Separating Fact from Fiction: The BLM Venting & Flaring Rule

by Kathleen Sgamma, President on February 16, 2017 - 8:54am

The Independent Petroleum Association of America (IPAA) recently put out a Myth v. Fact paper on the Bureau of Land Management’s (BLM) venting and flaring rule. Western Energy Alliance would like to debunk a few additional myths.

Misinformation originates from a study by ICF International  commissioned by the Environmental Defense Fund (EDF). ICF International is a reputable analytics firm with economists and energy analysts who know natural gas. The problem is not with ICF. It’s with how EDF takes a reputable study and then misquotes it. We’ve simply gone back to the base study and highlight the numbers.

We also address misinformation about the Colorado rule, which is often held up as a model for the rest of the nation. Other states like Wyoming and North Dakota also have rules that are tailored to actual conditions in their states. A rule in one state is not necessarily a good model for others.

Fiction: BLM’s venting and flaring rule will return hundreds of millions of dollars in royalties to the federal government.

Fact: ICF International estimates $27 million in lost royalties annually. Environmental groups are exaggerating the value of the gas and confusing royalties with value. EDF claims in a blog post that $330 million worth of natural gas is lost from federal lands, yet in another piece claims $430 million. ICF estimates that 65.9 billion cubic feet (Bcf) of natural gas is lost from federal and tribal lands annually. Using a natural gas price of $4 per Mcf as ICF does, that’s a value of $263.6 million.

Other environmental groups have confused that number with royalties. For example Western Values Project claims $300 million in lost royalties every year. They apparently don’t understand that royalties are a percentage of the value of the gas. Again, ICF’s study estimates about $27 million in lost royalties.

Fiction: The rule will return more in royalties than BLM is claiming it will.

In a letter to Senate leadership, 22 Senators, mostly from non-oil and gas states, repeat the incorrect $330 million value number misquoted by EDF and then go on to claim that $26.5 million is lost from just three states, Colorado, New Mexico and Wyoming. The ICF study estimates only $27 million in lost royalties nationwide, figuring in all the major natural gas producing states, not just three.

Fact: At most, BLM claims (page 9) the rule will recover about $10 million to $16 million in royalties annually, not the full $27 million that ICF estimates as lost because BLM focuses on just production equipment. But even BLM’s more modest estimate is inflated because it’s based on a range of projected prices that are higher than actual market conditions. An analysis from economist John Dunham using actual market prices of natural gas prices found $3.68 million in new royalties at the most. On the other hand, he finds the rule would shut in 112.4 million barrels of oil. That amount of oil is worth over $6 billion at today’s prices and would garner over $750 million in royalties. He also finds that the $3.68 million in additional royalties would be more than offset by $114 million in lost federal and state taxes annually. The rule would result in a net loss of $110 million in government revenue annually.

Fiction: A large amount of gas is lost from federal and tribal lands.

Fact: Taxpayers for Common Sense (TCS) estimates that from 2006 and 2015, 189.4 billion cubic feet (Bcf) of natural gas was lost from federal lands. That sounds like a lot until 189.4 Bcf is put in context with daily U.S. production of 71.8 Bcf, making it about 2.6 days’ worth of production lost over an entire decade.

ICF International finds that 65.9 Bcf is lost annually from federal and tribal lands. That is less than one day’s worth of U.S. natural gas production, which is 71.8 Bcf. Even using TCS’s estimate of 189.4 Bcf over a decade, it is quite amazing that industry is estimated to have lost only 2.6 days’ worth of production over the 3,652 days of a decade!

Fiction: All natural gas lost on federal lands can be captured.

Fact: Environmental groups ignore the operational, safety, mechanical, infrastructure and bureaucratic reasons that natural gas is lost at times. Requiring 100% of all gas to be captured is not only impossible to achieve in the real world, but would endanger workers. Venting is sometimes necessary to release pressure and avoid the risk of explosion. Maintenance for facilities is necessary to protect safety and ensure equipment operates efficiently, and gas must be flared during pipeline and gas plant routine maintenance. Other reasons for loss include the regulatory agencies themselves. Delays in permitting the gas gathering lines and pipelines necessary to capture the gas mean that flaring must occur in the meantime while waiting for those lines to be approved and built.

Fiction: Colorado’s methane rule has reduced methane leakage rates by 75%.

Fact: The Colorado Air Quality Control Commission estimates that the rule has led to a 75% drop in the number of facilities reporting leaks detected and repaired. This is not the same as saying leakage rates are down by 75%. Colorado does not actually measure the amount of emissions reduced by the rule. There are no measurements that could be used to determine if Colorado’s rule has been effective compared to the cost.

Fiction: There is support within industry for Colorado’s methane rule.

Fact: The Center for Methane Emissions, a group purporting to represent an industry segment, commissioned a “survey” that supposedly found support within Colorado’s oil and natural gas industry for the rule. The survey was a non-scientific sample of just 10 company employees. Such a small sample size renders the survey invalid. Conclusions cannot be drawn from it about the effect of the rule on industry.

Fiction: Since Colorado already has a methane leak detection and repair rule, BLM’s rule will be easy for Colorado operators to implement.

Fact: BLM’s rule is different enough from the Colorado rule, such as in terms of the frequency and timing of inspections, that Colorado operators will be hit with additional red tape and redundant reporting requirements. The duplicity is particularly egregious since there is not a legitimate mechanism in the BLM rule for the State of Colorado to opt out with a variance. Colorado operators on federal lands will have to comply with both rules, increasing regulatory redundancy and putting Colorado companies at a disadvantage.