Rule could have cost $1.26 billion to implement, according to study
By Courtney Loper, EnergyInDepth
Last week, the House of Representatives passed a resolution to overturn the Bureau of Land Management’s (BLM) duplicative and burdensome methane and flaring rule by a vote of 221-191.
With the Senate set to take up the measure in the coming weeks, opposition groups have been on a mission to perpetrate a number of myths about what would happen if the rule were to be repealed.
As usual, the facts paint a very different picture. Let’s take a closer look:
Myth: BLM’s methane rules are needed because large quantities of methane are emitted during oil and gas production
FACT: Reducing methane emissions is in the best interest of every oil and natural gas producer. Methane is the product companies sell, so they have every incentive to capture and sell as much of their product as possible to American consumers, rather than letting it escape into the atmosphere.
This claim is just not in line with the science. Nearly every reputable study — including those by the Environmental Defense Fund, show leakage rates during oil and gas production are extremely low, ranging from just 1.2 percent to 1.6 percent of production.
It’s also why data from the U.S. Energy Information Administration (EIA) show that “Flaring rates and volumes have significantly decreased as North Dakota’s total natural gas production has continued to grow.”
Producers have made great strides in reducing emissions, but there is also a lack of infrastructure and gathering lines to collect gas at the wellhead and bring all of the product to market.
This is largely due to the current backlog of right-of-way applications to build pipelines and other infrastructure that would allow drilling operations to greatly reduce flaring. More on that in a bit.
Myth: BLM methane rules will ensure “a fair return to U.S. taxpayers”
FACT: BLM claims taxpayers are losing royalty revenues due to methane not being captured. Aside from the fact that methane emissions are low and continuing to plummet, BLM does not consider the fact that its rules will actually have a negative effect of reducing production on federal lands even further.
It’s well known that production on federal lands has significantly declined in recent years, primarily due to added regulations and costly red tape.
This rule would further drive down production, meaning the government will miss out on considerable royalty payments when operators are forced to reduce production in order to meet the rule’s new limitations — or stop production all together.
An editorial from the Farmington Daily-Times rightly explains the impact of these regulations on taxpayers this way:
“Once a low producing well is abandoned, it is unlikely it will be restarted. That means no royalties and no profits from wells producing on BLM land, which would mean no royalties for the government. These new rules could cost the government millions in lost royalties.” (emphasis added)
To put it in plain terms, BLM claims that the rule would lead to an addition $23 million in royalties by capturing vented or flared gas. But according to an analysis from economist John Dunham, the rule would actually shut down the production of about 112.4 million barrels of oil, which is worth $6.1 billion.
That means that, even in the best-case scenario, taxpayers would actually miss out on about $114 million in federal and state taxes.
At worst, the rule could cost a staggering $1.26 billion to implement, according to the Dunham economic study.
Myth: BLM rules are necessary to regulate an unregulated industry
FACT: States are already regulating oil and gas production on federal lands effectively. They’ve been doing it for over 60 years. Every state and energy play has different needs and requirements. What might work for North Dakota’s public lands may be impossible to recreate on Alaska’s public lands.
The States understand their geology, hydrology, and local geographies the best and they have a proven record of experience. That is why this top-down, Washington-knows-best regulation is duplicative, burdensome and unnecessary.
Further, regulating the country’s air quality is not in BLM’s Congressionally-given authority – that jurisdiction has been mandated by Congress to the Environmental Protection Agency (EPA). Therefore, BLM has exceeded its authority by issuing this rule.
Myth: The BLM rule will eliminate venting and flaring
FACT: There are several reasons that venting and flaring have been occurring on federal lands. The first is safety: Venting is sometimes necessary to release pressure and ensure that workers are operating in a safe environment.
The second reason is capacity: BLM has consistently delayed issuing permits for pipelines that are necessary to capture the gas and reduce flaring.
In fact, if the proper infrastructure were in place, we would not even be having a conversation about a venting or flaring rule.
The agency would do better to spend its time permitting the necessary infrastructure to reduce venting and flaring (which would lead to a boon in tax revenue), rather than focusing on perpetrating rule that will take a hundreds of millions in revenue off the table.
Myth: Energy producers can easily afford these rules
FACT: The economic justification provided by BLM for the rule is outdated: its cost estimates come from a 2014 carbon limits study, which assumes that natural gas will be sold at $4 million cubic feet (mcf) – that estimate is 25 percent higher than current natural gas prices, which have been hovering around $3/mcf.
This means producers profit about $2.25 for their product after paying taxes and royalties on it. ICF International has since released a report looking at what the projections would be at $2.25/mcf gas and found they would be five times greater than if gas were at the $4/mcf price.
Myth: Repealing BLM’s methane rule will be a “present for Big Oil”
FACT: By mandating that EVERY WELL (exploratory and low-production wells included) install new and incredibly expensive technology, BLM is essentially ensuring a shutdown of low-production marginal wells.
Marginal wells produce 15 barrels or less per day, or 90 mcf or less of natural gas per day. However, operators of marginal wells only average about 2.7 barrels per day of oil and 22 mcf per day of gas.
The blow to good American jobs and paychecks would be significant.
The Interstate Oil and Gas Compact Commission’s (IOGCC) released a report last year, which finds the loss of small oil and gas wells developed in 2015 would trigger an estimated direct loss of 57,560 jobs in the oil and gas sector and $4.4 billion in direct earnings within the survey’s 29 states.
Yet this report actually only looks at “stripper wells,” which are wells producing 10 barrels or less per day and 60 mcf or less of natural gas per day.
So, if you were to evaluate job and GDP losses from eliminating all marginal wells, the impact would be even greater.