
* Environmentalist complains flaring has problems
* Industry says rules give time to invest in equipment (Updates with final rule)
By Timothy Gardner and Ayesha Rascoe
WASHINGTON, April 18 (Reuters) - U.S. environment regulators said Wednesday they will give natural gas and oil drillers more than two years of extra time to invest in equipment that slashes unhealthy air emissions from fracking wells, citing a lack of clean technology.
Drillers that use fracturing, or fracking, to extract natural gas and oil will not be required to use the equipment until January 2015, the Environmental Protection Agency said as it finalized long-delayed rules on the smog-forming emissions.
The new rule comes as the Obama administration tries to balance its support for a booming industry that could help the United States become a major exporter of natural gas, while still addressing concerns about its safety.
In a draft rule in July the EPA had proposed drillers would have to invest in equipment to capture the waste gasses soon after the standard was finalized.
Now, drillers will have until 2015 to invest in equipment that capture the emissions, a process known as 'green completion'. Until then they can burn off, or flare, the gas.
The decision to phase in the requirements for green completion equipment came after the EPA reviewed 150,000 comments on the proposed rule, and after it studied the availability of the equipment, said Gina McCarthy, the EPA's assistant administrator on air and radiation.
Some companies already conduct green completions voluntarily. They sell the methane to lower the costs, though gas prices at 10-year lows can make the savings harder to achieve.
Companies including Chesapeake Energy and Exxon Mobil could be forced by the rules to invest in pollution control technologies.
Drilling proponents have warned the Obama administration against imposing too many costly restrictions on natural gas. Last week, the White House formed an interagency panel to support gas development and streamline regulation in an executive order that recognized states are the main regulators of natural gas drilling.
NOT THE BEST SYSTEM
Environmentalists and health groups have complained that fracking operations near schools and homes can harm air and water supplies.
"It's certainly a delay in the best system of emissions reductions," said David McCabe, an atmospheric scientist at the Clean Air Task Force said about the final rule. "It's very clear that flaring is not the best system of emissions reduction particularly for air quality, but also for climate," he said.
Flaring the initial emissions, which mainly come in a rush in the first days after fracking a new well, emits millions of tons of carbon dioxide, he said. Much of the waste gas is methane, the main component of natural gas, and environmentalists say drillers should be required to capture it.
Still, environmentalists said flaring methane was better than venting it because the gas is more than 20 times more potent a greenhouse gas than carbon dioxide.
Howard Feldman, the director of scientific and regulatory policy at the American Petroleum Institute, applauded the phase-in of the green completion requirement, that will affect more than 13,000 new wells each year.
"Overall the changes are constructive," said Feldman, adding that the EPA decision gives companies time to put in place equipment that is not yet readily available.
In fracking, drillers blast large amounts of sand and water laced with chemicals deep underground to free natural gas and oil.
The EPA said the rules will reduce emissions that contribute to smog by 95 percent from fracking wells.
The API has said the equipment to capture emissions in the first few days after fracking is completed could cost about $180,000 per well. Environmentalists say the cost is far lower as it is mostly needed in the early days after fracking or re-fracking a well.
U.S. lawmakers were divided over the rule. Representative Edward Markey, the top Democrat on the House Natural Resources Committee welcomed them.
"These new EPA safety and environmental standards will ensure that less pollution escapes into our air and our atmosphere, and that the natural gas industry won't be able to escape proper oversight of their practices," Markey said.
Senator James Inhofe, the top Republican on the Senate environment committee, and a global warming skeptic called the rules another step in President Barack Obama's "war on natural gas production." (Reporting By Timothy Gardner; Editing by Maureen Bavdek and Sofina Mirza-Reid)