Drillers See Dire Impact at Worst Time in Obama Methane Plan

The Obama administration’s decision to crack down on the methane leaking from nearly 1 million oil and gas wells across the country promises to reduce greenhouse gases but also imposes new costs on an industry that’s already reeling.

The administration’s plan, unveiled during Thursday’s summit between President Barack Obama and Canadian Prime Minister Justin Trudeau, targets reductions of a potent greenhouse gas that pound for pound is 84 times more powerful than carbon dioxide at warming the atmosphere when measured over two decades. Environmentalists cheered the approach, saying the focus on methane delivers big bang for the buck, with a more immediate climate payoff than slashing carbon dioxide from power plants.

But industry leaders cried foul, saying new methane rules could quash domestic drilling, heaping more pain on energy companies that have idled more than 1,000 rigs and gutted more than 250,000 jobs since oil and gas prices started falling in 2014.

“The administration is catering to environmental extremists at the expense of American consumers,” said Kyle Isakower, the American Petroleum Institute’s vice president of regulatory and economic policy. “Additional regulations on methane by the administration could discourage the shale energy revolution that has helped America lead the world in reducing emissions while significantly lowering the costs of energy to consumers.”

Largest Source

Although the oil and gas industry’s methane emissions have been dropping — even as domestic drilling climbed from from 2009 to 2014 — the sector is still the largest industrial source of the greenhouse gas. Methane is the main ingredient of natural gas, which is sometimes burned or flared as a less-valuable byproduct of crude at oil wells that don’t have ready access to pipelines and gas processing facilities.

The Obama administration had already pledged to slash methane emissions 40 to 45 percent by 2025 over a 2012 baseline, and in a joint statement Thursday, Canada made the same commitment.

Trudeau is leveraging pledges by both Alberta and British Columbia to pare methane emissions by making the commitment to enact national regulations, beginning with a proposal by early 2017. The entire country could cuts its methane emissions 45 percent for about C$726 million ($542 million), according to a study released last year.

Canadian Pledge

“When implemented, this commitment will represent a tangible step forward on emissions reduction in Canada,” Chris Severson-Baker, Alberta director of the Pembina Institute, a clean energy think tank, said in an e-mailed statement.

The Canadian Energy Pipeline Association said its industry is a negligible contributor to overall methane emissions. “The Canadian pipeline system has already incorporated a number of emission-reducing technologies that the U.S. system hasn’t,” said Chris Bloomer, the association’s president and CEO. “Harmonizing regulations between the two jurisdictions is important and can lead to more efficiencies and continuous improvement.”

The U.S. Environmental Protection Agency is finishing a rule, proposed last year, that would require oil and gas companies to upgrade equipment and search out methane leaks when new wells, processing facilities or other infrastructure are built or modified.

That’s not enough to meet Obama’s methane-cutting pledge, EPA Administrator Gina McCarthy said. “To get all the way to that goal we’re going to have to tackle emissions from existing sources,” she told reporters on a conference call.

Valves, Pumps

The work will begin immediately, with the EPA compelling energy companies to provide information about methane emissions along a series of oil and gas activities, from initial production to transmission, processing and storage. The EPA would use those details to develop a rule aimed at throttling methane emissions from existing equipment, including requirements that could force companies to use specialized cameras to identify leaks and swiftly replace valves and other components in pneumatic pumps, compressors and controllers.

McCarthy stressed that the EPA would work quickly but declined to specify a timeline, leaving open the big possibility that its fate will be determined not by Obama but his successor in the White House. McCarthy promised the EPA would “involve stakeholders in meaningful ways,” with the end result being “common-sense, achievable standards that will reduce the greenhouse gas pollutant that is fueling climate change.”

Environmentalists have been pressuring the White House to go further on methane, because 25 percent of global warming is attributed to emissions of the greenhouse gas.

‘Dramatic Impact’

“There’s very little else that can have that kind of dramatic impact on the rate of warming today in such a technologically feasible and cost-effective way as reducing oil and gas methane emissions,” said Mark Brownstein, vice president of the Climate and Energy Program at the Environmental Defense Fund. ”The opportunity here is enormous, and it speaks to the significance of what both Canada and the United States are committed to.”

The oil and gas sector “is the best target for reductions of methane out there,” said Jonathan Banks, a senior climate policy adviser with the Clean Air Task Force.

“You’re talking about a product that in most cases, the companies are looking for and wanting to sell, and by reducing the methane emissions, you are saving that product. There is really no other place that you can reduce pollution as cost effectively as you can within the oil and gas sector.”

Marginal Wells

Industry officials say they already have economic incentive to find and fix leaks, because that allows them to capture — and sell — more natural gas. But Brownstein and other environmentalists insist mandates are needed to compel companies to steer money toward stopping methane leaks instead of endeavors that have a more immediate payback.

Industry groups warn that a new layer of federal methane mandates could make it too costly to keep draining oil from some low-flow, marginal wells.

A methane rule targeting existing oil and gas sources would have a “massive” pricetag, API’s Isakower said. The EPA has estimated industry would spend an additional $400 million by 2025 complying with the agency’s 2015 proposal focused only on new and modified wells. Updating existing wells would be much more costly, though the agency has not provided an estimate.

Economic Impact

“The economic impacts of these new regulations could be serious, especially for the men and women working in the oil and natural gas industry already suffering from a difficult market,” said Steve Everley, a spokesman for Energy In Depth, a project of the Independent Petroleum Association of America.

The decline in drilling has sharpened focus on existing wells bored decades ago. In the Marcellus and Utica shale formation, which stretches across Pennsylvania, New York and other states in the northeast U.S., drilling slowed to just 205 wells last June, down from 547 in the third quarter of 2011.

There are currently about 903,900 active oil and gas onshore wells inside the U.S., with the vast majority — 317,284 — in Texas, according to Bloomberg Intelligence.

Going forward, the majority of methane emissions will come from those existing sources, said David Doniger, director of the Climate and Clean Air Program at the Natural Resources Defense Council.

–With assistance from

Alex Nussbaum

, Dan Murtaugh,

William Foiles

and Josh Wingrove.

To contact the reporter on this story:

Jennifer A. Dlouhy

in Washington at jdlouhy1@bloomberg.net
To contact the editors responsible for this story:

Jon Morgan

at jmorgan97@bloomberg.net

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