New Federal Regulations on Methane Leakage from the Oil & Gas Sector: An Opportunity in Disguise?

New Federal Regulations on Methane Leakage from the Oil & Gas Sector: An Opportunity in Disguise?

The new federal regulations aiming to reduce methane emissions from new wells and facilities in the oil & gas sector by 40% by 2025 seem to be quite do-able with current technologies. Trying to do it with legacy wells and facilities will be more complicated, more burdensome to smaller companies, and probably have less overall impact on quantity of leakage. While it is true that larger leaks can help pay for their mitigation by selling the gas that was leaking, the costs to low margin legacy producers could be more traumatic. Leak detection and repair (LDAR) technologies are getting better, especially with drones, automation, and remote monitoring systems. 

The first stage of the process will be assessment of leakage rates and identifying locations of leakage. Infrared cameras from above can help in some areas to identify (but not quantify) leaks. Fixing the biggest leaks is the most important matter since doing so would lower leakage rates more significantly and allow more gas to be sold. Leakage rates in some of the newer dry gas areas of the Marcellus as well as in the NGL areas have been assessed at very low rates. Marcellus Shale Coalition notes leakage rates as low as 0.18 % which is close to 20 times lower than the 3% rate suggested that would nullify the climate benefits of natural gas relative to coal. Studies that have suggested rates as high as 9% in Utah (NOAA?) seem to be unrealistic or at least a fantastic economical repair opportunity. The EPA estimates of 1.4% seem more plausible although many in the oil and gas industry think 1% is about right. Most in the anti-oil & gas contingent tend to only mention the studies that most support their position. Reductions and eventual elimination of flaring gas from oil wells and flareless completions will also likely become the norm. Capturing compressor leak-off and better management of valves and seals will also be a part of reducing leakage rates. 

  

Oil and gas operators have three incentives for detecting and repairing leaks: 1) attaining compliance with regulations; 2) capturing and selling more product; and 3) improving their reputations and the reputation of the industry as a whole and gaining more public acceptance for an industry that has been struggling with public acceptance. Since methane leakage has been the “go-to” argument for anti-fracking activists, properly detailed and widespread assessment of leakage rates and mitigation of leaks has the real potential to eliminate methane leakage as an issue for condemning the industry. Thus, it is an opportunity for the industry to put that argument to rest. As long as the leakage rates are not largely assessed and repaired the opponents of oil & gas have leverage to complain about leakage rates no matter the reality of the rates. They have and they will in long editorials in prominent journalistic sources and will continue until proven wrong. Widespread detection and repair, assessment and mitigation, can remove that leverage. When Hillary Clinton was asked about fracking in a recent debate she mentioned four things: water contamination, methane leakage, fracking chemical disclosure, and community opposition. Fracking chemical disclosure is coming about and should become a non-issue soon. Properly addressing the first two, both significantly overblown, should reduce community opposition.

   

The oil and gas industry has long been innovative and a great developer of technology. LDAR, proactive safety and environmental planning, and over-compliance to regs when feasible should be seen as desirable goals. Although industry advocacy groups like API, IPAA, and EID will as a matter of protocol complain about regs, particularly federal regs as duplicative and burdensome, we should not linger too long with fighting the regs but step up and put this matter to the test and hopefully put it to rest. I am referring here to the mandates on new wells. There may be financial grounds to oppose the proposed regs on legacy sources. Perhaps as new sources are assessed and mitigated the costs of assessment and mitigation will go down so that legacy sources can then be addressed. Thus calling for at least a delay for legacy sources seems reasonable on that basis.

If we suspect the EPA assessment of reported leakage is correct that overall leakage rates have come down 13% while gas production has increased 25% due to the shale revolution we should suspect that with a greater industry effort and application of new technologies across the board that the proposed federal reductions may be achievable much faster than mandated.