How the Biden Administration Could Improve the Federal Oil and Gas Leasing Program
On January 27, President Biden issued an executive order that put a moratorium on oil and natural gas leasing in federal lands and water while his administration undertakes a comprehensive review and reconsideration of federal oil and gas permitting and leasing practices. The Department of Interior is seeking written comments from a variety of stakeholders by April 15.
This blog post provides a variety of recommendations regarding changes that should be made to the federal oil and gas leasing program, including strategies to reduce flaring and methane emissions, increase royalties, and plug abandoned wells.
In 1980, the Bureau of Land Management (BLM) in the Department of Interior established policies to address venting and flaring of gas on federal and Indigenous lands in a notice known as NTL-4A. NTL-4A discouraged the loss of produced gas by imposing royalties on gas vented or flared if the loss was avoidable — for example, if the gas was lost due to operator negligence, failure to comply with rules, or failure to take reasonable measures to avoid.
The 2016 Waste Prevention Rule was the first update to NTL-4A in three decades. This rule imposed more stringent requirements to reduce flaring, venting, and equipment leaks in oil and gas operations on federal lands under the authority of BLM. However, the rule received several legal challenges. First, several petitioners, including the States of North Dakota and Texas, challenged the legality of the rule in a Wyoming district court, claiming it exceeded BLM’s statutory authority. The Wyoming Court stayed the challenges since the Trump administration’s BLM was working to rescind the 2016 rule.
Next, the State of California and other plaintiffs sued to reverse the Trump administration’s “rescission” in a U.S. District Court in the Northern District of California. The court reversed the rescission on July 15, 2020, deciding that the 2016 Waste Prevention requirements should be enforced. The Trump administration appealed the decision.
After the rescission was reversed, the challenge to the 2016 rule was resumed in the U.S. District Court in Wyoming. On October 8, 2020, the Wyoming court overturned the 2016 rule on the grounds that BLM exceeded its authority by promoting regulations primarily to benefit the environment and air quality rather than preventing waste. It was also said to overlap with EPA and the states’ authority to regulate air quality. An appeal to this ruling was filed on December 21, 2020.
Given the ongoing legal challenges, we provide recommendations on how to restore and then improve the 2016 Waste Prevention Rule, with a focus on how to improve the environmental footprint of oil and gas production.
A multi-step legal approach should be pursued, first trying to get the 2016 methane and flaring rules back in place, and then initiating a new rule-making process to improve them. Reinstating the 2016 rule would probably be the fastest way to achieve more stringent methane emissions and flaring reductions. BLM should:
- Join the appeal of the Wyoming case that overturned the 2016 Waste Prevention Rule, and reverse the Trump administration’s appeal of the California ruling.
- Once the appeals process for the Wyoming case is completed, initiate a new rule-making process to strengthen the 2016 rule.
The 2016 Waste Prevention Rule should be strengthened in the following ways:
Improve Legal Defensibility
- Depending on the outcome of the appeal of the Wyoming case, BLM may need to develop evidence that shows that the rule is a necessary and appropriate means of preventing waste, although the justification should still include health and environment co-benefits. The 2016 rule had been overturned primarily on the grounds that BLM was not deemed to have the authority to protect the environment and regulate air emissions.
- If the appeal of the Wyoming case does not resolve questions about BLM’s authority to protect the environment on federal lands, a clearer reference needs to be made in the new rule to BLM authority to protect the environment, air and atmosphere on federal lands under the Federal Land Policy and Management Act.
- If leasing on federal lands resumes after the Biden administration’s 60-day moratorium, the 2016 rule should increase royalty rates on new leases. The current 12.5% royalty rate hasn’t been changed for 100 years and higher rates can be observed on private and many states’ lands. Ideally, the leasing rate should reflect the costs and benefits of oil and gas leases, including the uncompensated-for environmental costs. However, federal leases also need to be competitive with private leases in order to generate investment and revenues. Even at a matching royalty rate, leases on federal land may not be competitive with leases on private lands because federal leases have greater permitting delays, which reduces the value of the lease by pushing revenues into the future. BLM should assess the competitiveness of federal leases to determine how much the royalty rate can increase without shutting off a large portion of new production. The negative impact to the economics of raising royalty rates could be partially offset by ensuring there were sufficient BLM personnel to avoid major delays in permitting.
- Royalties are not charged for emissions that are “unavoidable.” The 2016 Waste Prevention Rule defines unavoidable gas losses to be when an operator has complied with all applicable requirements and taken prudent and reasonable steps to avoid waste. It includes circumstances such as emergencies; well drilling, completions, and tests; normal operations of pneumatic devices and storage vessels; liquids unloading; leaks; and equipment or pipeline maintenance requiring depressurization. Technology, operations and equipment are continuing to improve; the bar should be raised to define unavoidable gas losses as those that result despite using the best available equipment. Thus, the standard shouldn’t be the average equipment or practices but the equipment and practices of the upper quartile performers. That would encourage weaker performers to improve.
Enhance Leak Detection
- BLM should organize a third-party subscription-based regional methane emissions leak detection system on federal land. The leak detection system could include satellites, ground sensors, drones, helicopters or airplanes. Cost-sharing in proportion to production would help defray the cost for small operators and marginal wells. Those who join the service would have the advantage of third-party certification of their emissions levels, which would allow good performers’ gas to comply with European emissions standards for liquid natural gas imports. As a market for clean gas develops, the operators would also be able to command a higher price for their gas. If operators refuse to join, their emissions data would still be captured and published by this system, but they would also need to comply with the 2016 rule’s leak detection and repair requirements on their own and explain significant differences with the subscription system data.
- A better process is needed to certify new technology to be used to measure and monitor methane emissions. An important part of the process is to establish places that can test and help certify technology in real world applications, like the Methane Emissions Technology Evaluation Center, funded by the U.S. Department of Energy’s Advanced Research Projects Agency-Energy programs.
Simplify Emissions Reporting
- Encourage the use of innovative technology, including sensors and satellites, to make emissions reporting simpler for the operators and more timely and transparent for BLM and the public. The regional system described above would be helpful from a transparency viewpoint, since it would have a third party collecting the data. The regional leak detection and repair system should be the primary way that companies are judged to be in compliance with methane emissions rules. The BLM should publish the emissions data collected by both the company and the third-party system in an easy-to-use format, making the data more transparent to BLM, the companies, and the public. Companies would need to explain substantial differences between their own data and that of the third-party system.
- Companies should be required to report emissions from flaring, venting, and methane leaks separately. Today, some state regulations don’t distinguish between venting and flaring (e.g., Texas).
- To reduce the reporting burden on producers and make the data more transparent to policy makers and the public, a common portal should be established for all of the emissions reporting agencies (including EPA, BLM, and states) for electronic reporting. The data needs to satisfy each different agency’s reporting requirements. However, an attempt should be made by a central coordinator to reduce overlap and make sure the best technology is being used to measure emissions.
Set Stricter Standards on Flaring
- There is a process in the 2016 rule whereby BLM can adjust the targets from the gas capture rules if the cost of compliance for small operators or marginal wells is deemed too high. At a minimum, routine flaring should be banned for all producers regardless of size.
- Equipment standards should be provided for flares, while still allowing innovative technology that improves performance. The Environmental Defense Fund did an aerial survey of more than 300 sites in Texas’ Permian Basin and found that roughly 1 in 10 flares was unlit or malfunctioning, such that methane was being vented into the atmosphere. Recommendations include:
- Set efficiency standards for flares
- Require reporting on the content of emissions from flares
- Require that flares be lit. There is no such requirement today.
- Require detection of unlit flares along with a device that automatically reignites them.
Plug Abandoned Wells
- The U.S. Congress should fund BLM to plug abandoned oil and gas wells on federal land, which could be justified as a jobs program in addition to reducing methane leaks. The value of bonds on new leases should also be increased to adequately cover the cleanup costs. Methane emissions from abandoned wells correspond to 1−13% of methane emissions from the U.S. energy sector. In addition, methane leaks are a safety hazard and have caused several high-profile explosions. The U.S. General Accountability Office has reported on the size of this problem on federal lands and indicated that operators’ up-front bonds were too small to fully cover clean-up costs.
- Offshore wells should also be included in this program. There are 19,000 wells in federal waters in the Gulf of Mexico that have not produced oil or gas in at least one year, and over 12,000 wells have never produced commercial quantities of oil and gas, yet still have not been permanently plugged and abandoned. More research is needed on how much methane leakage there may be from idle offshore wells in the Gulf of Mexico.
- Under the provisions on “Pneumatic Controllers and Pumps” of the 2016 Waste Prevention Rule, assess what can be done about intermediate bleed controllers because they are responsible for 88% of the emissions from pneumatic controllers.
- Analyze the impact of existing emissions and flaring behaviors, and new rules, on low-income groups and native communities. Environmental justice benefits should be included in any cost-benefit analysis.
While it is unclear what position the Biden administration will ultimately take with regard to new leases on federal land, it is still worth pursuing recommendations such as these to reduce methane emissions and flaring, because they would also apply to operations that are already ongoing.
Marianne Kah is an adjunct senior research scholar and advisory board member at Columbia University’s Center on Global Energy Policy.