New York City officials have demanded a ban on natural gas drilling near upstate reservoirs because they fear the drilling could contaminate the city's drinking water.

They've asked the state Department of Environmental Protection to establish a one-mile protective perimeter around each of the city's six major Catskill reservoirs and connecting infrastructure -- a buffer that would put at least half a million acres off-limits to drilling. They also want to wrest more regulatory control from Albany.

New York is one of just four major cities in the United States with a special permit allowing its drinking water to go unfiltered, and that pristine water comes from a network of reservoirs and rivers in five upstate counties. If the special permit was revoked, the city would have to build a treatment facility that could cost nearly $10 billion, said Walter Mugden, a senior official at the U.S. Environmental Protection Agency. That's roughly what the state estimated it would earn from gas development over the next decade.

In a letter (PDF) from the city Department of Environmental Protection to state officials, obtained by ProPublica, commissioner Emily Lloyd said she was not satisfied with the state's assurances that the environment would be protected from drilling in the Marcellus Shale, a layer of rock that dives up to 9,000 feet below much of the Appalachian east, including south central New York state and the 2000-square-mile watershed.

The letter doesn't offer any specifics on how drilling might taint the city's water or explain the basis for the one-mile buffer, but it made clear that as guardians of New York's water, city officials view drilling as a serious threat to the tap water supply for nine million downstate residents. It could involve thousands of gas wells producing billions of gallons of toxic wastewater.

"If you are ranking areas of concern that need extremely careful protection [the New York watershed] would have to be at the top of anybody's list," Mugden said. "More than half the state...depends on that watershed on a daily basis."

Lloyd asked that a state, city and federal working group be formed to reassess regulations in the watershed and to recognize it "as a unique resource requiring special protection." She called for the city to be given a say in the state's permit review process, and for the public to be allowed to comment on each well's permit, something that is not guaranteed now.

The Marcellus Shale is among several large new gas reserves in the United States that have become economically viable in a time of record oil and gas prices. Terry Engelder, a geologist at Penn State University, believes it could meet all the nation's natural gas needs for two years. The Department of Environmental Conservation, which oversees exploration, has estimated that Marcellus development could add as much as a billion dollars a year to the state's anemic economy.

Still, the environmental consequences of developing Marcellus wells on a large scale could be severe. Getting the gas involves a process called hydrofracking, or shooting millions of gallons of water and drilling chemicals at explosive pressure deep underground to break up the rock, and drilling the Marcellus would require more water than most other types of drilling. The identity of the chemicals, which are sometimes toxic, is protected as a trade secret, making it difficult to assess how wastewater can be safely treated and discharged. Drilling in other states has resulted in more than a thousand wastewater spills that have affected drinking water.

An investigation last month by ProPublica and WNYC public radio found that New York state had not adequately assessed the environmental risks and did not have a complete regulatory structure in place to determine where the immense amounts of water used would come from, or how it would be disposed of after it was used. It found that New York state did not know the chemical contents of the drilling fluids that industry would use, and was not aware of the level of contamination in other states.

Last week Gov. David Paterson ordered the DEC to update the 16-year-old environmental impact assessment it was relying on and pledged to require the industry to disclose the chemicals it uses. But he did not promise to stop drilling from going forward in the meantime.

Lee Fuller, vice president of government relations for the Independent Petroleum Association of America, said the city's worries are unfounded because the wastewater will be managed and is regulated under state law. "I don't see this hypothetical risk to New York's drinking water as realistic at all," he said.

The city was not brought into the gas drilling conversation until mid-July, even though state officials had been working on the issue for seven months. The city sent a letter to state officials raising concerns about a new well-spacing bill that was before the governor, and Lloyd requested special consideration for the watershed a few days later.

Both the state and the city have tried to keep their negotiations private. A DEC spokesman said the agency works closely with the city, and the city responded in kind.

"DEC has given us every assurance we have asked for," Lloyd said through a spokesperson Friday, "...that the environmental review will be very stringent, that we will be at the table throughout the process, and that protecting water quality is their first priority as well as ours."

James Gennaro, a New York City councilman and chairman of the city's committee for environmental protection, wants the city to go further. He is calling for a complete moratorium on drilling anywhere in the Catskill watershed, which provides 90 percent of New York City's water and also makes up the heart of the Marcellus deposit. He said he will ask the EPA to conduct its own study of the threat drilling poses to the city's drinking water.

"I just don't think it's a proper activity for an area which is the city of New York's most precious capital asset," he said. "I think it poses a risk. I think they are going to say quite candidly that it is a problem. Let the federal government go on record."

The face-off pits the city's interests against the broader economic needs of the state, so its solution may not be simple, according to Eric Goldstein, an attorney with the Natural Resources Defense Council. Gas leases are selling for as much as $3,000 an acre in parts of the state with stagnant economies.

The historic upstate-downstate friction can be attributed at least in part to the controversy over New York City's acquisition of the watershed lands in the early 1900s, Goldstein said. "Those were pure eminent domain takings; thousands of residents were moved, towns were relocated, cemeteries dug up and bodies reinterred. Obviously some tensions have remained."

Goldstein said New York City may have the law on its side, because public health code gives it the power to set and enforce any pollution controls in the watershed. But unilateral action would be a last resort. Instead, the city is more likely to search for a cooperative solution that leaves the door ajar for upstate economic growth while still saving the city’s water.

"You could say that from a legal standpoint they have authority," Goldstein said. "How and whether they might choose to use it is another question."