The U.S. Department of Interior's (DOI) Bureau of Land Management (BLM) unveiled its long-awaited rules governing flaring and venting of associated natural gas on public and tribal lands on Friday.
Under the proposed rules, operators would be required to deploy equipment and processes to limit the amount of flaring gas at oil wells on public and tribals lands, and to periodically inspect their wells for leaks. Operators would also be required to limit venting from storage tanks. The rules also clarify when operators owe the government royalties, and gives the BLM the option of setting certain royalty rates higher than 12.5%.
"I think most people would agree that we should be using our nation's natural gas to power our economy, not wasting it by venting and flaring it into the atmosphere," DOI Secretary Sally Jewell said Friday. "We need to modernize decades-old standards to reflect existing technologies so that we can cut down on harmful methane emissions and use this captured natural gas to generate power and provide a return to taxpayers, tribes and states for this public resource."
In a statement Friday, the BLM cited a Government Accountability Office (GAO) report from 2010 that found flaring was costing states, tribes and federal taxpayers as much as $23 million in annual royalty revenue. The bureau added that between 2009 and 2014, natural gas lost to flaring could have powered more than five million homes for a year.
The public will have 60 days to submit comments on the proposed rules once they are published in the Federal Register. The BLM said it also plans to hold a series of public hearings in February and March.
Limit on Routine Gas Flaring
The rule would phase in, over a three-year-period, a monthly limit on the amount of gas an operator can flare at a well, averaged across all of the producing wells on a lease. During the first year, an operator would be allowed to flare 7.2 MMcf per month, per well. In the second year the limit would be reduced to 3.6 MMcf/month/well, and in the third and subsequent years the limit would be 1.8 Mcf/month/well.
According to the BLM, the proposed flaring rule would affect about 16% of existing wells, which collectively account for about 87% of gas flared. The rule would apply only to flared associated gas from production wells, not flaring from exploration or wildcat wells or during emergencies. The bureau also said operators would be exempt from the flaring rule "if meeting the limit would cause an operator to cease production and abandon significant recoverable oil reserves under a lease."
The BLM said operators could comply with the flaring rule by expanding gas-capture infrastructure, adopting alternative on-site capture technologies, or by temporarily slowing down production to minimize losses until the capture infrastructure is installed.
Pre-drilling Planning, Leak Detection
In an effort to better coordinate well development and pipeline construction, operators will now be required to evaluate opportunities for gas capture by preparing a waste minimization plan, which would be submitted in tandem with the federal application for a permit to drill. "The plan must meet various requirements, and must be shared with midstream gas capture companies to facilitate timely pipeline development, but plan details would not be enforceable elements of the permit to drill," BLM said.
Operators will also be required to establish an instrument-based leak detection program, using BLM-approved equipment such as infrared cameras. Smaller operators (fewer than 500 wells) will have the alternative of using portable analyzers, coupled with audio, visual and olfactory inspection.
Operators would initially be required to conduct their leak inspections twice a year, but if they consistently find few leaks they could be allowed to conduct one inspection annually. Conversely, if operators consistently find many leaks they could be required to perform the inspections quarterly.
According to the BLM, operators would be prohibited from venting natural gas, except in rare circumstances and emergencies. Operators would be required to replace all "high bleed" pneumatic controllers with the "low bleed" variety within one year in most cases, and would also be required to replace certain pneumatic pumps with solar pumps, or route the pumps to a flare.
BLM also stated that within six months of the proposed rule's effective date, operators would be required to capture or flare gas from storage tanks that vent more than six tons of volatile organic compounds (VOC) per year. The bureau said the requirement would affect fewer than 300 tanks.
The new venting rules would, in most cases, also prohibit operators of new wells from purging their wells into the atmosphere, and operators unloading liquids from existing wells would be required to use best management practices. Operators would also "be required to capture, flare, use or re-inject gas released during well completions," BLM said, adding that the venting rule would only affect conventional well completions, assuming the U.S. Environmental Protection Agency (EPA) finalizes its proposed rule for well completions and recompletions through the use of hydraulic fracturing (fracking).
Clarifying, Revising Royalty Rates
Currently, the royalty rate for onshore oil and gas leases is 12.5%, and the BLM has no discretion to raise the rate as conditions change. The new proposal would set the royalty rate for new competitive leases at or above 12.5%.
Although the BLM said it was allowed to change the royalty setup because it falls within the purview of the Mineral Leasing Act, the bureau added that it "does not currently propose to raise royalty rates for new competitive leases."
The BLM also clarified that the new royalty regimen would only apply "to gas flared from wells already connected to gas capture infrastructure. This reduces the burden on operators to submit applications for approval to flare royalty-free."
In a statement, the American Petroleum Institute (API) called the proposed rules "unnecessary" and warned that they could impede oil and gas development on federal lands, with few benefits to show for it.
"We share the desire to reduce emissions and are leading efforts because capturing more natural gas helps us deliver more affordable energy to consumers," Erik Milito, API director for upstream and industry operations, said Friday. "The incentive is built-in, and existing BLM guidelines already require conservation. [This is just] another duplicative rule at a time when methane emissions are falling and on top of an onslaught of other new BLM and EPA regulations could drive more energy production off federal lands.
"The goal is to prevent emissions, not impede U.S. energy production. The BLM should focus on fixing permitting, infrastructure and pipeline delays that slow our ability to capture more natural gas and get it to consumers."
Republicans in Congress were equally skeptical.
"The flaring and venting of natural gas is a serious challenge that requires serious solutions, and we can start by reforming the permitting process for natural gas pipelines and gathering lines that are critical to moving this important resource to market," U.S. Sen. Lisa Murkowski (R-AK), chairman of the Senate Energy and Natural Resources Committee, said Friday. "I will study this proposal carefully, evaluating it as part of an avalanche of regulations the administration is promulgating on its way out the door."
U.S. Sen. James Inhofe (R-OK), chairman of the Senate Environment and Public Works Committee, said the rule showed the Obama administration was "continuing its war against domestic fossil fuel production.
"This duplicative and unnecessary rule is the latest effort aimed at shoring up the president's global warming legacy at the expense of the oil and gas industry, which has been the lone bright spot in the economy over the last seven years."
Environmental groups were supportive of the new rules.
“Even though many leading companies are already implanting these practices, we fully expect the usual voices from the industry trade associations to proclaim that the sky is falling and that they should not be subjected to additional rules when the price of oil is so low,” Dan Grossman, regional director for the Environmental Defense Fund (EDF), said in a blog post Friday. “But lagging prices can never be an excuse for ignoring environmental protection. After all, we don’t abide oil spills just because the price of the oil has fallen. We shouldn’t tolerate wasteful methane pollution, especially from operators exploiting the public’s resources.”