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US Interior finalizes methane rule, industry sues to overturn

Washington (Platts)--15 Nov 2016 951 pm EST/251 GMT


As part of a sprint by regulators to complete Obama administration rules to combat climate change before the Trump administration takes over, the US Interior Department Tuesday finalized it rule aimed at curbing venting, flaring and leaking from oil and natural gas operations on federal lands.

Within minutes of the final rule's release, industry groups filed a lawsuit seeking to overturn it, claiming Interior lacks authority to regulate air quality.

"This is an 11th hour shot by an administration that doesn't fully understand how its rules impact our businesses," said Dan Naatz, a senior vice president with the Independent Petroleum Association of America which, along with the Western Energy Alliance, filed the lawsuit in the US District Court in Wyoming.

The rule, developed by Interior's Bureau of Land Management, sets up new requirements for oil and gas producers to use "currently available technologies and processes" to reduce flaring from oil wells in half on public and tribal lands.

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US Senator John Barrasso, a Wyoming Republican, committed to repealing the new methane rule.

"The Republican majority in Congress will not let this rule stand," Barrasso said in a statement. "We will work with President-elect Trump to revoke this rule either administratively or through the use of the Congressional Review Act."

The rule sets up new leak inspection and equipment replacement requirements, limits venting from storage tanks and sets up a new system for when operators owe royalties on flared gas, giving the government authority to set royalty rates at or able 12.5% of the value of production, Interior said.

"America's natural gas helps power our economy -- it's a resource, not a waste product, and it's time we start treating it that way," said BLM Director Neil Kornze in a statement. "With better planning and today's affordable technology, we can cut waste in half."

According to Interior data, roughly 462 Bcf of gas was vented, flared and leaked between 2009 and 2015 and as much as $23 million each year in federal royalty revenue is lost by "wasted" natural gas.

BLM claims the rule could reduce methane emissions by as much as 180,000 tons each year, equivalent to eliminating the greenhouse gas emissions from 950,000 vehicles. The rule, which will be phased in over time, is aimed at getting more natural gas into pipelines while also reducing pollution and cutting greenhouse gas emissions, according to Janice Schneider, Interior's assistant secretary for land and minerals management.

BLM ROLE CRITICIZED

In its announcement of the final rule, BLM said it "carefully coordinated" with states and the Environmental Protection Agency, which is also developing its own rules to regulate methane emissions from oil and gas wells, to "avoid inconsistency or redundancy in regulations."

But in their lawsuit Tuesday, lawyers for IPAA and Western Energy Alliance argue that BLM's rule creates "duplicative regulation that conflicts with EPA requirements," and fall outside Interior's authority.

"BLM lacks statutory authority for the creation of an air quality regulatory program, which has resided with EPA and the states since the 1970s," said Kathleen Sgamma, a vice president with the Western Energy Alliance, in a statement.

The lawsuit was filed Tuesday in the same court that overturned a BLM rule from last year which would have set new requirements for fracking on federal lands.

Judge Scott Skavdahl overturned the rule in June, but the Obama administration has appealed that ruling in the 10th Circuit Court.

Opening arguments in that appeal are scheduled for January 17, three days before President-elect Donald Trump is elected. It is not clear if the incoming Trump administration will continue with the appeal since, as a presidential candidate, Trump pledged to lift Obama-era regulations on drilling on public lands.

BLM estimates that its methane emissions rule will cost industry between $110 million and $279 million each year.

An average of nearly 470,000 b/d of crude oil was produced on federal lands in 2015, according to the Office of Natural Resources Revenue.

This accounted for about 5% of total US crude oil production last year, according to Energy Information Administration estimates.

While the low percentage is often attributed to the rapid growth of shale oil and gas production on state and private lands, oil production on federal lands grew rapidly between 2011 and 2015, just not as fast as the growth seen broadly in the shale renaissance.

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

--Edited by Richard Rubin, richard.rubin@spglobal.com

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