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EPA's proposed rollback of methane regulations to impact marginal oil, gas wells

Highlights

Rules could have made marginal well production uneconomic

Oil, gas majors had pushed for federal methane regulation

Proposal would defer methane regulation to states

Washington — The Trump administration on Thursday unveiled its proposal to formally rescind federal regulations aimed at limiting methane emissions from oil and gas operations, an effort expected to most impact production from marginal US wells, accounting for roughly one-tenth of domestic oil and gas output.

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The US Environmental Protection Agency said Thursday the proposal was eliminating "unnecessary regulatory duplication" created by methane rules finalized in 2016 by the Obama-era EPA.

Analysts said Thursday that the direct impact on US oil and gas production from the rollback was unclear, but an estimated 770,000 low-production wells were at risk of shutdown due to the relatively high costs of methane emissions requirements, according Lee Fuller, an executive vice president with the Independent Petroleum Association of America.

"The impact is more related to the premature loss of existing production," Fuller said Thursday.

Marginal wells, also known as stripper wells, are characterized as producing no more than 15 boe/d over a 12-month period. These wells are often located outside the nation's more prolific shale plays and account for roughly 10% of US oil production and 11% of US gas production, according to the US Energy Information Administration's latest data.

Oil and gas majors, including ExxonMobil, Shell and BP, had pressed the Trump administration to continue to regulate methane emissions from the oil and gas sector, but smaller operators saw the regulations as prohibitively expensive.

"These small business wells are the most economically sensitive in the United States and are already facing economic challenges due to low commodity prices," IPAA said in a statement Thursday.

EPA said Thursday that its proposed rollback with save the US oil and gas industry $17 million to $19 million a year through 2025.

Environmental groups are expected to challenge the proposed rollback.

"The Trump EPA is eager to give the oil and gas industry a free pass to keep leaking enormous amounts of climate pollution into the air," said David Doniger, a senior strategic director with the Natural Resources Defense Council. "If EPA moves forward with this reckless and sinister proposal, we will see them in court."

In a statement, Mark Watson, a vice president with the Environmental Defense Fund, call the proposal "an attempt to dodge the agency's legal duty to regulate existing sources in the oil and gas sector."

Nearly a year ago, the Interior Department finalized a rule rolling back some of the requirements for methane emissions from oil and gas operations on federal lands. Environmental groups have sued Interior claiming the agency illegally rescinded these requirements.

SOURCES, INTERPRETATIONS

EPA's proposal unveiled Thursday has multiple parts, but largely defers regulation on methane emissions to states.

First, it proposes removing transmission compressor stations, pneumatic controllers, and underground storage vessels from federal regulation.

"The agency is proposing that the addition of these sources to the 2016 rule was not appropriate, noting that the agency did not make a separate finding to determine that the emissions from the transmission and storage segment of the industry causes or significantly contributes to air pollution that may endanger public health or welfare," EPA said in a statement.

Second, the EPA proposes rescinding methane emissions limits from the production and processing segments of the oil and gas industry, including well completions, pneumatic pumps and controllers, gathering and boosting compressors, natural gas processing plants and storage tanks. EPA would maintain emissions limits for volatile organic compounds, also known as VOCs, instead.

"The controls to reduce VOCs emissions also reduce methane at the same time, so separate methane limitations for that segment of the industry are redundant," EPA said.

EPA is also proposing an alternative which would rescind the methane emissions limits, but would not remove transmission and storage sources from regulation and is considering alternative interpretations of the agency's authority to regulate pollutants under the Clean Air Act, the agency said.

-- Brian Scheid, brian.scheid@spglobal.com

-- Edited by Alisdair Bowles, newsdesk@spglobal.com