Oil companies such as BP, Shell, and Exxon Mobil see the Environmental Protection Agency’s plans to peel back methane limits as a threat to their business and the future viability of natural gas.
That view puts them at odds with the Trump administration, the major trade groups representing them, and smaller oil and gas producers. Those fault lines are likely to crack open wider as the EPA is poised, as soon as this month, to finalize efforts expected to eliminate the direct federal regulation of methane from the oil and gas sector.
“There are some of the large multinational oil and gas companies who prefer us to take one approach, but we’re looking at what the impact would be on small- and medium-sized American companies,” EPA Administrator Andrew Wheeler said of the pending rule in late July, during a virtual event hosted by the Heritage Foundation.
“What the president wants to ensure is that our regulations don’t negatively impact our industrial base here in the United States at the expense of large multinational corporations,” he added.
Eliminating direct federal regulation of methane has long been an ask of the major oil and gas trade groups such as the American Petroleum Institute and the Independent Petroleum Association of America, which say Obama-era methane limits are duplicative and costly. Methane, the main ingredient of natural gas, is a greenhouse gas dozens of times more potent than carbon dioxide.
But larger producers, even some larger U.S. independent producers such as Texas-based Pioneer Natural Resources, fear a lack of federal regulation of methane could risk natural gas’s social license to operate, increasingly under threat as climate activists turn their fight to the fossil fuel, albeit lower-emitting than coal.
Rather than let their trade groups speak for them, many of those companies filed individual comments with the EPA late last year staunchly opposing the agency’s proposal.
“We need to control methane emissions now to maximize the advantages of gas and secure a role for decarbonized gas in the future energy system,” BP wrote in November comments, filed by Joe Ellis, the company’s head of U.S. government affairs. “Otherwise, we risk losing the confidence of investors, consumers, policymakers, and other shareholders.”
The stakes are even higher now for some of the European oil companies, including BP, Shell, and Total, which have since unveiled aggressive ambitions to achieve net-zero emissions by 2050. As part of its plans, for example, BP aims to be able to measure all of its methane emissions by 2023 and to cut in half the methane intensity of its operations by 2050.
“Regulating methane benefits the environment and brings more gas to market,” a Shell spokesperson told the Washington Examiner. “Regardless of government policy, Shell will continue to reduce methane emissions associated with oil and gas production.”
Some of the pressure on oil companies is coming from their investors, who increasingly want to see companies making stronger commitments on climate change.
Investor attention to methane in particular has risen, too, as measurements of emissions have improved, said Lila Holzman, energy program manager for As You Sow, a shareholder advocacy group.
“We have satellites and other technologies available to get our heads around how big the problem might be,” she said. Investors are also interested in the “high-impact” and “near-term” effects reducing methane emissions would have on climate change risks, she added.
“If the proposed rollback is enacted without opposition from those in industry, the deregulation of methane and the acquiescence of the industry will shape the public narrative on natural gas, overshadowing proactive measures of industry leaders,” investors representing $5.51 trillion in assets wrote in a statement on the EPA’s proposal last year.
Smaller U.S. oil and gas producers, however, are struggling to stay afloat, especially amid the coronavirus pandemic as oil demand has taken a huge hit and prices have dipped.
Bigger oil companies can absorb the regulatory costs, and many of them have already spent the money to install control technologies at their operations, said Lee Fuller, executive vice president of the Independent Petroleum Association of America. He added that the oil and gas sector is a “food chain industry,” meaning that larger companies don’t tend to retain low-production wells, which have lower profit margins.
That means the brunt of the regulatory burden would fall on the smallest producers, many of which the IPAA represents, which operate the most low-production wells, he said.
“If you layer huge regulatory costs on top of them, particularly in the climate we’re dealing in now, it’s not an equitable process,” Fuller said.
Oil industry trade groups argue their sector will still be regulated, too, even if the EPA scraps the direct regulation of methane. The EPA regulates emissions of volatile organic compounds, or VOCs, which contribute to smog, under 2012 rules.
VOC controls also capture nearly all the methane emissions from oil and gas exploration and production, oil groups such as the American Petroleum Institute said. They also pointed to voluntary efforts from companies, spearheaded by the API, to plug methane leaks and reduce emissions.
“In the last eight to nine years, in spite of the fact that we’ve had this resurgence with natural gas and oil development on a domestic basis from the five major producing regions, we’ve seen the methane emission rates in those regions fall by more than 60%,” said Lem Smith, API’s vice president of upstream policy. “This in and of itself is notable when you consider that production has increased three to five-fold depending on the region.”
API’s voluntary effort, known as the Environmental Partnership, has grown to 83 companies, which conducted more than 184,000 leak surveys across more than 87,000 production sites in 2019, according to a report released last month. Those surveys found a leak rate of 0.08%, or less than one leak in 1,000 components.
“The 2012 regulations will continue to control emissions of our product, which we support and people want to a large extent. Nobody is taking off controls. Somehow that gets lost,” said Howard Feldman, API’s senior counselor of policy, economics, and regulatory affairs.
The EPA’s rule-making “is really focused on the agency adhering to its statutory obligations and follow the provisions of the Clean Air Act,” Feldman added. “The public health and environment will continue to be protected.”
Environmentalists, however, say that is disingenuous.
“A VOC-only approach is completely inadequate to address the magnitude of the oil and gas industry’s methane problem in the U.S.,” said Ben Ratner, a senior director at the Environmental Defense Fund+Business who works with energy companies on methane. He added that VOC emissions are “not always a perfect proxy” for methane.
Whether the EPA regulates methane directly also has significant implications for the scope of emissions controls for existing wells. Currently, the EPA only regulates methane emissions from new and modified wells, but having those rules in place triggers a legal requirement to issue methane limits for existing sources.
The Obama administration had initiated the process to craft those rules just before leaving office. One of EPA Administrator Scott Pruitt’s first actions was to halt that effort.
Ratner also slammed API’s voluntary program, saying it carries “zero credibility” so long as the oil lobby continues to advocate for no methane regulations.
And he downplayed the ability of voluntary programs to prompt sufficient methane reductions. Even after multiple years and iterations of voluntary initiatives, “methane emissions in the Permian Basin are so high that that natural gas is even more damaging for immediate climate warming than coal,” Ratner said.
