Obama’s methane limits seen wiping out the marginal driller

A proposal by the Obama administration to strengthen methane regulations threatens to wipe out marginal drillers already teetering on the edge of closing because of low oil and natural gas prices, according to Oppenheimer & Co.

The proposed rules from the Environmental Protection Agency target for the first time oil wells, compressors and other equipment as part of a broad effort to reduce leaks of methane, a more intense greenhouse gas than carbon dioxide, by 40 percent to 45 percent by 2025 from 2012 levels.

Natural gas prices are close to the cheapest seasonally in a decade, and crude oil’s hovering near a six-year low. Some small, high-cost drillers who can’t afford to shoulder more costs will probably have to shut operations, said Oppenheimer analyst Fadel Gheit.

“In a low oil and gas price environment, every penny counts,” Gheit said by phone on Tuesday. “For those companies that are very small,” the additional regulatory costs will be devastating, he said.

The inefficient producers that were slow to prepare for stricter regulation, even as environmental concerns over hydraulic fracturing mounted, will probably fold, Gheit said. “They’re killing themselves — it’s not like it came from left field,” he said.

Green Completions

EPA had already imposed rules that require gas drillers to capture the initial whoosh of methane and other compounds that escapes when wells are fracked. Drillers are using so-called green completions in their operations, and bragging about the emission reductions they are getting as a result.

Oil and gas trade groups said Tuesday that the industry has already cut pollution and warned that rules could choke the U.S. energy renaissance.

“The last thing we need is more duplicative and costly regulation that could increase the cost of energy for Americans,” Jack Gerard, president of the American Petroleum Institute, said in a statement.

Obama, who pledged to cut U.S. greenhouse gases 26 percent to 28 percent by 2025, has embraced the boom in domestic oil and gas production made possible by fracking and horizontal drilling in shale rock. And the EPA is relying on increased use of natural gas — a cleaner alternative to coal — as a key part of its rule to cut carbon emissions from power plants.

Power Plan

That rule, the Clean Power Plan, was released Aug. 3.

“Cleaner-burning energy sources like natural gas are key compliance options for our Clean Power Plan and we are committed to ensuring safe and responsible production that supports a robust clean energy economy,” Gina McCarthy, the head of the EPA, said Tuesday in a statement.

The proposed rule will require oil and gas producers to upgrade their pumps and compressors on new wells, and expand the use of methane-capturing equipment now required for gas wells to oil wells. A separate rule, also proposed Tuesday, would force limits on ozone-forming pollutants from oil and gas wells in areas prone to smog.

By 2025, the rules would achieve the greenhouse-gas cuts equivalent to removing 2 million cars from roads a year. Still, environmental groups had pushed for the EPA to address methane leaks from existing wells and equipment, and for the most part EPA punted on those proposals for now.

“It’s high time that the majority of oil and gas companies plug their leaks and stop this needless pollution,” said Conrad Schneider, advocacy director for Clean Air Task Force.

Potent Methane

Methane is 28 to 36 times more potent than carbon at trapping heat, which adds to global warming. While companies have a vested interest in keeping methane bottled up en route to customers, some does leak.

The EPA estimates methane accounted for about 10 percent of total U.S. greenhouse-gas emissions in 2012, with the oil and gas industry responsible for almost a third of the emissions.

The gas industry says the EPA’s data shows emissions are down 38 percent since 2005, at the same time that production is up 35 percent. Without the new rules, those emissions are set to rebound in coming years, according to the agency.

The EPA plans to finalize these rules in 2016.