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Preparing for Stricter Methane Regulations

Even though oil and gas is among the most regulated industries in the US, methane has historically been subject to few regulations. Environmental groups say stricter rules are necessary to slow global warming. Likewise, even industry giants like BP, ExxonMobil and Royal Dutch Shell have spoken out in favor of more methane regulations — though the two groups have different views on how this should happen.

But with a new administration and Democrat-controlled Congress, one point they both agree on is that stricter regulations are coming. As of the time of writing this article, President Biden has already signed an executive order reinstating methane rules for new oil and gas sources. 

Companies need to prepare — and fast. Non-compliance may subject operators to hefty fines or limitations on their operations. This is especially risky in the current low-cost environment, where operators need to preserve profits and reduce risks in order to survive. There’s simply not a big margin for error.

What exactly the new rules will look like remains to be seen. Environmental groups want the Biden administration to effect new and existing rules simultaneously. Industry groups, on the other hand, have indicated their preference for more indirect rules and voluntary industry-led efforts (though it’s worth noting here that several major oil companies have cut ties with trade groups over climate policies). 

While the new administration sorts out the details, there are steps operators can take to ensure they aren't caught off guard. Many of these actions are best practices that should be implemented anyway, but perhaps have fallen by the wayside.

First, do you know where your wells and other assets are? In the case of methane regulations, compliance starts with awareness. You can't fix leaks or cap wells if you don't know they exist. Inspectors need to know the location of equipment in order to determine if it is leaking or not. Senior managers need to know the location of old or out-of-service wells in order to allocate resources effectively.

Abandoned wells in particular will be a big compliance headache for the industry. As Reuters reported in June:

“More than a century of oil and gas drilling has left behind millions of abandoned wells, many of which are leaching pollutants into the air and water. And drilling companies are likely to abandon many more wells due to bankruptcies, as oil prices struggle to recover from historic lows after the coronavirus pandemic crushed global fuel demand, according to bankruptcy lawyers, industry analysts and state regulators.”

Drilling companies did abandon more wells due to bankruptcies in 2020. In fact, it was the second busiest year for restructuring since 2016. Surviving companies will be left to sort out the mess of unknown — or at least unmonitored — assets they’ve acquired during the M&A process. Inheriting this problematic situation may seem overwhelming, so the first step will be to simply get a handle on what you’re dealing with. 

Second, do you have a company-wide system for managing emissions data? Timely, high-quality data is essential for forming an accurate picture of your performance. On the other hand, outdated or incomplete data hurts your ability to control or reduce methane emissions. 

Good quality data matters. But more importantly, this data needs to be made available to end users. Organizations will need to leverage environmental management software to help them track requirements, manage the associated emissions data, analyze and report on their reduction efforts. Ideally, you should work with a cloud vendor to ensure these systems are in place before new rules are enacted to avoid the last-minute scramble.

As we said above, companies that do these two things will be in a better position to respond to new regulations — whatever comes their way. 

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