Photographer: Paul Smith/Bloomberg

For Oil Drillers, Obama Methane Rule Is Worse Than Proposed

  • Alterations add $100 million in costs to rule industry opposed
  • Environmentalists applaud changes to rule proposed in August

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 per year by 2025, according to the Environmental Protection Agency. That’s at least 25 percent higher than the preliminary version released in August, and it comes as low oil prices force the industry to pare spending on new exploration.

The administration estimates the costs will be offset by savings from averting severe storms, floods and other consequences of climate change. Those savings will total $690 million a year by 2025, according to the EPA. 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.

"The commonsense steps we’re rolling out today will help combat climate change and reduce air pollution that immediately harms public health," EPA Administrator Gina McCarthy told reporters on a conference call. The mandates, applying immediately to new and modified wells, are a "critical first step in tackling methane emissions from existing oil and gas sources."

Climate Policies

The rule, part of a broader administration campaign to combat climate change, is one of the last major environmental measures President Barack Obama is likely to issue before leaving the White House.

The oil and gas industry is the leading source of methane, an intense but short-lived greenhouse gas shown to warm the atmosphere 84 times more than carbon dioxide when measured over two decades.

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 fracked 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.

Environmentalists’ Pleas

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 barrels per day of oil or its equivalent. That could have exempted thousands of wells each year from the rule’s new leak detection requirements.

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 final rule "represents a solid improvement over the original proposal," said Conrad Schneider, advocacy director for the Clean Air Task Force, which had lobbied for the changes. "We feel great that EPA is finalizing the first-ever standards for methane emissions from any industry, and it’s totally appropriate that they’re doing it from the No. 1 emitter."

Battered Sector

The regulation 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 cut 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.

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.

‘Burdensome Regulations’

“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, vice president of regulatory and economic policy for the American Petroleum Institute.

Environmentalists said the EPA’s changes made the rule more comprehensive. "The studies that we’ve done tell you that leaks and equipment malfunctions are randomly distributed across the industry and different types of facilities," said Mark Brownstein, vice president of the Climate and Energy Program at the Environmental Defense Fund. "Really the only way you get at it is if you are vigilant in terms of inspecting and maintaining your facilities."

The EPA rule will help the U.S. move closer to fulfilling Obama’s pledge to slash oil and gas sector methane emissions by 40 percent to 45 percent from 2012 levels by 2025. The new methane rule alone won’t be enough to meet the goal, but it provides a legal stepping stone to requirements for 1 million existing wells too.

Obama’s Promise

Obama promised during a March summit with Canadian Prime Minister Justin Trudeau that the U.S. would go after existing oil and gas sources.

The EPA formally kicked off that process Thursday by releasing a draft information collection request asking 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 to provide more detailed data.

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. 

Plugging Leaks

Some oil and gas companies have moved aggressively -- and voluntarily -- to plug methane leaks. But investors still worry the industry is moving too slowly to solve what could be an existential risk, said Andrew Logan, director of the oil and gas program at Ceres, a network of investors with $14 trillion in assets that promotes sustainable business practices.

"If the industry doesn’t address methane, natural gas risks becoming part of the problem instead of part of the solution to climate change," Logan said in a phone interview. "For an industry that is really betting the farm on natural gas as its key to relevancy in a low-carbon world, that’s a huge problem."

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. The EPA didn’t calculate a dollar amount for lower rates of asthma and other potential public health benefits tied to the reduction in volatile organic compounds and other conventional pollutants.

Critics hinted at a possible legal challenge of the new methane rules, like the court battle that has stalled Obama’s Clean Power Plan.

"If these ‘commonsense standards’ for the EPA’s methane rule are anything like the ‘commonsense standards’ used for their power plant rules, we’re in for another long battle of correcting the agency’s mistakes," said Myron Ebell, director of the Center for Energy and Environment at the Competitive Enterprise Institute.

McCarthy stressed that the rule was grounded in science, squarely within the EPA’s authority under the Clean Air Act and "will be solid in the courts."

"It is tremendously cost effective," she said. "It is a rule that industry will be able to comply with."

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