US EPA proposes stricter rules for monitoring methane from new, existing wells

The Biden administration Nov. 2 proposed tougher methane regulations requiring US oil and gas producers to conduct increased emissions monitoring on new wells and bring nearly 700,000 older wells into compliance at an estimated industry cost of $1.2 billion/year or the equivalent of 34 cents/b, according to S&P Global Platts Analytics.

Platts Analytics said the proposed regulations would cover wells drilled before September 2015 that produce a total of 3 million b/d. This includes 750,000 b/d in production from stripper wells that pump less than 15 b/d.

"If crude prices remain strong, we believe the impact to supply will be minor," said Parker Fawcett, Platts North American supply analyst.

The US Environmental Protection Agency announced the proposal on the same day President Joe Biden joined the UN Climate Change Conference as a signatory to the Global Methane Pledge. More than 100 governments signed the pact to cut methane emissions 30% by 2030.

Methane has more than 80 times the global warming potential relative to carbon dioxide measured over a 20-year period. Roughly a quarter of the warming occurring now is driven by methane, and the oil and gas sector is the single largest source of those emissions in the US.

EPA's proposal includes: a comprehensive monitoring program for new and existing well sites and compressor stations; a compliance option allowing operators flexibility to use advanced technology to find major leaks faster; a zero-emissions standard for new and existing pneumatic controllers; and standards to eliminate venting of associated gas and require its capture and sale.

Compliance costs

In what should be seen as a compromise with industry, Fawcett said, most marginal producing facilities will only be required to do a one-time survey to demonstrate no active leaks, rather than monitoring every three months or semi-annually.

"We estimate at the high end, a marginal well could see compliance costs range from $4-$10/b for a facility in its first year to fix leaks and install a flare stack if one is not already on-site," he said. "For newer sources of production, the regulations will further tighten emission requirements from storage tanks, compressors, pneumatics, as well as increasing monitoring for leak detection and repair to every three months from semi-annually."

Platts Analytics estimates those incremental compliance costs at up to 10 cents/b.

The proposal takes aim at older wells that still vent associated gas but does not crack down on routine flaring. It says that when producers do not have access to a sales line, they must use the gas for power on site or route it to a flare or control device to reduce methane by 95%, rather than venting it.

Social cost of methane

EPA Administrator Michael Regan said targeting new and existing wells ensures "robust and lasting cuts in pollution across the country."

"By building on existing technologies and encouraging innovative new solutions, we are committed to a durable final rule that is anchored in science and the law, that protects communities living near oil and natural gas facilities, and that advances our nation's climate goals under the Paris Agreement," Regan said in a statement.

The EPA action starts a regulatory process that will likely take months or longer and could face legal challenges.

Kevin Book, managing director of ClearView Energy Partners, said the social cost of methane used in the rule will likely be revised upward in January, "meaning that today's proposal could get stricter before it goes final."

Book added that it could complicate the picture for US producers while oil prices remain high.

"Aggressive re-regulation of methane could step up 'buy-the-commodity, sell-the-company' scenarios for some US operators because a tighter oil market could buoy overall crude benchmarks even as stricter upstream regulation squeezed American producers' margins," he said.

Industry response

The American Petroleum Institute and Independent Petroleum Association of America both welcomed additional methane regulations but said they were still reviewing the 284-page proposal.

IPAA said it was encouraged by its initial reading, adding that EPA "has tried to be responsive to our concerns for improved cost-effective monitoring technology and recognizing the importance of addressing small business challenges."