Regulatory Developments

BLM Seeking Revision to Oil and Gas Flaring Rule

In a proposal, the Department of the Interior’s Bureau of Land Management (BLM) is seeking to revise its 2016 rule requiring waste prevention at oil and natural gas production facilities operating on federal land.
Oil refinery
Essentially, the proposal would rescind virtually all requirements in the 2016 action, which imposed additional costs on oil and gas (O&G) operators and, secondly, restore a policy that was in force for more than 35 years before the 2016 rule took effect. Called Notice to Lessees and Operators of Onshore Federal and Indian Oil and Gas Leases, Royalty or Compensation for Oil and Gas Lost (NTL–4A), the policy established parameters wherein the BLM would or would not require royalties for minerals lost during O&G operations.

In the 2016 rule (November 18, 2016, FR), the BLM placed considerably more stringent requirements on lessees. Mainly, lessees would need to take specific actions to reduce flaring, venting, and leaks of natural gas, primarily methane, a powerful greenhouse gas. But after the Trump administration took office, the president issued an energy-related Executive Order that among other things directed the BLM to review the 2016 rule and suspend, revise, or rescind it if appropriate.

Production on Public Land

In fiscal year 2016, sales volumes from federal onshore production lands accounted for 9 percent of domestic natural gas production and 5 percent of total U.S. oil production. Over $1.9 billion in royalties were collected from all oil, natural gas, and natural gas liquids transactions on federal and Indian lands in 2016.  Royalties from federal lands are shared with states. Royalties from Indian lands are collected for the benefit of the Indian owners.

Costs and Benefits

The BLM offers several reasons for proposing to withdraw the major requirements. First, the 2016 rule underestimated the impact of the regulatory burdens it imposed on operators; as a result, energy production would be constrained and jobs would be lost. Second, the final rule required compliance costs that would exceed the benefits it was expected to produce. Third, the BLM agreed with industry and some states that argued that the rule was, in fact, an air regulation; the BLM has the authority to require royalties from O&G activities on public land (including payment for resources lost through venting and flaring), but the EPA is the only federal agency that may establish an air regulation. Fourth, the BLM says states with the most significant BLM-managed O&G production already place restrictions on flaring and venting.

Collectively, these conditions render the 2016 rule legally suspect, economically damaging, and unnecessary from environmental and resource-conservation perspectives, says the BLM.

EPA’s New Source

From the regulatory perspective, the BLM said the 2016 rule potentially overlapped with EPA’s New Source Performance Standards for crude oil and natural gas production. EPA’s rule affects only new, modified, or reconstructed sources while the 2016 rule applies to existing sources. However, because the rule would force operators to make changes to their existing wells, they would become subject to EPA’s requirements. In other words, says the BLM, the EPA would be forced to regulate facilities that are more appropriately regulated by the BLM.

The 2016 rule provided a means for operators to request an exemption from the leak detection and repair requirements, but such exemptions would have been administratively costly to obtain. Many wells on public land are low-producing or marginal; operators would not have the economic incentive to obtain the exemptions and would be forced to shut in such wells. This scenario would hit small businesses particularly hard. According to a 2015 report from the Interstate Oil and Gas Compact Commission, 69.1 percent to 75.9 percent of O&G wells are marginal.

‘Sensible Improvements’ Retained

The proposed action is a revision and not a withdrawal because several provisions in the 2016 rule would be retained.

“Where the 2016 final rule introduced sensible improvements on NTL–4A—for example, the requirement that a person remain onsite during liquids unloading to minimize the loss of gas—the BLM has endeavored to retain them in this proposed rule,” states the BLM.

The proposal was published in the February 22, 2018, Federal Register.

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