A rule unveiled today by the Bureau of Land Management clamping down on the loss of natural gas from roughly 100,000 wells on federal and tribal lands met immediate resistance from congressional Republicans and industry groups.
The measure forms a major plank in the Obama administration’s effort to maximize domestic production and reduce greenhouse gas emissions. The agency today is also updating regulations to give it more flexibility to raise the existing 12.5 percent royalty rate for onshore production, set in 1920. But no royalty hike is currently planned.
The rule aims to reduce the flaring, venting and leaking of methane from federally managed oil and gas wells. Methane, the main constituent in natural gas, is more than 25 times as potent a greenhouse gas than carbon dioxide.
It would save society up to $188 million annually by allowing more natural gas to be sold and preventing the escape of methane and other pollutants, BLM said.
"I think most people would agree that we should be using our nation’s natural gas to power our economy — not wasting it by venting and flaring it into the atmosphere," Interior Secretary Sally Jewell said in a statement.
The rule drew swift attacks this morning from industry and Republican leaders who said the administration is using it as a roundabout way to keep federally owned oil and gas in the ground, as called for by climate change activists.
"Last week, it was an attack on coal on federal lands. This week, it’s an attack on oil and natural gas on federal land," said House Speaker Paul Ryan (R-Wis.). "This president has shown a real hostility toward creating much-needed energy infrastructure, yet his administration is forcing new regulations to capture methane emissions in regions where there is no infrastructure to do so."
The rule, more than five years in the making, would require operators to use off-the-shelf technologies to reduce flaring, which happens when operators burn off excess gas. According to BLM, flaring doubled from 2009 to 2013, driven in large part by oil wells in the Dakotas and New Mexico where there is not yet adequate pipelines to capture associated gas.
It would set gradually reducing caps on the amount of gas that may be flared from wells, beginning with a limit of 7,200 thousand cubic feet per well per month for the first year. That limit would be halved in the second year and halved again in the third year. Operators could comply by installing gas-capture infrastructure such as gathering lines, compressing the gas or stripping out the natural gas liquids and trucking it offsite, or by temporarily slowing production until capture infrastructure can be installed.
Caps on "routine" flaring would affect an estimated 16 percent of existing wells, which are responsible for about 87 percent of the amount of gas that’s currently flared, BLM said. But the rule would also provide an exemption if operators can show that flaring limits would force them to abandon production and leave significant recoverable oil in the ground.
The rule would also require companies to prepare a "waste minimization plan" that evaluates opportunities for gas capture before being approved to drill a well. The plan would need to be shared with midstream gas capture companies to promote timely pipeline development, though the minimization plan would not be legally binding.
The rule would also require companies to perform periodic inspections for methane leaks using infrared cameras or portable analyzers assisted by audio, visual and olfactory inspection. Inspections initially would be required twice a year. If few leaks are discovered, inspections could be reduced to once a year. But the discovery of significant leaks would require quarterly inspections, BLM said.
The rule would seek to eliminate venting, which is the direct release of methane into the atmosphere. (Flaring eliminates most of methane’s global warming potential.)
Venting would be allowed in narrow circumstances such as emergencies and from certain equipment subject to proposed limits, BLM said. In most cases, all "high bleed" pneumatic controllers would need to be replaced with "low bleed" controllers within a year. Certain pneumatic pumps would also need to be replaced with solar pumps or routed to a flare.
For the small number of storage tanks that vent more than 6 tons of volatile organic compounds annually, operators would have six months to begin capturing or flaring gas.
Operators would also have to capture, flare, use or reinject gas released during completions of conventional wells.
The new regulations would also clarify when companies owe the government royalties for flared gas. Current regulations allow companies to burn "unavoidably lost gas," which in BLM’s estimation cannot be economically captured and therefore is not subject to royalties.
The proposed rule says royalties will apply only to gas flared from wells already connected to gas capture infrastructure. "This reduces [the] burden on operators to submit applications for approval to flare royalty-free," BLM said. As a result, BLM could then redirect administrative resources to process drilling permits and right-of-way applications, and to conduct inspections, it said.
Mixed reactions
Industry officials and congressional Republicans blasted the rulemaking, noting that it comes on top of BLM’s rule to more tightly regulate hydraulic fracturing and EPA’s efforts to control methane from the oil and gas sector.
BLM has also significantly slowed the pace of oil and gas leasing.
A burdensome rule could force industry to forgo drilling on public lands altogether, reducing royalties to the U.S. Treasury and limiting supplies of natural gas that can reduce greenhouse gas emissions by replacing coal in power plants. Increased natural gas production has allowed domestic power plants to switch fuels from coal to lower-emitting gas, which is an “important reason” the United States has managed to reduce greenhouse gas emissions, according to the Intergovernmental Panel on Climate Change
"Another duplicative rule at a time when methane emissions are falling and on top of an onslaught of other new BLM and EPA regulations could drive more energy production off federal lands," said Erik Milito, director of upstream and industry operations at the American Petroleum Institute. "That means less federal revenue, fewer jobs, higher costs for consumers and less energy security."
Kathleen Sgamma of the Western Energy Alliance said flaring rates have been driven up in large part due to permitting delays in obtaining the rights of way to install gas capture pipelines.
"Rather than a long, drawn-out rulemaking, BLM could reduce venting and flaring rates tomorrow simply by approving permits for gas capture lines after years of delay," she said.
Moreover, by making it more difficult to operate on federal lands, BLM risks stifling production and will lose much more royalties than what the rule hopes to gain, she said.
BLM said the annual cost for industry to implement the rule will range from $125 million to $161 million.
Conservationists say the rule is long overdue.
"There is absolutely no reason that oil and gas companies should be able to freely waste hundreds of millions of dollars in taxpayer-owned resources without paying a dime," said Matt Lee-Ashley, a senior fellow at the Center for American Progress who is a former Interior Department official under the Obama administration. "Requiring companies to plug leaks and set reasonable limits on the venting and flaring of natural gas are simple and effective first steps toward cutting waste and reducing the impacts of methane pollution on public health and the climate."
Sierra Club Executive Director Michael Brune said today’s rule is a "positive step" toward ending all fossil fuel extraction on public lands.
Environmental Defense Fund President Fred Krupp said "BLM is taking an important step to ensure the responsible development of our nation’s natural resources."
It’s unclear whether the rule will make a significant dent in the nation’s greenhouse gas emissions.
According to U.S. EPA, oil and gas methane emissions on federal and tribal lands are about 4 percent of total domestic methane emissions.
Because methane accounts for about a tenth of overall domestic greenhouse gas emissions, direct emissions on federal and tribal lands would be responsible for about 0.4 percent of the nation’s greenhouse gas portfolio.
In total, BLM’s rule could avoid up to an estimated 169,000 tons of methane emissions per year, which is roughly equivalent to the greenhouse gas emissions from 875,000 vehicles, BLM said.
It could capture between 41 billion and 56 billion cubic feet of gas a year, which is enough to supply up to about 760,000 households each year, BLM said.
Data suggest the potential revenue gains from royalties on captured gas could be modest.
One study last summer by ICF International found that operators on federal lands vented, flared or leaked 62 billion cubic feet of gas in 2013, which amounts to $31 million in lost royalties. That’s a small amount compared with the roughly $1.3 billion in royalties companies paid on gas and $1.5 billion paid on oil on those lands in 2013, according to Interior Department data.
BLM estimates its rule will result in the payment of an additional $9 million to $16 million in royalties annually.
