BLM Releases Final Rule to Reduce Methane Emissions & Flared Gas on Public and Tribal Lands
The Interior Department announced the final Methane and Waste Prevention Rule today, according to a press release from the Bureau of Land Management. The rule requires operators to cut natural gas flaring in half over time, replace outdated high-venting equipment, and find and fix natural gas leaks. The rule will encourage operators to use new technologies, such as infra-red cameras, to spot leaks.
Photo: BLM
The BLM said the rule “will reduce the wasteful release of natural gas into the atmosphere from oil and gas operations on public and Indian lands. [The rule] updates 30-year old regulations governing venting, flaring, and leaks of natural gas, and will help curb waste of public resources, reduce harmful methane emissions, and provide a fair return on public resources for federal taxpayers, tribes and states.”
The press release made the case that “the American public has not benefited from the full potential of this energy resource due to venting, flaring, and leaks of significant quantities of gas during the production process. … In addition, venting and leaks during oil and gas operations lead to significant emissions of harmful methane.” According to the agency, the rule projects cutting methane emissions by as much as 35%.
Cutting flaring in half at oil wells that are on public and tribal lands
The rule, which will be phased in over time, requires oil and gas producers to use currently available technologies and processes to cut flaring in half at oil wells on public and tribal lands. Operators also must periodically inspect their operations for leaks, and replace outdated equipment that vents large quantities of gas into the air. Other parts of the rule require operators to limit venting from storage tanks and to use best practices to limit gas losses when removing liquids from wells.
Rule clarifies when operators must pay royalties on flared gas, allows setting higher royalty rates
The agency said the rule clarifies when operators owe royalties on flared gas, and restores the government’s congressionally authorized flexibility to set royalty rates at or above 12.5 percent of the value of production, the DOI said.
The federal government believes that about 40 percent of natural gas now vented or flared from onshore federal leases could be economically captured with currently available technologies, according to a 2010 GAO report.
Cost to industry
The BLM said it estimates that the benefits of this rule outweigh its costs by a significant margin. The BLM’s estimates of net benefits range from $46 million – $204 million depending upon the year. Over a ten year period, the BLM’s estimates of the cumulative net benefits range from $740 million – $1.2 billion. The BLM estimates that the annual cost to industry of implementing the rule will be $110-279 million. “Individual, small business operators may see profit margins reduced by less than two tenths of one percent, on average,” the agency said.
The BLM’s benefits estimates for this rule range from $209 – $403 million per year, including both cost savings from the recovery and sale of natural gas and the benefits of reducing harm from climate change due to methane emissions reductions, the agency said on the BLM website.
Operator-focused Q&A
Why is the BLM hitting producers with new costs?
BLM: The BLM believes that the rule will not significantly increase costs to industry. On average, the estimated costs will reduce the profit margin for a small business oil and gas operator by less than two-tenths of one percent. In fact, some of these measures can actually save producers money, such as replacing old equipment that vents large volumes of gas. Many rule provisions include substantial compliance flexibility, such as allowing operators to average their flaring volumes across all of their operations in a state.
The final rule also phases in gradually – for example, operators will not need to complete their first set of leak inspections until 2018, and the final gas capture targets do not apply until 2026, a decade from now. Moreover, commodities prices are not projected to remain at current low levels over the longer term.
Oil and gas producers don’t want to flare gas, but if there’s no gas pipeline, they don’t have any choice. How are producers supposed to meet the proposed flaring limits?
BLM: We recognize that oil and gas producers prefer to capture and sell gas, and we support that goal. That’s why, for new wells going forward, the rule requires operators to develop a plan to minimize waste. Prior to drilling, operators need to evaluate options for gas capture and communicate their development plans to the midstream companies that build pipeline infrastructure. The State of North Dakota recently began requiring operators to do this, and the State has found it makes a big difference in better aligning the timing of well development and pipeline installation.
There are also multiple ways operators can reduce flaring at existing wells. Where insufficient pipeline capacity is the problem, operators can often install additional compressors within about six months, boosting capacity at a reasonable cost. There are also new on-site gas capture and transport technologies, which operators are beginning to deploy.
If you really want to reduce flaring, why don’t you speed up the right-of-way approval process?
BLM: The BLM recognizes that flaring is a complex problem with multiple causes and solutions, and we understand that backlogs in right-of-way applications can delay pipeline infrastructure. At the same time, the BLM has the legal responsibility to evaluate the impacts of a proposed pipeline before approving a right-of-way across public lands. The BLM has been working to speed approvals of pipeline rights-of-way by, for example, establishing multi-disciplinary strike teams that can move from BLM office to BLM office to help address pending applications.
States and tribes may request a variance if they have flaring, methane regulations in place
In states and tribal jurisdictions with their own regulations in this area, the final rule allows the state or tribe to request a variance from any provision of the BLM regulations. If the state or tribal requirement performs at least as well as the BLM requirement in achieving the benefits of the rule, the BLM may approve the variance and the state or tribal rule will apply in lieu of the BLM rule.
Scope of production on federal lands and Indian lands: $20.9 billion
The BLM manages more than 245 million acres of land and 700 million acres of subsurface estate, making up nearly a third of the nation’s mineral estate. Domestic production from 96,000 federal onshore oil and gas wells accounts for 11% of the nation’s natural gas supply and 5 percent of its oil.
In Fiscal Year 2015, operators produced 183.4 million barrels of oil, 2.2 trillion cubic feet of natural gas, and 3.3 billion gallons of natural gas liquids from onshore federal and Indian oil and gas leases. The production value of this oil and gas exceeded $20.9 billion and generated over $2.3 billion in royalties, which were shared with tribes, Indian allottee owners, and states.
The agency said the final rule will apply to all oil and gas produced from the federal or Indian (except the Osage Tribe) mineral estates, as the BLM administers leases of both federal and Indian minerals. There are existing leases located in 32 states, but the majority of the production activity is located in: California, Colorado, Montana, New Mexico, North Dakota, Oklahoma, Utah, and Wyoming.
The final rule may be downloaded here.
