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Wednesday, August 19, 2015

EPA Announces New Methane Regulations, Much to Chagrin of Oil and Gas Industry

A couple of months ago the EPA released a report that was widely publicized for its conclusion that hydraulic fracturing has not had a widespread, systemic impact on drinking water.  At the time, many environmental groups called the agency out as a political organization that was "in the pocket" of the oil and gas industry.

In light of the developments over the past couple of weeks, it's safe to say that the oil and gas industry would vehemently disagree with that idea.

First came the announcement of the EPA Clean Power Plan, which prompted strong objections from natural gas drillers because of the rules which will require a shift away from natural gas as a bridge fuel to use of more renewable energy.

Now, the EPA has released new methane regulations that have clearly set oil and natural gas drillers squarely in the agency's crosshairs.

From the EPA's release announcing the new standards:
Continuing the Obama Administration’s commitment to take action on climate change and protect public health, the U.S. Environmental Protection Agency (EPA) is announcing commonsense proposed standards today that would reduce emissions of greenhouse gases (GHG) and volatile organic compounds (VOC) from the oil and natural gas industry. The proposal is a part of the Administration’s strategy under President Obama’s Climate Action Plan to cut methane emissions from the oil and gas sector by 40 to 45 percent from 2012 levels by 2025. 
Methane, the key constituent of natural gas, is a potent GHG with a global warming potential more than 25 times greater than that of carbon dioxide. Methane is the second most prevalent greenhouse gas emitted in the United States from human activities, and nearly 30 percent of those emissions come from oil production and the production, transmission and distribution of natural gas.

“Today, through our cost-effective proposed standards, we are underscoring our commitment to reducing the pollution fueling climate change and protecting public health while supporting responsible energy development, transparency and accountability,” said EPA Administrator Gina McCarthy. “Cleaner-burning energy sources like natural gas are key compliance options for our Clean Power Plan and we are committed to ensuring safe and responsible production that supports a robust clean energy economy.” 
The proposed standards for new and modified sources are expected to reduce 340,000 to 400,000 short tons of methane in 2025, the equivalent of reducing 7.7 to 9 million metric tons of carbon dioxide. EPA estimates the rule will yield net climate benefits of $120 to $150 million in 2025. Those standards are also expected to reduce 170,000 to 180,000 tons of ozone-forming VOCs in 2025, along with 1,900 to 2,500 tons of air toxics, such as benzene, toluene, ethylbenzene and xylene. Ozone is linked to a variety of serious public health effects, including reduced lung function, asthma attacks, asthma development, emergency room visits and hospital admissions, and early death from respiratory and cardiovascular causes. Air toxics include chemicals that are known or suspected to cause cancer and other serious health effects.
Supporters of the oil and gas industry have responded quickly and loudly to these new standards.

From the American Petroleum Institute:
EPA’s proposal for additional methane regulations on oil and gas wells and transmission are duplicative, costly, and undermine America’s competitiveness. The industry has already led the significant reduction in methane through innovation and existing regulations, according to API President and CEO Jack Gerard. 
“The oil and gas industry is leading the charge in reducing methane,” Gerard said. “The last thing we need is more duplicative and costly regulation that could increase the cost of energy for Americans. Even as oil and natural gas production has surged, methane emissions from hydraulically fractured natural gas wells have fallen nearly 79 percent since 2005, and CO2 emissions are down to 27-year lows. This is due to industry leadership and significant investments in new technologies.” 
EPA’s own analysis shows that methane emissions from hydraulically fractured natural gas wells have fallen dramatically. Total methane emissions from natural gas systems are down 11 percent since 2005 – a direct result of industry innovation at the same time production has increased significantly, according to API. 
“API supports a common sense regulatory approach that builds on cost-effective controls already required by EPA for new equipment,” Gerard said. “Combined with smart, voluntary efforts for existing sources, this approach will continue to lower methane emissions. To avoid undermining American competitiveness, we urge the EPA to coordinate its efforts and not add duplicative rules.” 
API is the national trade association representing all facets of the oil and natural gas industry, which supports 9.8 million U.S. jobs and 8 percent of the U.S. economy. API’s more than 625 members include large integrated companies, as well as exploration and production, refining, marketing, pipeline, and marine businesses, and service and supply firms. They provide most of the nation’s energy and are backed by a growing grassroots movement of more than 25 million Americans.(2)
This was just one of several such statements against the new regulations by different organizations.

Fuel Fix noted the effect that these standards are likely to have on small drillers that are already struggling, but also noted comments from an analyst that these changes have been coming for some time and drillers could have been preparing for them:
A proposal by the Obama administration to strengthen methane regulations threatens to wipe out marginal drillers already teetering on the edge of closing because of low oil and natural gas prices, according to Oppenheimer & Co. 
The proposed rules from the Environmental Protection Agency target for the first time oil wells, compressors and other equipment as part of a broad effort to reduce leaks of methane, a more intense greenhouse gas than carbon dioxide, by 40 percent to 45 percent by 2025 from 2012 levels. 
Natural gas prices are close to the cheapest seasonally in a decade, and crude oil’s hovering near a six-year low. Some small, high-cost drillers who can’t afford to shoulder more costs will probably have to shut operations, said Oppenheimer analyst Fadel Gheit. 
“In a low oil and gas price environment, every penny counts,” Gheit said by phone on Tuesday. “For those companies that are very small,” the additional regulatory costs will be devastating, he said. 
The inefficient producers that were slow to prepare for stricter regulation, even as environmental concerns over hydraulic fracturing mounted, will probably fold, Gheit said. “They’re killing themselves — it’s not like it came from left field,” he said.
Sierra Club Executive Director Michael Brune praised the move by the EPA, although he stated that regulation isn't enough:
“Today's EPA methane standards are a much needed and necessary step toward minimizing the oil and gas industry’s impact on our climate and communities. We’re encouraged that the Obama administration is beginning to ask the oil and gas industry to bear the burden of its pollution. These rules pave the way for the Administration to move swiftly to curb emissions from existing sources. 
“Controlling methane, however, is not an end in itself and it will not make fracked oil and gas safe. Continued reliance on dirty fossil fuels is a dangerous course for our communities and our climate. We must move swiftly to truly clean energy like wind, solar and energy efficiency while establishing policies that keep fossil fuels in the ground."
Read the EPA report below.




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