Oil and gas in the capitals
The Obama administration, having won its war on coal, is now, during its remaining months in power, targeting the oil and gas (O&G) industry. Its latest salvos include regulations to reduce greenhouse gases (GHGs) from rigs and refineries; further restrictions on drilling on public lands; new restraints on offshore drilling; and imposition of strict ozone limits.
In addition to EPA actions, the Interior Department’s Bureau of Land Management is opening a review on rules for drilling releases of GHGs on public lands. A separate BLM fracing regulation is being challenged by regional O&G organizations, who won round one of the fight in a federal court in Wyoming during June 2016. Overall, the industry faces a “regulatory avalanche.” Mr. Obama has abandoned an “all-of-the-above” energy strategy unveiled during his 2012 re-election campaign, and is wielding federal power against an industry he considers the enemy.
Methane emissions. The administration, yielding to environmentalist constituencies, issued limits on methane emissions from oil and gas wells that were even stricter than those proposed last year. EPA estimates that the new regulations will cost more than $500 million/year—at least 25% more than the draft version. The mandates apply immediately to new and modified wells. Companies will have to upgrade pumps and compressors, and expand use of “green completion” technology, designed to capture methane from newly fraced wells. Such techniques have been required at new and modified gas wells since 2015, and will now be required at oil wells.
EPA also yielded to environmentalists’ demands for more frequent inspections, requiring companies to monitor methane at compressor stations four times/year instead of twice, as initially proposed. It also deleted its proposed waiver for small oil wells (<15 bpd), a change that annually adds thousands of wells to the rule’s new leak detection requirements. The regulation angered the industry, which insisted that even the draft proposal was unnecessary, in light of operators’ ongoing efforts to reduce methane emissions. Industry officials vow a legal challenge to the new methane rules, similar to the court challenge that has stalled the Clean Power Plan (CPP).
Alaskan rules. Through the Interior Department, Obama also announced new, special rules for operating offshore Alaska, more onerous than the offshore rules applying to the rest of the U.S. The Beaufort and Chukchi Seas are estimated to hold 23 Bbbl of oil and more than 2.8 Tcf of natural gas. These stringent new rules follow last year’s canceling of offshore lease sales in the Arctic and a refusal to extend existing leases. Regulators are implementing a de facto ban on drilling offshore Alaska, usurping Congress’ role. “Above all, it is the chaotic federal regulatory regime that is discouraging investment,” said Senator Lisa Murkowski (R–Alaska).
The Arctic restrictions exemplify Obama’s regulatory war on offshore drilling. Last April, the administration issued new well control rules that could force many small operators out of business, due to increased regulatory costs. In March 2016, reversing an earlier decision, the President announced a ban on drilling in the Atlantic. In 2011, the administration was held in contempt of court for failing to issue offshore permits, in an illegal effort to prevent development by not acting.
Predictably, this hostility has decreased O&G production offshore, even as output on state and private lands has boomed. That decrease means less federal revenue, fewer jobs, and more oil imports. This is another example of regulatory agencies captured by left-wing special interests, which then use the government against an industry treated as “the enemy.”
Increasing regulatory assault is part of Obama’s efforts to make renewable energy more competitive. As energy strategist Michael McKenna noted, “Obama and his team have always been very clear-eyed about their strategy: They want to make affordable, dependable, traditional fuels like oil, gas and coal more expensive.” Environmentalists naturally feel that it is past time for Obama to curtail O&G, as part of the environmental legacy that he is crafting during his second term.
These regulations’ costs to the economy are not trivial. For example, the National Association of Manufacturers estimates that the costs by 2040 of EPA’s ozone rule will total $3.4 trillion in economic output and 2.9 million jobs lost. Congressional Republicans will oppose some of these regulations during final negotiations on funding the government, but will not risk a government shutdown to overturn them. In addition, the ozone regulations are tied to court-ordered deadlines, making it harder for lawmakers to stop them. The political battle is complicated further by the fact that the O&G rules are moving through EPA and Interior with far less publicity than the CPP.
Ironically, while regulators continue to target O&G, the U.S. EIA has issued a report documenting the industry’s economic benefits. EIA estimated that declining energy prices, due to fracing, have saved the average American household nearly $750 annually since 2008. Between June 2014 and February 2016, O&G prices decreased 71% and 56%, respectively, due to fracing, and the prices of gasoline and electricity fell to historic lows. These declining energy prices have reduced household energy costs and are especially meaningful to low- and moderate-income families.
President Obama recently praised his administration for the progress it has made, but urged Americans to increase their environmental resolve in his final months in office, stating “There’s still much more to do. But there’s no doubt that America has become a global leader in the fight against climate change.” His remaining time in office—until Jan. 20, 2017, may be a long three months for the O&G industry. 
