Bureau of Land Management Deals with Climate Change – “Regulate with Data and Care”
"We will lift the restrictions on American energy, and allow this wealth to pour into our communities. It’s all upside: more jobs, more revenues, more wealth, higher wages, and lower energy prices." – President Trump
Gas Flaring is the burning or venting of unutilized natural gas that is associated with crude oil production. This process is controlled and regulated by the Bureau of Land Management (BLM), a federal agency that manages the Federal government’s onshore oil and gas program with the goals of facilitating safe and responsible energy development while providing a fair return for the American taxpayer. [1]
For most of US onshore operations, Oil and gas companies flare as much as 30% of the gas produced. The flares release carbon dioxide and raw methane, both of which contribute to global climate change. Moreover, methane – a greenhouse gas whose potency declines in the long run, but contributes more to the global warming than carbon dioxide over a span of decades. Not only flaring pollutes the environment, it also wastes gas that could be used as fuel. The World Bank calculates that in 2015 the oil industry worldwide flared off 147bn cubic meters: equivalent to the combined consumption of the UK, Germany and Switzerland. If burnt in power plants, it could supply the electricity consumption of the whole of Africa. [2]
To address these concerns, BLM set up a standardized reporting system to track how much gas has been flared each day, and requires the energy companies to use the system to self-report their actual volume of gas flared on a per well basis. The goal is to set up a centralized database to store and analyze gathered data from every operator in the area. Then use these data as a benchmark for BLM to set maximum allowable emission standards. However, most of the operators took advantage of this lack of independent data and regulatory enforcement system by under reporting the actual volume of gas flared. This has resulted in uncertainty and reduced the credibility of data BLM has collected.
To enforce accurate reporting and long term success, BLM passed new rule that requires oil and gas producers to cut flaring by half at oil wells on public and tribal lands and to periodically inspect their operations for leaks, targets the emissions as waste, clarifies when operators owe the government royalties on gas burned in flares and allows the government to set royalty rates at or above 12.5 percent of the value of production. [3] BLM also start to make unexpected site visits and unannounced inspections. Penalties for false reporting include fine, and in some extreme cases, BLM will mandate the operator to stop operation and freeze all pending applications on permits.
However, such actions result in increase of operators’ operating costs by at least 12%, delay permitting process by 48 days to 120 days, and require large increase in BLM inspector hires. Thus brought on some critics and pushbacks. According to Energy and Environment, the American Petroleum Institute (API) charged that the BLM’s “unnecessary proposed rules for venting and flaring could stifle energy development on federal lands with few benefits.” Furthermore, President Trump pledged, “We will lift the restrictions on American energy, and allow this wealth to pour into our communities. It’s all upside: more jobs, more revenues, more wealth, higher wages, and lower energy prices.” [4][5]
To balance the needs of cutting gas flaring while maintaining low energy prices, I recommend that BLM should use a third party inspection company to handle the day-to-day inspection and data reporting system to ensure the certainty and credibility of the data collected. A new information flow system should be established and tie with inspector dispatching procedures. Over flaring will automatically trigger alarms in the system, pinpoint the location first then dispatch inspectors in the area for site visit. This is will largely reduce the unplanned and unnecessary visits, thus reduce the personnel requirements from BLM.
To ensure long term success, BLM should incorporate information flow with vendors’ supply chain system. For example, every application received from the high flaring areas, BLM should mandate operators to use specialized separation unit and storage tank to capture produced gas. Once the permit is granted, both separation unit and storage tank should already be scheduled for dispatch by the rental company. While additional expenses from equipment rentals will incur, this new information system will largely reduces the operators’ risks of paying large fine or potential delays from permitting and operations. In addition, operators will receive additional revenue from gas sold to offset some of the rental expenses.
However, with decreasing demand in fossil fuels, the oil price declined to more than 50% since 2014. Should BLM puts flaring regulation on hold to help the oil and gas companies reducing their current operating costs? How should BLM balance its duties of both protecting the environment and ensuring deliver of cheap energy price to US taxpayers?
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[1] Blm.gov. (2017). Programs: Energy and Minerals: Oil and Gas | BUREAU OF LAND MANAGEMENT, https://www.blm.gov/programs/energy-and-minerals/oil-and-gas, accessed Nov. 2017.
[2] Crooks, E. (2017). Gas wasted by oil industry flaring on the rise. Financial Times, https://www.ft.com/content/47cf0e94-c101-11e6-9bca-2b93a6856354, accessed Nov. 2017.
[3] Goldberg, K. (2017). BLM Puts Gas Venting And Flaring Rule On Hold – Law360. Law360.com. https://www.law360.com/articles/934627/blm-puts-gas-venting-and-flaring-rule-on-hold, accessed Nov. 2017.
[4] Mooney, C. (2017). Obama’s government just released a new oil and gas rule — and Trump’s may not like it much. Washington Post. https://www.washingtonpost.com/news/energy-environment/wp/2016/11/15/obama-administration-releases-new-oil-and-gas-rule-in-the-face-of-an-incoming-trump-administration/?utm_term=.7d9d71141183, accessed Nov. 2017.
[5] Magill, B. (2017). U.S. Has More Gas Flares than Any Country. Scientific American. https://www.scientificamerican.com/article/u-s-has-more-gas-flares-than-any-country/, accessed Nov. 2017.
OpXYL,
Good piece and a very interesting and often controversial topic because of the significant environmental and cost implications surrounding these types of regulations. One thing needs clarification: the BLM is incentivized neither to help oil companies reduce their operating costs, nor to ensure low energy prices to US taxpayers. In fact, the mission of the BLM is “to sustain the health, diversity, and productivity of the public lands for the use and enjoyment of present and future generations.” [1] Thus, the BLM is less concerned with increased operator cost or delay in permitting and instead, more concerned with whether or not there is widespread compliance with tighter flare gas regulations. Because of this, I think your suggestion of implementing an integrated monitoring system is, conceptually, a very interesting one that will prioritize the protection of public lands. That said, I am concerned that the cost associated with researching and developing technology of this kind is likely prohibitive for a governmental organization such as the BLM.
As a side not, one cool thing that the American Association of Petroleum Geologists has been working on to ease the burden on this issue is the development of drones that monitor methane emissions for regulatory compliance purposes. Check it out right here: http://www.searchanddiscovery.com/documents/2017/70235nash/ndx_nash.pdf.
[1] Bureau of Land Management, “Our Mission”, [https://www.blm.gov/about/our-mission], 28 Nov. 2017.
A comment about your first action item: I would challenge that hiring a third party inspection company is a practical solution because there are numerous operational challenges to regulating flaring. The US currently has 1 million+ onshore wells, many in remote locations without the technological capability to transmit data to a computer (that requires satellites and specialized equipment — all wells would have to be retrofitted, old meters replaced, etc.). Flares are also very hot and most cannot have a meter directly attached. Furthermore, meters require calibration and upkeep; who would front the cost? Also, many wells only flare in emergencies — sometimes a pipeline shuts in and the system has to flow somewhere before automatically shutting in. Oil can sit in a tank, but gas has to be flared to prevent having a pressurized vessel (which could act as bomb) on site.
I would argue that implementation will have to fall in the hand’s of operators being honest, and the occasional drone as Sarah mentioned.
Great Read!
I would also like to comment on the impact of flare restrictions being defined with a flexible approach. If different operators can trade their allowances, this could lead to better efficiency for responsive actions. For example, wells in remote areas would be encouraged to assume all the flaring, while “buying” the allowances from wells with more relevant gas volumes and closer to trunk networks which could invest on connecting to the network.
Moreover, I am very interested on how the business for equipment rental will develop as the enforcement becomes more strict. There is a very interesting opportunity to bring up additional gas processing capacity.