Let’s Just Kick Them While They Are Down

The oil and gas sector is suffering from the recent reduction in prices. Lower prices mean fewer wells being drilled, reduced employment in the sector and a slowly diminishing production rate. However, the problems facing the oil and gas industry have not deterred the Environmental Protection Agency (EPA) from pressing ahead with its climate agenda as it relates to oil and gas production.
President Barack Obama’s Climate Action Plan released in 2013 and the Strategy to Reduce Methane Emissions released in March 2014 call for steep reductions in greenhouse gas (methane) emissions from the oil and gas sector. Roughly 30 percent of U.S. methane emissions come from natural gas and petroleum systems. While EPA acknowledges methane emissions from this sector have decreased by 16 percent since 1990, it has not curtailed its rulemakings in order to fulfill the president’s call to action and the perceived threat from global warming or climate change. As a result, new rules and regulations are being proposed and will be issued that will only serve to hamper the oil and gas sector.

EPA established standards in 2012 for methane and volatile organic compound (VOC) emissions from hydraulically fractured natural gas wells. Now EPA is proposing to impose requirements on certain oil wells and oil well sites to complement (as it says) the 2012 requirements.

For hydraulically fractured oil wells, EPA will require a “reduced emissions completion” in which the owner/operator captures the natural gas (methane) that currently escapes during the flow-back period. These “green completions” have been in effect for hydraulically fractured gas wells since 2012, but this is the first application to oil wells. According to EPA, this will reduce 95 percent of emissions during the flow-back period. Additionally, EPA is proposing to require the owner/operator to use optical gas imaging to conduct surveys in order to detect methane and VOC leaks that might occur due to improperly fitted connections, unsealed hatches or deteriorating gaskets. Optical gas imaging allows the operator to “see” the emissions so they can be addressed in a prompt manner. Also, the proposed rule will require emissions from pneumatic pumps to be controlled by 95 percent by routing emissions to an existing control device.

Natural gas wells and well sites were addressed in the 2012 rule. However, EPA is proposing to add the leak detection and pneumatic pumps requirements to the existing rules.

In all, EPA estimates by 2020 there will be reductions of up to 180,000 tons of methane, 120,000 tons of VOCs and 400 tons of hazardous air pollutants. By 2025, there will be reductions of up to 400,00 tons of methane, 180,000 tons of VOCs and 2,500 tons of hazardous air pollutants. However, these reductions come at great cost. The total capital cost of the proposed rule will be $170 million to $180 million in 2020 and $280 million to $330 million in 2025. The estimate of total annualized engineering costs of the proposed rule is $180 million to $200 million in 2020 and $370 million to $500 million in 2025.

An individual’s perceptions of climate change will influence whether that person concludes the costs to obtain the reductions are truly worth it. EPA certainly seems to have concluded reductions in carbon emissions (which it calls “carbon pollution”) are justified regardless, it seems, of the impacts those reductions will have on the industry as a whole. EPA’s actions against carbon in its many forms continue unabated.

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