The Obama administration’s new methane regulations on oil and gas producers were in the spotlight on Thursday as the House Science Committee held a hearing exploring how the mandates are a solution in search of a problem. These regulations are portrayed as targeting “Big Oil,” but the greatest impact will actually be on small producers.
The Environmental Defense Fund often argues – as they did in the hearing – that methane regulations would cost “just one cent per thousand cubic feet of gas produced” but that claim is based largely on EDF’s assumption of high gas prices ($4/mcf) and that the methane could be captured and sold at that profitable price. But natural gas prices have remained below $3/Mcf over the past 15 months and that’s one reason why a recent ICF study found EPA’s regulations would be nearly five times greater than what EDF has claimed.
There’s no question that smaller producers will find it difficult to survive under the cost burdens of EPA’s regulations, but there’s even more to the story. The thousands of family-owned businesses that operate marginal wells — smaller wells that produce 15 barrels or less per day, or 90,000 cubic feet or less of natural gas per day — have faced the biggest challenges in today’s low commodity price environment. Under EPA’s new methane rules, many of these small companies could be wiped out.
One of the most head-scratching aspects of the rule is that after the U.S. Environmental Protection Agency (EPA) included an exemption for marginal wells in its draft proposal — since small sources are not releasing large amounts of methane, and the costs would unduly burden marginal producers — EPA’s final rules actually eliminated that exemption with no reasonable explanation.
The economic impact of losing marginal wells is itself far from marginal. The Interstate Oil and Gas Compact Commission’s (IOGCC) 2015 Marginal Well Report finds the elimination of both marginal oil and natural 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 thousand cubic feet 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.
That’s why National Stripper Well Association Chairwoman Darlene Wallace did not mince words after the final methane rule was announced. “These new rules will cripple stripper and marginal well owners and operators, and on top of historically low oil prices, we are looking at total disaster,” Wallace said. She continued: “By requiring the addition of new costly equipment requirements and expensive leak detection the economics within the oil and gas industry as a whole will be fundamentally changed, severely and forever.”
While crafting the regulations EPA acknowledged that methane emissions at marginal wells were “inherently low and that many well sites are owned and operated by small businesses.”
EPA further elaborated in the original draft, “We are concerned about the burden of the fugitive emissions recommendation on small businesses, in particular where there is little emission reduction to be achieved.” As a result, EPA concluded that “for the purposes of this guideline, fugitive emissions recommendations would not apply to well sites that only contain wellheads.”
But when the final rule was released in May, that concern for small business – and the exemption – had disappeared.
Meanwhile, EPA’s own highly questionable methane emissions estimates show that marginal wells account for less than 12 percent of all oil and gas methane emissions. So not only would small producers already operating on the margins be forced to comply with costly regulations, the emission cuts would effectively be meaningless.
The White House has an entire program dedicated to “supporting small businesses,” which it describes as “engines of job creation.” Yet the small businesses that the President claims to support are the ones who will be hardest hit by his administration’s costly new methane rules.
Seth Whitehead is a spokesman for Energy In Depth, an education and research program sponsored by the Independent Petroleum Association of America.
The views expressed by authors are their own and not the views of The Hill.