BLM completes revision of O&G waste prevention rule
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September 26, 2018
BLM completes revision of O&G waste prevention rule

The Department of the Interior’s Bureau of Land Management (BLM) has completed its effort to bring a 2016 Obama-era rule governing emissions from oil and natural gas (O&G) operations on federal and Indian lands in line with the current administration’s policy of promoting the development of these resources without regulatory “burdens that unnecessarily encumber energy production, constrain economic growth, and prevent job creation.”

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The BLM’s final revisions of the 2016 rule are direct products of President Donald Trump’s Executive Order (EO), Promoting Energy Independence and Economic Growth (March 28, 2017, Federal Register (FR)). Among its many directions to federal agencies, the EO instructed the BLM to begin rulemaking to suspend, revise, or rescind the previous administration’s Waste Prevention, Production Subject to Royalties, and Resource Conservation final rule (November 18, 2016, FR). Accordingly, in February 2018, the BLM proposed to rescind virtually all provisions of that rule. The resulting final revisions (prepublication version here) carries out the proposal with little deviation; retains one provision from the 2016 rule that promotes the beneficial use of gas that would be otherwise vented or flared; and introduces a provision that discourages venting or flaring by placing volume and/or time limits on when these actions may be taken without paying the government a royalty.

Previous policy reinstated

The 2016 rule replaced the BLM’s existing policy—Notice to Lessees and Operators of Onshore Federal and Indian Oil and Gas Leases, Royalty or Compensation for Oil and Gas Lost (NTL-4A)—which established parameters wherein the BLM would or would not require royalties for minerals lost during O&G operations. In the 2016 rule, the BLM established more stringent requirements for lessees, who would need to take specific actions to reduce flaring, venting, and leaks of natural gas and its primary component, methane, a potent greenhouse gas. The revision reinstates NTL-4A in the absence of applicable state or tribal requirements.

Economic miscalculation

As it did in the proposed revision, the BLM emphasizes in the final revision that the 2016 rule was based on inaccurate estimates of the costs and benefits of compliance. “Many of the provisions of the 2016 rule would have imposed compliance costs well in excess of the value of the resource (natural gas) that would have been conserved,” the BLM now states.

For example, the 2016 requirements would have affected existing wells, including the marginal or low-producing wells that comprise approximately 73 percent of all wells on BLM-administered leases. The annual compliance costs the 2016 rule imposed on these wells would have constituted 24 percent of an operator’s annual revenues from even the highest-producing marginal oil wells and 86 percent of an operator’s annual revenues from the highest-producing marginal gas wells. Faced with these costs, most operators would simply close these wells. The BLM estimates that marginal wells supported an estimated $2.9 billion in economic output in the national economy in 2015.

“To the extent that the 2016 final rule would have adversely impacted production from marginal wells through premature shut-ins, this estimated economic output would have been jeopardized,” the BLM asserts.

EPA usurped

Apart from the economic rationale for rescinding most of the 2016 rule, the BLM adds that the true goal of that action was less about preventing waste of a public mineral resource than preventing emissions of methane. In other words, the 2016 rule was, in fact, an environmental protection measure. Given that only the EPA may issue rules to control emissions of air pollutants, the BLM was effectively usurping the EPA’s Clean Air Act authority, states the BLM.

The BLM uses the same argument regarding the 2016 rule’s regulation of fugitive emissions from certain equipment used in O&G operations, including pneumatic controllers, pumps, and storage tanks. The EPA already regulates emissions from these sources under its New Source Performance Standards (NSPS). Under the 2016 rule, O&G operators would have been forced to modify their equipment to come into compliance. Therefore, “the practical effect of the 2016 rule’s emissions-targeting provisions was essentially to impose EPA requirements designed for new and reconstructed sources on existing sources producing federal and Indian oil and gas,” says the BLM.

The current rule also props up state authority with respect to flaring at oil wells. Specifically, under the rule, the BLM will defer to appropriate state or tribal regulations in determining when such flaring will be royalty-free.

The BLM’s prepublication version of the final rule is here.  

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