Study: proposed methane rules have understated benefits

The EPA identifies natural gas and petroleum production as the largest industrial source of methane in the U.S., responsible for 32 percent of the country’s methane emissions. (Graph: IEEFA.)

Proposed methane rules from the U.S. Environmental Protection Agency (EPA) could have more far reaching benefits than originally thought, according to a report from an industry trade organization.

The report, issued by the Institute for Energy Economics and Financial Analysis, (IEEFA), concludes that if implemented, the rules could result in greater emissions reductions than the EPA currently estimates and could lead to additional revenue by capturing additional gas that could ultimately be sold.

Methane has economic value when sold as natural gas. An EPA analysis concluded that the U.S. oil and gas industry could reduce its natural gas emissions by 36 million short tons and recoup $4.6 billion from leak reductions over the next 12 years under the new rules. Despite the potential for additional revenue, the oil and gas industry has pushed back on the new rules, claiming they are too costly and of little value.

However, IEEFA’s analysis suggests there is even more financial and environmental benefit. The study, entitled “Why the oil patch should be grateful for the EPA’s methane rules,” finds that the actual figure will exceed 68 million short tons, resulting in an increase in both the volume of total marketed natural gas and the reserve base of U.S. natural gas producers.

“Numerous studies have shown that the EPA underestimates methane emissions in the oil and gas sector,” said Trey Cowan, IEEFA oil and gas analyst and author of the report. “In this particular case, there is a silver lining because the rules could have an even more positive impact than current estimates suggest.”

The compliance costs of the proposed rules are material. Nevertheless, IEEFA calculates the benefits for oil and gas producers are likely to be much greater than the EPA and the industry have predicted because the rules would create increased output that leads to higher margins, and a boost to proved reserve valuations, according to the study.

IEEFA projects the EPA proposal understates recoverable products by 1,834 billion cubic feet. In 2019 dollars, the additional recovered products would be worth $4.3 billion to the industry. IEEFA also expects the rules would result in much greater emissions reductions than the 36 million short tons that the EPA’s analysis projected over the next 12 years due to undercounting.