US oil sector seeks flexibility on methane fee

The oil and gas sector is pressing President Joe Biden's administration to provide exceptions and flexibility on a first-time federal fee on methane waste that will begin to apply in 2024.

Large oil and gas facilities on 1 January 2024 will begin paying $900 for each metric tonne (t) of methane emitted above a minimum emissions intensity, under part of the Inflation Reduction Act that will start to impose a penalty on leaks of the greenhouse gas. The fee will be $1,200/t in 2025 and rise to $1,500/t in all subsequent years.

But it will fall to the US Environmental Protection Agency (EPA) to figure out exactly how to collect the "waste emission charge" through regulations it aims to propose by March. Oil industry officials ahead of that have raised questions into how the charge will work, while asking for changes such as not imposing a charge on methane that escapes unburned from flares.

The Inflation Reduction Act bases the methane charge off "Subpart W" emissions data that oil and gas facilities emitting at least 25,000 t/yr of greenhouse gasses have been required to report to EPA for the last decade. The nearly 2,400 oil and gas facilities covered by the program in 2021 collectively estimated releasing 2.8mn t of methane that year, according to federal data.

But rather than putting a fee on all methane emissions, the law carves out an exception for methane emissions equivalent to up to 0.2pc of natural gas "sent to sale" from each facility, alongside with a different exception for oil wells. The natural gas sales threshold has puzzled industry officials, who see a mismatch between the $900/t weight-based fee and how producers structure gas sales.

"Natural gas is sold by volume," the Independent Petroleum Association of America wrote to EPA this month. "To calculate the mass requires a density volume but it is not routinely determined."

Oil industry officials say EPA needs to provide clear guidance on how to calculate the emission thresholds — including any potential calculations on converting volume to weight — because they say ambiguity could be grounds for potential fines and audits by federal officials.

Experts say EPA may have difficulty coming up with a legally defensible way to calculate what qualifies for the fee exception, since the composition and density of natural gas can vary at different wells, and can even change throughout the day. A court reviewing EPA's rules might eventually find "it's a violation of some form of due process to pass a law that no one can comply with," said BakerHostetler attorney Poe Leggette, who has represented the oil industry in past litigation.

Other industry groups are seeking to change which emissions should count toward the methane fee. The American Petroleum Institute, in comments sent last week, asked EPA to revise Subpart W to omit methane released from incomplete combustion, which it says should not be considered waste. The American Exploration and Production Council asked EPA to develop an emissions threshold that accounts for wells with "varying combinations of natural gas and oil," rather calculating the threshold based either on natural gas sales or oil sales.

Environmental groups are pushing EPA to write rules to crack down on what they see as chronic under-reporting of greenhouse gas emissions by the oil industry. The Clean Air Task Force, in comments filed this month, said some operators are claiming high flaring combustion efficiency that is "clearly not possible," while others are reporting very low emissions from pneumatic controllers that leak constantly by claiming the equipment is only technically "operating" for 1pc of the year.

Oil companies have the potential to reduce or eliminate future methane fees if they cut their emissions below the 0.2pc threshold, a step some producers are taking. ExxonMobil said today it had eliminated all "routine" flaring in the Permian basin, and also reduced non-routine flaring, as part of company goals to reduce greenhouse gas emissions.

By Chris Knight