Oil and gas groups go on offense ahead of methane fee in US legislation

The American Petroleum Institute and a host of other oil and gas trade associations are working to fend off fees on methane emissions that could be included in a budget reconciliation package as part of efforts to combat climate change.

Among those efforts, API and a long list of other groups wrote to Senate Environment and Public Works Committee leaders Sept. 7, contending that legislation first introduced by Democratic Senators Sheldon Whitehouse of Rhode Island, Cory Booker of New Jersey, and Brian Schatz of Hawaii in March "would levy an unreasonable, punitive fee on methane emissions only from oil and natural gas facilities that could jeopardize affordable and reliable energy with likely little reduction on greenhouse gas emissions."

The oil and gas groups are concerned the legislation is being considered for inclusion in the reconciliation on the Senate side. Their pitch comes as stakeholders are also watching closely for legislative language that may soon emerge on the House side as well.

"We're very, very concerned about this," said API President and CEO Mike Sommers," speaking to reporters Sept. 9. "In addition to the letter, we are seeking to educate members of Congress on these potential impacts, both through direct interactions with lawmakers and seeking to inform their constituents on what the cost of this methane fee would be."

Leadership focus

Senate Majority Leader Chuck Schumer, Democrat-New York in July listed a fee on methane emissions among drivers of the carbon emissions reductions that Democrats suggest will result from the budget resolution; other key measures driving emissions would include a clean electricity payment program, tax incentives for clean energy, and tax incentives for clean vehicles, he said.

The Whitehouse bill would assess a fee of $1,800 per ton in 2023, increasing at 2% above inflation in subsequent years, according to a release from the senator. However, it allows for an opt-out alternative fee for companies that can demonstrate that their emissions intensity is below average for the basin in which they operate. When introduced in March, it won support from Environmental Defense Fund and other environmental groups.

The efforts come as the US Environmental Protection Agency, within the next month, is expected to issue a new standard for oil and gas methane emissions, going beyond what Obama administration issued in 2016.

According to Parker Fawcett, supply analyst with S&P Global Platts Analytics, the Whitehouse methane fee proposal, if enacted could put at risk production from stripper wells -- those producing less than 15 b/d or 90 Mcf/d in the last year.

"The cost of compliance could force a significant portion of the 750,000 b/d or 9 Bcf/d of marginal well production to shut in as retrofitting the facility would become too cost burdensome," he said.

Matt Watson, vice president of Environmental Defense Fund's energy program, in an interview, contended that while five years ago, there were legitimate concerns about whether marginal facilities could bear the cost, that is no longer the case because of an explosion in cost-effective leak detection technology. He also argued that marginal wells are responsible for a disproportionate share of emissions.

Strong rules from EPA would have the effect of reducing the extent to which the fee applies, he added.

Basin-focused approach

The letter from the oil and gas trade groups, which also included some manufacturing and other business groups, warned of adverse economic impacts from the Whitehouse bill and argued methane emissions are already being mitigated through regulatory programs and industry efforts.

EPA is best-suited to address the challenges in cutting methane emissions because the regulation stipulates the installation of cost-effective control technologies, they argued.

"The basin focused approach of the bill could also alter where oil and natural gas is produced and thereby impact the state governments' balance sheets," the letter said. "Taxes and fees collected by states based on volume produced could fall significantly where the calculated basin average fee rate is high."

Oil and gas groups for years fought federal regulations on methane emissions, generally preferring voluntary solutions, though more recently a number have espoused support in general terms for cost-effective rules.

In response to the industry letter attacking the legislation, Whitehouse said that charging oil and gas companies for methane emissions is "one of the most straightforward ways" to quickly cut emissions.

"It's obvious that API's newfound support for regulations is just a smokescreen to try and tank a pricing regime where companies would face a price if they continued to pollute," he said in an emailed statement.