Obama methane rule is worse than originally proposed
WASHINGTON, D.C. (Bloomberg) -- The Obama administration, yielding to environmentalists demanding action to address climate change, issued limits on methane emissions from oil and gas wells that are even tougher than those it proposed last year.
The final regulations unveiled Thursday will add an estimated $530 million in additional costs in 2025, according to the Environmental Protection Agency. That’s at least 25% higher than the preliminary version released in August, and comes as low oil prices force the industry to pare spending on new exploration.
The administration says the costs will be offset by savings as lower emissions mean less severe storms and other outcomes of a changing climate that it pegs at $690 million by 2025. By contrast, the 2015 proposal was estimated to cost $320 million to $420 million in 2025, with potential benefits of as much as $550 million.
“Today, we are underscoring the administration’s commitment to finding commonsense ways to cut methane—a potent greenhouse gas fueling climate change—and other harmful pollution from the oil and gas sector,” EPA Administrator Gina McCarthy said in a news release. “These new actions will protect public health and reduce pollution linked to cancer and other serious health effects while allowing industry to continue to grow and provide a vital source of energy for Americans across the country.”
Methane is one of the most potent greenhouse gases and has been shown to warm the atmosphere 84 times more than carbon dioxide when measured over two decades.
The new regulations apply immediately to new and modified wells and, in a change from last year’s proposal, include low-producing wells and more frequent site inspections.
Environmentalists’ Pleas
Under the rule, companies will have to upgrade pumps and compressors, while expanding the use of so-called “green completion” technology meant to capture the surge of gas that can spring out of newly fraced wells. Such green completion techniques have been required at new and modified natural gas wells since 2015, but Thursday’s rule would broaden the requirement to oil wells too.
The EPA expanded the final regulation in response to concerns from environmentalists, who said the draft proposal didn’t go far enough. For instance, the agency dropped its proposed waiver for low-producing wells that generate less than 15 bopd or its equivalent. That could have exempted thousands of wells each year from new leak detection requirements in the rule.
The EPA also yielded to environmentalists’ pleas for more frequent inspections, by requiring companies to hunt for methane at compressor stations four times a year instead of twice, as initially proposed. At wells and associated equipment, however, the agency stuck with a semiannual timetable.
The changes drew an angry response from oil and gas leaders, who insisted even the softer proposal was unnecessary in light of the industry’s work to pare methane emissions. Because methane is the primary ingredient in natural gas, energy companies have a financial incentive to keep it bottled up as it moves from the wellhead to compressor stations and into storage tanks.
Battered Sector
The rule effectively asks an already battered industry to do more with less, amid low oil and gas prices, dwindling rig counts and thousands of lost jobs, said Sandra Snyder, a lawyer specializing in environmental regulation at Bracewell LLP.
“Industry has been making great strides to voluntarily reduce its methane emissions because doing so makes economic sense,” Snyder said. “Imposing additional reporting and regulatory paperwork obligations is even more burdensome at this time.”
Industry officials also warn that aggressive new mandates—on top of other, still-proposed regulations clamping down on gas that is vented or burned on federal land—could wipe out small, independent producers. Companies could spend more paring incremental methane emissions than they will recover by selling the natural gas they keep from leaking, industry groups said.
“It doesn’t make sense that the administration would add unreasonable and overly burdensome regulations when the industry is already leading the way in reducing emissions,” said Kyle Isakower, V.P. of regulatory and economic policy for the American Petroleum Institute.
Obama’s Promise
The EPA rule will help the U.S. move closer to fulfilling President Barack Obama’s promise to slash oil and gas sector methane emissions by 40% to 45% from 2012 levels by 2025. The new methane rule alone won’t be enough to meet the goal, but it provides a stepping stone to requirements for 1 million existing wells too.
Under a legal process established through the Clean Air Act, after acting on new and modified wells, the EPA can move to tackle existing infrastructure. Obama promised the U.S. would go after those existing oil and gas sources during a March summit with Canadian Prime Minister Justin Trudeau.
The agency formally kicked off that process Thursday by releasing a draft information collection request that asks oil and gas companies to turn over two waves of data about emissions, pollution-reducing equipment and associated costs. All owners and operators will be asked to respond to the first request, seeking information an Obama administration official said would be readily available. A smaller subset of facility owners would be asked to provide more detailed data.
Next President
Although most of the requirements for new wells would apply immediately, energy companies have a year to submit leak detection and repair plans. Green completion technology will be required at new oil wells within six months, but energy companies would still be forced to reduce emissions at those sites in the meantime, including by burning excess gas.
The EPA estimates the final standards will reduce 510,000 short tons of methane in 2025—roughly the same effect as slashing 11 million metric tons of carbon dioxide. EPA didn’t calculate a dollar amount for the potential public health benefits, such as lower rates of asthma, tied to the reduction in volatile organic compounds and other conventional pollutants.
