Methane rules hint Obama is taking a tougher line on oil and gas

By Mike Soraghan | 01/15/2015 08:17 AM EST

The Obama administration’s approach to regulating methane could signal a tougher approach to the growing domestic oil and gas industry as President Obama tries to build his environmental legacy.

Administration officials came down mostly on the side of environmental groups in the debate, hinting at an end to the kid-gloves approach they’ve taken with producers since before Obama’s 2012 re-election.

The White House disappointed environmentalists by leaving out — for now — existing oil and gas wells. But for the most part, mainstream environmental groups were pleased, and industry groups grumbled. Observers say oil and gas companies may need to expect a less friendly reception from administration officials for the next two years.

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"The relationship is changing. This is another data point that suggests a stricter approach," said analyst Kevin Book, an analyst at Washington, D.C.-based ClearView Energy Partners. The administration’s outlook, he said, "is definitely greening up."

For the past couple of years, environmentalists have fumed at the accommodating approach Obama has taken with the oil and gas boom in Pennsylvania, North Dakota and Texas.

The oil and gas industry, which has long identified with the Republican Party, didn’t lavish praise on the Democratic administration. But Obama’s "all of the above" energy strategy muted the industry’s criticism enough to keep oil and gas from emerging as an issue in Obama’s 2012 re-election effort or last year’s midterm elections (EnergyWire, Nov. 5, 2012).

Big decisions loom as Obama finishes his second term and petroleum production regains its prominent place in U.S. industry.

The Interior Department is still weighing new rules for hydraulic fracturing and well construction on federal land; U.S. EPA is completing a major study on the effects of fracking on water quality; the State Department is reviewing the Keystone XL pipeline; and industry is pushing for a change in the law banning the export of crude oil.

Book said he’ll be listening for clues during Obama’s State of the Union address.

"Is the emphasis on production," he wondered, "or being ‘safe and responsible’?"

Obama’s kinder and gentler approach to oil and gas regulation goes back more than two years.

With re-election approaching in 2012, the industry’s biggest lobby group, the American Petroleum Institute, complained about a haphazard regulatory approach to shale drilling. Obama assigned his top aide for climate and energy issues, Heather Zichal, to coordinate the administration’s policies on shale gas.

Within a month, Zichal was talking publicly about the Obama administration’s new and improved relationship with the industry. She touted the administration’s support for increased domestic production and stressed the importance of oil and gas for job creation.

With Zichal at the helm, the administration slowed the Interior Department’s fracking rules and extended the deadline for drillers to comply with new rules for "green completions" at natural gas wells. Still, many of those moves delayed regulation rather than preventing it.

More broadly, the administration has ignored calls to regulate the alleged water contamination hazards of the hydraulic fracturing process, and EPA nixed high-profile enforcement cases related to shale drilling. Obama’s EPA largely left it to state regulators — who also promote drilling — to handle the day-to-day environmental effects of oil and gas production.

But even as it deferred to many wishes of the drilling industry, the administration maintained a focus on climate change issues, even when there were political costs.

No ‘co-benefit’

The administration’s move to regulate new wells could be interpreted as a logical progression after drafting rules for coal plants, moving on to the next big greenhouse gas emitter.

"It could be seen as the next step," said Sandra Snyder, a lawyer at Bracewell & Giuliani who represents natural gas exploration and production companies and other energy companies. She noted that the administration has had the information on the greenhouse gas contribution of oil and gas for several years.

But, she said, administration officials at EPA skipped their chance to limit greenhouse gases with a less expansive approach — regulating smog-causing chemicals. That would reduce methane as a "co-benefit." That was the approach the industry was seeking and that administration officials rejected.

"The agency didn’t need to go in this direction," Snyder said.

The administration’s decision also brushed aside industry’s contention that its voluntary measures are sufficient. Industry groups have pointed to EPA figures showing that methane emitted from hydraulically fractured natural gas wells has decreased by 73 percent since 2011. But methane from oil production operations has increased during the drilling boom, up 10 percent since 2008.

So administration officials announced yesterday that EPA will directly regulate methane as part of its effort to reduce petroleum-sector methane emissions 40 to 45 percent by 2025 (Greenwire, Jan. 14).

EPA plans to propose rules for new and modified wells this summer and finalize them in 2016. The agency will follow the same timeline to expand its rules for ozone-forming emissions at existing oil and gas wellheads, which will reduce smog and leaking methane.

In addition, the Interior Department is to announce standards in the spring aimed at reducing methane flaring at wells on federal land; the Department of Energy is to develop better ways to detect and repair methane leaks; and the Department of Transportation is to develop new pipeline safety standards that also reduce leaks.

A ‘give’ to drillers

For now, the administration is not seeking to regulate methane leaks from existing oil and gas wells.

That disappointed environmentalists, who say existing wells, particularly older ones, are big emitters of methane. In the "give-and-take" of negotiations, ClearView’s Book said, that might qualify as a "give" to drillers by the administration.

But because of the way the Clean Air Act works, regulation of new wells will eventually lead to regulation of existing sources, said Bracewell & Giuliani’s Snyder.

Book said there would not have been enough time in Obama’s final two years for EPA to get to existing sources. So the question of existing sources could fall to the next presidential administration, unless green groups manage to speed along the process.

"I wouldn’t be surprised if there were lawsuits from the environmental community on this," Snyder said.

Environmental groups almost uniformly complained that the rule should have covered existing wells, and many said that it didn’t go far enough to curtail fracking and drilling.

But the League of Conservation Voters marked it as a solid win for its side and hinted that it also sees existing wells in the target scope of the administration’s proposal.

"This announcement once again demonstrates the president’s strong commitment to tackling the climate crisis through his Climate Action Plan," said LCV President Gene Karpinski. "We look forward to continuing to work with the Obama administration to reduce methane pollution across the board."

Reporter Mike Lee contributed.

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