Industry Groups Say Proposed Flaring Rules are Costly, Unnecessary

The U.S. Bureau of Land Management’s (BLM) proposed update of natural gas venting and flaring regulations on public lands is costly and unnecessary and presents a potential roadblock to new energy development.

The U.S. Department of the Interior (DOI) announced Friday a proposal to update these regulations, which the agency said is needed to reflect current technologies used by the oil and gas industry. It is also consistent with the Obama administration’s goal of cutting methane emissions from the oil and gas sector by 40 to 45 percent from 2012 levels by 2025, DOI said in the statement.

“The proposed update of the 30-year old regulations will help curb waste of U.S. natural gas supplies, reduce harmful methane emissions, and provide a fair return on public resources for federal taxpayers, tribes and states,” U.S. Secretary of the Interior Sally Jewell said in a Jan. 22 press release. DOI also referenced a 2010 Government Accountability report, which estimated that as much as $23 million per year in royalty revenues for federal and state governments is lost through the venting and flaring of gas. According to the report, about 40 percent of gas now vented or flared from onshore federal lands could be economically captured with current available technologies.

The proposed rules would require oil and gas producers to adopt currently available technologies, processes and equipment that would limit the rate of flaring at oil wells on public and tribal lands, and would require operators to periodically inspect their operations for leaks, and to replace outdated equipment that vents large quantities of gas into the air, DOI said.

Operators would also be required to limit venting from storage tanks and use best practices to limit gas losses when removing liquids from wells. The new measures would also clarify when operators owe royalties on flared gas, and ensure that Bureau of Land Management regulations provide congressionally authorized flexibility to set royalty rates at or above 12.5 percent of the value of production.

The American Petroleum Institute (API), Western Energy Alliance (WEA), and Independent Petroleum Association of America (IPAA) said they supported the goal of reducing methane emissions, which means more natural gas would be available for consumers and cleaner air for the United States. But they see the proposed update as duplicative. Instead, BLM should focus on fixing permitting, infrastructure and pipeline delays so producers don’t have to flare gas.

API Director of Upstream and Industry Operations Erik Milito said in a statement that the incentive to reduce gas flaring is already built-in to existing BLM guidelines.

“Another duplicative rule at a time when methane emissions are falling and on top of an onslaught of other new BLM and Environmental Protection Agency (EPA) regulations could drive more energy production off federal lands,” said Milito. “That means less federal revenue, fewer jobs, higher costs for consumers, and less energy security.”

The onslaught of duplicate BLM and EPA rules include BLM rules governing hydraulic fracturing on federal lands; API noted in an April 2015 statement that the U.S. shale revolution, which boosted U.S. energy production to its highest level in decades and made the United States the world’s largest natural gas producer, was isolated to state and private lands due to federal regulations. Milito cited federal data that shows oil production on federal land remained flat between 2009 and 2014, while gas production declined by 35 percent. But on state and private lands, oil production grew by 88 percent and gas production by 43 percent.

“These dramatically different trend lines are in large part a function of failed energy policy, not geology,” Milito noted.

WEA said the command-and-control regulatory approach is not the most effective way of meeting President’s Obama’s goal of reducing methane emissions, and that industry has achieved dramatic emission reductions without federal regulations.

“Through technological innovation driven by market forces, industry has greatly increased gas capture and reduced leakage rates,” said Kathleen Sgamma, vice president of government and public affairs at WEA, in a Jan. 22 press statement. “Since 1990, oil and natural gas producers have decreased methane emissions by 21 percent even as natural gas production has climbed 47 percent – all without federal regulation.”

Sgamma said that BLM could reduce venting and flaring rates quickly simply by approving permits for gas capture lines after years of delay.

Noting that the oil and gas industry is no longer the largest man-made source of U.S. methane emissions, the new regulation is simply another case of a federal government fix to something that’s already working well. Sgamma pointed to North Dakota as an example of industry’s effort to reduce methane emissions. North Dakota companies have invested more than $11 billion to build pipelines, gas gathering lines and other infrastructure needed to capture natural gas from oil wells. As a result, the gas capture rate has grown from 64 percent in 2011 to 85 percent today. That capture rate will continue increasing as the Bakken play matures, Sgamma noted.

Imposing the new regulations will make it more expensive and harder for independent producers to operate, reducing America’s total energy production and preventing additional receipts from going back to the United States, Dan Naatz, IPAA’s senior vice president of governmental relations and political affairs, said in a Jan. 22 press statement.

Making matters worse, lifting the royalty rate ceiling simply leaves the door open for the federal government to increase rates on producers down the road, Naatz explained. This will change predictability and certainty for operators on federal lands, making it harder to plan and commit to long-term projects.

“With oil and natural gas prices currently at their lowest in decades, now is the worst time to raise fees on America’s independent producers,” Naatz commented.

Karen Boman has more than 10 years of experience covering the upstream oil and gas sector. Email Karen at kboman@rigzone.com

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