EPA Issues Final Rule Targeting Methane Emissions; Industry Responds Critically with Cost Concerns

May 2016

On May 12, the EPA finalized its rule to limit methane emissions from new and heavily modified oil and gas facilities. The rule, which updates the New Source Performance Standards, is projected to reduce methane emissions by 510,000 tons by 2025. These reductions will be made possible by setting emissions limits, requiring a fixed schedule for monitoring leaks, and phasing in “green completion” for hydraulically fractured oil wells.

Key Details

  • The new rule extends the EPA’s regulatory authority to fracked gas and oil wells, system leaks, pneumatic pumps and controllers, and centrifugal and reciprocating compressors in an effort to achieve the Obama administration’s goal of a 40-45% reduction in methane emissions from 2012 levels by 2025
  • Apart from increased stringency and scope, there were three notable changes to the final rule based on more than 900,000 public comments:
    • The final rule sets a fixed schedule for monitoring leaks rather than a schedule that varies with performance; all sites will have one year to conduct an initial leak monitoring survey
    • Affected owners and operators will be able to use the leak and emissions detection technologies and methodologies of their choice, pending EPA approval
    • After a six-month phase-in process, fracked well operators will have to immediately capture natural gas at the well head instead of venting or flaring; in the interim, they must use combustion control tools to reduce emissions
  • The EPA estimates compliance costs of $530 million in 2025, but expects the climate benefits and recovered natural gas resulting from the rule to produce net benefits
  • The American Petroleum Institute, however, has estimated that annual compliance costs could be as high as $800 million as a result of the finalized rule’s inclusion of “tens of thousands of wells” that are re-fracked annually, and therefore considered modified
  • Industry groups maintain that the rule is unnecessary and are currently determining whether to pursue litigation
  • In addition to the new rule, the EPA issued a draft information collection request to develop regulations for existing oil and gas sources

Implications

  • The EPA expects marginal impacts on natural gas prices and “literally no impact on the [price] of oil;” however, even slight increases in gas prices could affect the power sector, as gas is now the largest fuel source for electric generation
  • The final rule could also have consequences for those utilities that have directly invested in gas production and transportation infrastructure
  • Unless supplemented with voluntary emission reduction efforts by owners and operators, the new rule will likely fail to achieve desired methane reductions since, according to industry analysts, nearly 90% of oil and gas methane emissions projected in 2018 are from existing sources that are not covered by the final rule

More Information

SNL Financial: EPA finalizes first-ever rule targeting methane emissions from oil, gas industry

SNL Financial: Industry and its supporters rail against EPA’s new methane rule

SNL Financial: EPA methane rules alone would put oil, gas sector far short of emissions goals

EPA: Overview of the new rule and summary of associated actions

EIA: Hydraulically fractured wells provide two-thirds of U.S. natural gas production

This report is part of the Regulatory Minute series. To view all featured Minutes, please click here.

Contributing Author: Chris Becker

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