Methane rules would cost U.S. producers over $1 billion a year

U.S. oil and natural gas producers would have to spend a negligible fraction of profits to comply with tougher methane rules proposed by the Biden administration. 

The measures would cost up to $1.2 billion annually, the U.S. Environmental Protection Agency announced Tuesday, and would be spread out over hundreds of thousands of wells. That’s a sliver of the more than $70 billion in projected earnings for the 10 largest American drillers alone this year.

The limitations would dent oil and gas output by forcing non-compliant wells to be shut, but the ripple effects would be minimal, the EPA said. Crude prices probably would see a 6-cents-per-barrel increase while gas would inch higher by a nickel for every thousand cubic feet.  

The new regulations proposed Tuesday seek to slash emissions of the potent greenhouse gas by 74 per cent from 2005 levels by the end of the decade. They include requiring more frequent inspections and repairs of methane leaks at oil industry sites.

Methane is the primary component of natural gas, and leaks can happen anywhere along the supply chain, from the wellhead to homes and businesses where the fuel is burned. The fossil-fuel industry accounts for about 35% of human-related emissions. 

The new rules have been largely anticipated, with several companies including EQT Corp. and Chesapeake Energy Corp. having already announced plans for continuous monitoring and stopping leaks. Chesapeake said earlier that the company plans to invest $30 million through the end of 2022 on measures including the retrofitting of 19,000 pneumatic devices.

The regulations would cover wells drilled before September 2015 that produce a total of 3 million barrels of crude per day, including nearly 750,000 wells pumping less than 15 barrels a day, according to S&P Global Platts. 

Still, most marginal producers will only be required to do a one-time survey to demonstrate there are no active leaks, rather than regular assessments, said Parker Fawcett, an S&P Platts analyst.

“If crude prices remain strong, we believe the impact to supply will be minor,” Fawcett said in a note. 

The EPA said the benefits would far outweigh costs of compliance and will increase recovery of gas that would otherwise go to waste. 

© 2021 Bloomberg L.P.

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