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BLM Again Leaps Past EPA with New Oil and Gas Regulations for Methane Emissions

BLM Again Leaps Past EPA with New Oil and Gas Regulations for Methane Emissions


   Subject Matter Expert:
  
James Gooding: GoodingJ@bv.com

BLM Again Leaps Past EPA with New Oil and Gas Regulations for Methane Emissions

By James Gooding, Black & Veatch 

For the second time in two years, the U.S. Bureau of Land Management (BLM) appears to have sped past its more publicized cousin, the U.S. Environmental Protection Agency (EPA), in finalizing new rules that affect field operations in the oil and natural gas industries. 

In March 2015, BLM published rules on “Hydraulic Fracturing on Federal and Indian Lands” that were expected to take effect three months later. However, lawsuits brought by several states and Native American tribes led to a court decision in September 2015 to invalidate the implementation of the BLM frac rules – even as the EPA continued to provide a string of hints that it would separately promulgate its own national rules on hydraulic fracturing. 

Now, on November 15, 2016, BLM announced the final rules for “Waste Prevention, Production Subject to Royalties, and Resource Conservation” to substantially limit methane emissions from oil and gas operations from the Federal and Indian lands under BLM purview – again, while EPA has moved separately to tighten rules on air emissions from oil and gas operations in the upstream and midstream industry sectors. The new BLM rules are awaiting official publication in the Federal Register, although the effective date for the rules was announced as January 1, 2017. 

Although industry challenges to the new BLM methane emission rules are expected to emerge swiftly, the rules at least define some boundary conditions for a possible future world in which upstream methane emissions were more tightly regulated.    

The BLM rules are spread across several individual emissions sources: 

  • Venting and Flaring.  By 2018, operators must capture 85 percent of their adjusted total volume of gas produced each month; this percentage increases to 90 percent in 2020, 95 percent in 2023, and 98 percent in 2026.  Operators are allowed in the first year to exempt 5,400 thousand cubic feet (Mcf) gas per well per month; this quantity declines to 3,600 Mcf beginning in 2019; 1,800 Mcf in 2020; 1,500 Mcf in 2021; 1,200 Mcf in 2022; 900 Mcf in 2024; and 750 Mcf from 2025 on.
  • Leaks.  Operators are required to use an instrument-based approach to leak detection along with semi-annual inspections at well sites and quarterly inspections at compressor stations.  Operators must repair a leak within 30 days of discovery, verify that the leak is fixed and keep records documenting the dates and results of leak inspections, repairs and follow-up inspections.
  • Reducing Venting from Equipment and Practices.  Provisions address gas losses from pneumatic controllers and pumps, storage vessels, liquids unloading, and well drilling and completions.  The final rule requires operators to replace high-bleed pneumatic controllers with low-bleed or no-bleed pneumatic controllers within one year of the effective date of the final rule.  For pneumatic pumps, the final rule requires the operator to replace pneumatic diaphragm pumps that operate 90 or more days per year with zero-emissions pumps, or route the pump exhaust gas to processing equipment. The rule further requires operators to route storage vessel vapor gas to a sales line or, as a measure of last resort, to a combustor or flare. To accomplish gas-liquid separations with minimal loss of gas, the final rule requires an operator to optimize and follow lift and well-control system procedures to minimize gas losses and to document venting events.  Lastly, with regard to gas emitted during well drilling and completions, BLM refers to separate “green completion” rules previously issued by EPA. 

BLM does allow, in principle, for variances based on demonstrated financial harm to the operators.  For the equipment replacements or system reconfigurations as prescribed in the points listed above, the final rule provides that an operator can receive an exemption from the requirements if the operator demonstrates, and the BLM concurs, that replacing or changing the subject equipment would impose such costs as to cause the operator to cease production and abandon significant recoverable oil reserves under the lease.  (BLM specifies "oil reserves" - leaving open the question of whether gas-only "reserves" are treated equally.) 

On the other hand, the BLM rules include some financial penalties by invoking requirements for royalty payments for any escaped gas which BLM judges to have originated from “avoidable” leaks.  In the simplest take, BLM allows that a loss of gas is “unavoidable” when an operator has complied with all applicable requirements (meaning the new rules) and “taken prudent and reasonable steps to avoid waste.”  By difference, anything else will be viewed as an “avoidable” gas loss with the gas volume being subject to royalty payments. 

Recognizing overlapping regulatory authorities for oil and gas operations, the new BLM rules allow that “…if EPA and/or States or tribes have adopted requirements that are at least as effective as and would potentially overlap with the provisions of this rule, the final rule provides a means for operators to comply with the EPA, State, local or tribal requirements in lieu of the BLM requirements.” 

At first look, the new BLM rules for methane emissions seem expansive but with arguably reasonable options for permissible variances with appropriate technical and legal documentation from the operators.  BLM argues that the new rules will accomplish roughly a 35% reduction in methane emissions from the 2014 estimates, which will be worth $189 million to $247 million per year in social (health and environment) benefits. 

However, compliance will be costly.  BLM states estimated compliance costs across the industry of $110 million to $279 million over 10 years.  It can be expected that the industry itself will come forward with higher estimates which question many of BLM’s assumptions. 

But are these rules politically viable? 

The BLM rules on methane emissions have arrived at the cusp of a major change in administration of the U.S. government as President-Elect Donald Trump will succeed President Barack Obama in January 2017.  Whereas the Obama administration was distinguished by aggressive efforts to tighten air and water regulations affecting energy production, including separate efforts by BLM and EPA, Trump campaigned on a platform that included roll-back of government regulations.  Although it remains to be seen which regulations the Trump administration might target, the sea-change of regulatory sentiment seems inevitable. It is possible that in the rulemaking race affecting oil and gas operation, BLM beat EPA across the finish line twice, although the lasting significance of that accomplishment remains in doubt.



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