Plugging Methane From Oil Wells Seen Topping $125 Million

The Obama administration moved for the first time Friday to stop energy companies from releasing unwanted natural gas from oil wells drilled on federal lands, a practice that environmentalists say contributes to global warming.

The draft rule is seen as a precursor to restrictions that could be imposed on existing oil and gas wells on private lands, and comes as the industry suffers through a contraction caused by plummeting crude prices.

The Interior Department proposal, released Friday, would require energy companies to plug accidental leaks of natural gas and scale back the practice of intentionally venting or burning the gas as they extract more profitable crude oil.

Interior Secretary Sally Jewell said the proposal was essential to curbing the waste of taxpayer-owned natural gas extracted from federal and tribal land. “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,” she said in a statement.

Greenhouse Gas

The department’s Bureau of Land Management estimates the annual cost to the industry of implementing the new rule, which will be phased in over three years, would be $125 million to $161 million. Much of that would be offset as companies sell the gas that now escapes into the atmosphere or simply goes up in smoke, the bureau said.

Methane, the primary component of natural gas, is a short-lived but potent greenhouse gas that, over a century, is 25 times more powerful than carbon dioxide at warming the atmosphere. The Obama administration has pledged to pare the oil and gas sector’s methane emissions by some 40 to 45 percent of 2012 levels by 2025 as part of a carbon-cutting commitment the U.S. made to other world leaders in Paris in December.

The measure also opens the door for the government to charge energy companies higher royalty rates for the oil and gas they extract on public land, a blow for an industry already reeling under the worst crude oil price collapse in more than a decade.

A new layer of federal methane mandates could make it too costly to keep draining oil from some low-flow, marginal wells, while discouraging new energy production on public lands, industry groups warned.

Pipeline Need?

The move is “a regulation in search of a problem,” said Jack Gerard, president of the American Petroleum Institute, the largest U.S. trade association for the oil and natural gas industry. Oil companies have financial incentives to capture natural gas already, but sometimes lack the pipelines and processing facilities to move it to market, he said.

“If you want to really fix the challenge associated with flaring and venting, you need to go back and look at the infrastructure question,” Gerard said in an interview. “If we had the pipes to move it, there would be less need for venting and flaring.”

The Interior Department plan responds to environmentalists who have pressed the Obama administration to go beyond a separate 2015 Environmental Protection Agency proposal that would force energy companies to detect and repair leaks in new wells, compressors and other equipment anywhere in the U.S.

The proposal provides a model for the EPA to move on to existing wells and infrastructure on private land, said Lena Moffitt, director of the Sierra Club’s Dirty Fuels campaign.

Public Resource

“We think it sets a very important precedent that hopefully will show existing sources can be covered in a technologically and economically feasible way, and that this is doable,” Moffitt said. “And if we can do it on public lands to reduce waste of public resources, we should do it on private land as well.”

The Interior Department pointed to a 2010 report from the non-partisan Government Accountability Office that said about 40 percent of natural gas vented or flared from federal lands could be captured economically with available technologies. And many oil companies have already moved to tamp down the practice of flaring. Some 84 percent of oil and gas wells already meet the proposed standards, BLM Director Neil Kornze told reporters in a conference call.

The initiative would set the first-ever limits on how much gas can be flared at wells on federal and tribal lands, beginning with 7,200 cubic feet per month, per well, and ratcheting down from there. The proposed caps would apply only to gas burned off from production wells, not during emergencies or at initial exploration wells that help define sites’ potential resources.

Energy companies also would have to keep track of the gas they flare if volumes exceed 50,000 cubic feet per day.

Carbon Dioxide

Burning natural gas converts it into less-powerful carbon dioxide, making flaring a potentially better alternative for the environment than venting methane into the atmosphere unchecked. Venting would be mostly off limits under the proposed rule, except in emergencies and for emissions from some equipment.

Companies would have to inspect sites more frequently to pinpoint methane leaks — generally twice a year, in a timeline that dovetails with the EPA’s 2015 proposal for new wells on private land. Environmentalists had pushed for a more frequent, quarterly inspection schedule.

Leaky Equipment

Some 65 billion cubic feet of natural gas leaked from oil and gas operations on federal and tribal lands in 2013, according to report from the Fairfax, Virginia-based consultancy ICF International Inc.

The proposed rule could save some 41 billion to 56 billion cubic feet of gas a year, according to Interior’s estimates. That’s enough to supply about 760,000 households each year.

The BLM is stopping short of proposing an imminent increase in the current 12.5 percent royalty rate energy companies pay the federal government for oil and gas on public lands. The proposal, though, would give the agency the freedom to set higher rates for new competitive leases going forward.

Wilderness Society

Conservationists mostly praised the plan, saying it would deliver both economic and environmental benefits. “For too long, oil and gas companies have been able to vent and flare unlimited quantities of natural gas and ignore massive leaks from outdated infrastructure,” Josh Mantell, carbon management campaign manager for The Wilderness Society, said in a statement.

Some environmentalists, though, said the plan didn’t go far enough.

“Limiting air pollution from fossil fuel development on our public lands is important, but it does little to staunch the climate impact of rampant drilling and fracking,” said Anna Aurilio, director of Environment America’s Global Warming Solutions program, in an e-mailed statement. “Curbing methane is a bandage, not a cure, for the climate crisis.”

Congressional Republicans blasted the plan as part of a broader administration-wide assault on fossil fuels, especially since it came just a week after the Interior Department announced it would halt new leases for coal mining on public lands.

Anadarko, Encana

The measure could touch tens of thousands of producing oil and gas wells on public lands nationwide. Its effects will be felt unevenly across the sector and mostly by producers active in the West. Energy companies with substantial federal leases, including Anadarko Petroleum Corp., Encana Corp., WPX Energy Inc., BP Plc and Newfield Exploration Co., are more exposed to the rules than counterparts such as Pioneer Natural Resources Co. and Whiting Petroleum Corp. that are plumbing mostly private land.

Oil and gas companies say the mandates are unnecessary, coming on top of existing state regulations, the EPA proposal, and voluntary moves by companies eager to capture — and sell — natural gas. 

“It’s all starting to add up,” said Kathleen Sgamma, president of the Denver-based Western Energy Alliance, which represents oil and gas producers and explorers in the Western U.S. “When you combine that with low commodity prices, things start to seem punitive, rather than truly based on regulatory need.”

The costs of new leak monitoring and maintenance could force some oil companies to shut in marginal wells that trickle out fewer than 15 barrels of oil per day, said Dan Naatz, senior vice president of government relations for the Independent Petroleum Association of America, which represents oil and gas production companies. “When you start to add that up across all federal lands, it’s a significant amount of production,” Naatz said by telephone.

To contact the reporter on this story:

Jennifer A. Dlouhy

in Washington at
To contact the editors responsible for this story:

Jon Morgan


About BloombergNEF

BloombergNEF (BNEF) is a strategic research provider covering global commodity markets and the disruptive technologies driving the transition to a low-carbon economy. Our expert coverage assesses pathways for the power, transport, industry, buildings and agriculture sectors to adapt to the energy transition. We help commodity trading, corporate strategy, finance and policy professionals navigate change and generate opportunities.
Sign up for our free monthly newsletter →

Want to learn how we help our clients put it all together? Contact us