On Friday, January 22, 2016 the federal Department of the Interior’s (“DOI”) Bureau of Land Management (“BLM”) issued a proposed rule on reducing waste and methane emissions in oil and gas operations. The rule would limit oil and gas flaring, venting, and leaking on federal and Indian lands. While the U.S. has become the largest natural gas producer in the world and U.S. oil production is at its highest level in nearly 30 years, the current regulations hearken back to the mid-1980’s, when gas production and greenhouse gas concerns were very different than they are today.
The proposed rule is composed of “commonsense and cost-effective measures,” according to Janice Schneider, Assistant Secretary for Land and Minerals Management. Broadly, the proposed rule would require operators to adopt currently available technologies in order to limit the rate of flaring at oil wells, and would require operators to inspect for leaks and replace equipment that vents methane emissions into the air.
However, operators need not worry about overhauling all of their operations in the coming months. The proposed rule would phase in over several years, allowing operators to gradually reduce the rate of flaring at their wells and giving them time to retool outdated equipment. This will provide some temporary relief to operators whose wells are in remote areas without the infrastructure necessary to capture the vented gas.
Why is the BLM concerned with natural gas flaring? The answer might be obvious: climate change. Burning natural gas, or methane, releases carbon dioxide into the atmosphere, and unburned methane is also a potent greenhouse gas. The proposed rule is timed to build on the Obama Administration’s current agenda that seeks to curb greenhouse gas emissions, and also is consistent with the Administration’s goal to cut methane emissions from the oil and gas sector by 40-45% from 2012 levels by 2025.
Regulators and Industry: In Agreement?
From a practical and economic perspective, regulators are not the only ones in favor of methane capture from oil and gas operations. Economically, it makes sense for operators to capture and reuse methane gas. Oil and gas operators view gas leaks and flares as money going up in flames. In North Dakota in 2014, it was estimated that the state was losing nearly $50 million per month due to gas flaring. Operators were flaring due to a lack of transportation and storage infrastructure, having no way to retain or use the oil drilling by-product. Over the past few years, though, technology innovators have found ways to capture the wasted natural gas and many operators now profitably use to fuel their operations. For example, GE created an on-site compression system called CNG In A Box which can be used to fuel vehicles. Future innovation should lead to increased efficiency and revenue for operators, while simultaneously reducing greenhouse gas emissions.
In our minds, it is unfortunate that the administration did not couple the rulemaking’s mandate with other proposals to make this change faster and more affordable for industry. Tax incentives for new equipment, streamlined permits for methane delivery infrastructure, and support for such projects would aid industry to meet the mandates quickly and efficiently. Hopefully the Interior Secretary will consider additional proposals to more effectively complement the rulemaking’s mandates.
“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,” said DOI Secretary Jewell. Public comment on the proposed rule is open for 60 days, and the BLM will hold public meetings in February and March, details to be announced.