Industry Groups Blast DOI Draft Rule on Gas Venting and Flaring

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--A recent Department of Interior (DOI) (Washington, D.C.) draft rule limiting gas flaring, venting and leaking on tribal and federal lands was blasted as costly, unnecessary and counter-productive by groups representing Oil & Gas Producers. Last month, the DOI's Bureau of Land Management (BLM) (Washington, D.C.) proposed requiring Oil & Gas producers to install equipment to reduce the amount of natural gas that intrudes on these lands.

BLM estimated its measure would cost between $130 million to $174 million per year between 2017 and 2026, depending on several assumptions. The agency projected annual financial benefits of $270 million to $384 million over that same time. The public will have until April 8 to file comments on the rule. In the coming weeks, BLM officials plan to hold several public meetings to gather stakeholder input on the draft rule.

The proposed rule, released January 22, 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
• Require operators to periodically inspect their operations for leaks
• Replace outdated equipment that vents large quantities of gas into the air
• Limit venting from storage tanks
• Use industry best practices to limit gas losses when removing liquids from wells

The proposed measure also would clarify when operators owe royalties on flared gas, and ensure that BLM's regulations provide congressionally authorized flexibility to set royalty rates at or above 12.5% of the value of production.

"We share the desire to reduce emissions and are leading efforts because capturing more natural gas helps us deliver more affordable energy to consumers," Erik Milito, director of upstream and industry operations for the American Petroleum Institute (API) (Washington, D.C.), said in a statement after the draft rule was released. "The incentive is built-in, and existing BLM guidelines already require conservation. 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."

"The goal is to prevent emissions, not impede U.S. energy production," Milito continued. "The BLM should focus on fixing permitting, infrastructure and pipeline delays that slow our ability to capture more natural gas and get it to consumers."

He said federal data show crude oil production remained flat between 2009 and 2014 on federally controlled land while natural gas production declined 35%. In contrast, on private and state lands, where development does not need permission from the federal government, production increased 88%for crude and 43% for natural gas.

"These dramatically different trend lines are in large part a function of failed energy policy, not geology," Milito said, echoing points made by API President and Chief Executive Jack Gerard in a previous press briefing. For more on that, see January 6, 2016, article--API Chief Touts Geology, Not Ideology, as the Foundation of Smart Energy Policy.

API's rebuke was echoed by the Independent Petroleum Association of America (IPAA) (Washington, D.C.). "This is the latest in the string of bad policies released by this administration showing a lack of knowledge of how the oil and gas industry truly works," Dan Naatz, IPAA's senior vice president of government relations and political affairs, said of the BLM rule. "Imposing these 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 Treasury."

He also blasted BLM's proposal to lift the ceiling on royalty rates producers pay the federal government when they extract oil and gas on federal or tribal lands: "Lifting the royalty rate ceiling simply leaves the door open for the federal government to increase rates on producers down the road. This will change the 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."

In announcing its draft rule, DOI Secretary Sally Jewell 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. We need to modernize decades-old standards to reflect existing technologies so that we can cut down on harmful methane emissions and use this captured natural gas to generate power and provide a return to taxpayers, tribes and states for this public resource."

The current rules addressing gas venting, flaring and leaking were adopted over 30 years ago, BLM said. Industry sources have estimated that about 1% of gas is flared, though some states, such as North Dakota, have far higher rates of flaring. Regulators are concerned about methane emissions because methane has about 25 times the impact of carbon dioxide (CO2) on global climate change.

In its January 22 draft rule, DOI said "vast amounts" of natural gas extracted from public and Indian lands are lost through venting, flaring and leaks from oil and gas operations. Between 2009 and 2014, enough natural gas was lost through venting, flaring and leaks to power more than five million homes for a year, the agency added. Venting, flaring and leaking natural gas also costs states, tribes and the federal government as much as $23 million annually, according to a 2010 Government Accountability Office (GAO) report DOI cited.

In its regulatory impact analysis, DOI estimated 98 billion cubic feet (Bcf) of natural gas was vented and flared from Federal and Indian lands in 2013. At a price of $4 per thousand cubic feet (Mcf), the agency said vented and flared gas was valued at about $392 million, of which $49 million would have been due the government as a royalty. Of the 98 Bcf of lost gas, DOI estimated 22 Bcf was vented and 76 Bcf was flared.

About 5% of the nation's oil supply and about 11% of its natural gas supply is extracted from approximately 100,000 federal onshore oil and gas wells, DOI said. In 2014, those wells generated approximately $3 billion in royalties to the U.S. Treasury.

The BLM rule, under development for more than a year, was released against the backdrop of a large, months-long leak of gas from a Southern California storage facility. Residents of a nearby community have said the leaked methane made them sick, though public health officials question those claims.

While the BLM draft rule released January 22 would only apply to federal and tribal lands, that agency also has proposed regulating hydraulic fracturing on those lands. For more on that, see April 10, 2015, article--DOI Rule on Hydraulic Fracturing on Federal Lands Widely Criticized. Separately, the Environmental Protection Agency (EPA) (Washington, D.C.) has proposed a rule to reduce emissions of methane and volatile organic compounds (VOCs) from new and modified sources on state and privately held land. For more on that draft rule, see October 1, 2015, article--EPA Targets Methane Emissions from Oil & Gas Industry in New Rule.

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