A deep dive into the newest methane emissions regulations for the industry
Alrighty everyone, welcome back! This is Tavis Kilian with RARE PETRO bringing you a fresh new episode of Monday Madness on November 8th, 2021. We’ve received some more resumes for the student associate position. While we will likely stop accepting them soon, it is certainly not too late to get in on the action. Simply send your resume to firstname.lastname@example.org and let us know that you are interested. But, that’s enough for housekeeping. Fall is in full swing, but you wouldn’t know it if you were in Southern California. I made a quick trip back to Colorado for that Halloween weekend and couldn’t help but ride around town and the School of Mines campus to appreciate those colors. A change of both pace and perspective can really leave you missing those things you once took for granted. Either way, I know you didn’t come here to listen to a young guy get all sentimental, you came to listen to the biggest news and statistics in oil and gas. Let’s get into it!
We gotta start it off with WTI prices. At the time of recording the price is at $81.92 a barrel which is about average for the past month. Sure we saw a temporary dip below $80 on the 4th of November, but it bounced right back up. Right now, it seems geopolitics is going to attempt to fight to bring the prices lower. As you know, Biden has been urging OPEC+ to increase their output. Apparently, the plan to bring back a little bit of production every month to avoid price shocks doesn’t exactly jive with the US who is doing its damndest to limit production domestically. OPEC basically responded to the requests by saying, “Your problem is not our problem.” Now the president has released vague threats of dealing with the problem himself. When a reporter asked if the US would be dipping into the Strategic Petroleum Reserve, Biden simply stated there are “tools in the arsenal” to deal with these situations. Still, even if the US finds a way to put more crude on the market, it may not be so easy to do with natural gas. Speaking of, natural gas prices are at five and a half dollars which is also on par for the last month. Again, once winter kicks off, these commodities are going to make energy incredibly expensive which is why our president is likely beginning to sweat. The concern won’t just be at the pump, but at the thermostat within one’s home.
Next, the rig count. Overall we are up 6 rigs to a nice round total of 550 rigs in the US, which is 250 more rigs than we had this time last year. Looking at the major basins, you’ll see that the Permian is still leaps and bounds ahead of everyone else with 3 new rigs. The Arkoma Woodford and Marcellus Basins added 1 rig each to their totals. The Mississippian lost its only remaining rig. Otherwise, not a lot of change. It shouldn’t surprise you that, state-by-state, Texas dominated with 4 rigs. Louisiana, Oklahoma, and Pennsylvania each gained a rig, but New Mexico lost one which is likely why the net change in the Permian was 3 rather than 4 like the state of Texas. The net change leaves us with 9 more horizontal wells targeting mainly oil. The rig count has continued to trudge upwards all year which, no, is not too difficult to do after 2020, but hopefully these new commodity prices will allow us to see more rigs than we have seen in many years.
Lastly, the inventory report. I’m sure most of you know that you can read it on our website as the weekly “Thirsty Thursday” report. If you didn’t know, go give it a peep on www.rarepetro.com so you can learn a new cocktail recipe at the very least. For those of you who missed it:
The EIA has reported another build this week. The prediction of 2.2 million barrels fell shy as it was much closer to a 3.3 million barrel build. The API predicted a slightly smaller build but reported a similar build at about 3.6 million barrels. 5 of the 6 past reports from the EIA have been builds, and the only drawdown was pretty insignificant at less than 1 million barrels. We haven’t seen a streak of builds like this since back in March. Even then, the following weeks were predominatley drawdowns, and we’ve witnessed drawdowns for a majority of 2021 so these builds shouldn’t be alarming. Now that we are counting on crude to continue to build, we look towards gasoline as our champion of drawdowns and this week it did not fail! The gasoline inventories witnessed a 1.5 million barrel drawdown which is not as significant as previous weeks. Still, this leaves it in dangerously low territory ahead of the holiday’s which are notorious for travel. As someone who has been traveling on I-5 lately, it is astonishing to see just how many of these vehicles hold just a single person (including myself). Gasoline prices increased by only a cent and a half from last week to a US average of $3.415. Is this the beginning of the plateau before the downfall, or is this just the calm before the storm of another price surge? Unfortunately, I believe it is the latter. The minimum price for gasoline is still in Oklahoma at $3.042 per gallon. California remains king to the highest gas prices at about $4.619 per gallon of regular gasoline. The biggest reason gasoline prices slowed their increase likely stems from China. The country released reserves of gasoline and diesel to boost supply to the world market and stabilize demand, or so they said despite grappling with that energy crisis they mentioned. Here in the states, San Diego has joined San Francisco in complaining about the high prices which are up $1.39 in the last year alone. Distillates and propane witnessed small builds, but nothing terribly out of the ordinary here.
But that should get you all caught up on the most important statistics. Now it is time we visit some news stories starting with the US Methane Emissions Reduction Action Plan. It was released last Tuesday so this is the first chance Monday Madness has had an opportunity to review it. The original document is a brief 20 pages outlining 4 areas of improvement along with an “other” area. Those four areas? Agriculture, coal mines, landfills, and of course oil and gas. Now methane is being specifically targeted because climate experts say it has 80x the warming power in its first 20 years compared to its good friend CO2. Organizations like the environmental defense fund are quick to point out that the biggest offenders of methane emissions are usually oil and gas companies. So, what change does this action plan hope to spur? There are 5 main subsections: Updating regulations for new and existing wells, reduction of venting/flares/leaks, boosting the safety of gathering and transmission pipelines, initiative to reduce leaks and ruptures on distribution lines, and the plugging of abandoned wells.
As far as updating the rules of the road for new and existing sources goes, it seems like the EPA is really trying to focus on enforcing cost-effective solutions in the form of technology that already exists like well liquids unloading and natural gas-driven intermittent vent pneumatic controllers. This would be for any new facilities. As far as existing facilities go, the EPA will be working to create rules for rigorous leak detection and repair at well sites and compressor stations with the addition of the elimination of associated gas venting. It’s rules like these that leads the government to believe that methane emissions could be reduced by 75% in the oil and gas sector.
The BLM and the BOEM will be working in tandem on the section revolving around reduced flaring, venting, and well leaks on public lands in waters. The BLM plans a regulation under the Mineral Leasing Act which hopes to dissuade operators from venting or flaring gas. Basically, you will be required to pay royalties to the feds for gas vented or flared. This is being implemented because, well let’s face it… a LOT of energy is wasted in flaring each year. I’m not saying operators have no reason to do it, but there is a significant amount of energy associated with it, and new research is emerging claiming that flaring leaves more methane uncombusted than originally anticipated. I think this is going to lead to a big push towards cryptocurrency mining. Why pay royalties on flared gas when you can use that gas to power mining rigs and turn a profit? Secondly, the BLM and BOEM are planning to strengthen financial assurance requirements for oil and gas operators. Basically, this means that operators are going to have to bring a lot more money to the table for a lease if they wish to operate on it. This way, the local, state, and federal governments aren’t responsible for properly plugging and abandoning these wells. This section is pretty simple overall, and I am sure you and I both could have predicted this would happen at a federal level sooner or later.
Next, boosting the safety of gathering and transmission lines. Here the DoT’s Pipeline and Hazardous Materials Safety Administration, or PHMSA, is advancing some simple regulatory rules. The first rule imposes the existing requirements on over 400,000 miles of unregulated pipelines. This should just get those pipelines up to speed and hold them to the same standards that other pipelines adhere to. The next rule imposes automatic shutoff valves on new pipelines and replaced large diameter pipelines. These shutoff valves will also likely lay the groundwork for rules addressing requirements for rupture mitigation maintenance, inspection, and risk analysis. Lastly, a gas transmission pipelines safety rule which aims to reduce the frequency of leaks and ruptures on more than 300,000 miles of gas transmission lines through integrity management provisions, management of change processes, gas transmission pipeline corrosion control requirements, requirements for inspections following extreme events, strengthened integrity management assessments, and repair criteria for heavily populated areas. Really, this section just aims to strengthen the regulations surrounding pipeline operation to first, improve safety with the added benefit of making leaks less frequent.
The next section of regulatory, disclosure, and partnership initiatives to reduce methane leaks and ruptures on distribution lines could have been rolled into what we just talked about. Regardless, it basically targets old infrastructure that is needlessly leaking in populated environments. Here the PHMSA will be proposing new rules that will require pipelines be upgraded to reduce the number of ruptures and incidents. They will also be working to improve leak detection systems so that they can be more quickly targeted and repaired. This will hopefully vastly improve the quality and operations of the archaic cast iron and plastic distribution pipelines.
The last section for plugging and abandoning oil and gas wells falls onto the EPA’s plate. The Build Back Better agenda set aside $4.7 billion aside for a well plugging program that will allow the department of interior to target “super emitters” in order to maximize the efficiency of P&A. I know $4.7 billion isn’t nearly enough to plug and abandon any well, but they will use existing leak detection technologies to identify methane dense environments from satellites so that the biggest offenders can be taken care of first.
All of these rules will require a lot more resources, a lot more people, and a lot more time. What does that mean? More money spent by operators to refurbish old infrastructure and improve new infrastructure and more money spent by midstream and utility companies to improve those pipelines. At the end of the day, this is going to make energy more expensive for the consumers. I wish I would have written down where I saw this statistic, but the cost of “going green” according to US climate goals will cost about $10,000 per man, woman, and child in the US. That is a cost that will get stretched out over time, which is a gut punch because energy inflation is already absurd.
But that is all we have for you on today’s episode. Rember, if you have any questions about energy, or you feel we said something absolutely wrong, send your questions and corrections to email@example.com. Always a pleasure to hear from the audience. You students out there should at least send us your resume if you are interested in the media team position. That’s all it takes to get the process started. I think we’ve probably run a bit long today, so I’ll close things out. This has been Tavis Kilian with RARE PETRO, and until we see you next time, take care, everybody.