Industry Braces for Changing Landscape on Methane Emissions

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Lawmakers in Washington looked set Friday to finalize a new tax on methane emissions in a package of climate measures contained in the Inflation Reduction Act. The measures come even as many large oil and gas producers — under public and shareholder pressure — are working independently to clean up their acts on the methane front.

Below, Energy Intelligence examines what changes are afoot.

Will the US have a methane fee or a methane regulation?

Both. Once the new law is passed, oil and gas producers and owners of storage and transmission facilities will be subject to a new fee. At facilities with emissions of more than 25,000 metric tons of CO2 equivalent, owners and operators will have to pay $900 per metric ton in 2024. The fee will top out at $1,500/metric ton in 2026.

At the same time, the Environmental Protection Agency (EPA) is working on finalizing stricter regulations on methane emissions first proposed last year. If companies comply with the EPA rules, they get an exemption to the fee.

As proposed, the EPA estimated that its new rules would reduce methane emissions from hydraulic fracturing, storage tanks and other gas equipment by 74% by 2030 over 2005 levels. That proposal dropped an exemption for low-producing wells enacted by the Trump administration.

Industry had strongly favored the EPA rule over more sweeping versions of the methane fee structure Democratic lawmakers put forward last year.

Who is subject to the methane fee?

The fee will be applied to both offshore and onshore production, as well as other facilities such as onshore natural gas processing, transmission and compression, underground gas storage, LNG storage, LNG import and export equipment and onshore petroleum and gas gathering and boosting stations.

The charge only applies once companies’ emissions exceed 0.2% of the gas sent to sale from their facilities, or 10 mt of methane per million barrels of oil sold. Because of the 25,000 mt threshold, it won’t cover smaller leaks from infrastructure.

Several environmental groups have largely been positive about the impacts they say the methane fee will have on reducing the potent greenhouse gas, even if its not as sweeping as last year's proposal.

“The methane waste charge applies to the biggest polluters and that’s a step in the right direction for climate and for the communities who live downwind of that pollution,” says the Environmental Defense Fund’s Associate Vice President for Global Energy Transition Dan Grossman. “The charge will work in conjunction with EPA regulations, which apply to all facilities regardless of size and are currently in the process of being strengthened. Together, these policies will drive significant reductions in pollution from oil and gas facilities.”

As a further incentive for firms operating on federal land, the bill will also require those with public leases to pay royalties on all methane produced – even that consumed by venting, flaring or “negligent releases.”

Methane is notoriously hard to account for. What will the EPA base the fee on?

Within two years of the bill’s passage, the EPA must update its the current methane reporting requirements to ensure the fee calculations are “based on empirical data,” the bill reads. Green groups have been pushing for greater use of direct measure, amid regular findings that emissions measured by third-party satellites exceed official estimates.

Companies can also submit their own empirical data to substantiate the methane fee they are charged.

The EPA has substantial funds available to help companies measure emissions under the new legislation. The agency will offer $850 million thru Sep. 30, 2028, to assist firms in preparing greenhouse gas reports, and reduce methane from oil and gas facilities and legacy systems. The bill has an additional $700 million for the EPA to help reduce methane leaking from conventional oil and gas wells.

What happens if the methane regulation is rolled back?

After years of back-and-forth over federal policy on methane and other climate action, lawmakers made an attempt at providing some stability this time around.

If the EPA’s proposed methane rule is rolled back, altered to be less stringent or struck down by a court, the congressionally passed fee will still remain in place, serving as a backstop of sorts.

Methane Emissions, Policy and Regulation
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