New U.S Emission Regulations may Better Place Oil & Gas Industry amidst Energy Transition
U.S. President Biden this past week (June 30) signed a resolution into law that repealed President Trump-era methane policies regarding the oil and gas sector. With the President’s signature, the resolution effectively reinstated Obama-era methane regulations that sought to limit emissions from new and modified sources of methane pollution within the industry.
Biden has pledged to put tackling climate change at the heart of his presidency and has stated that the US would cut greenhouse emissions by at least half from 2005 levels by the end of the decade. Some lawmakers have characterized the resolution as a mere quick fix that reduces greenhouse-gas emissions while larger issues still loom, however Biden has recognized that this is only an “important first step” towards cutting methane pollution. His administration is currently underway drafting its own regulations under the Environment Protection Agency’s (EPA) authority, which is expected to include new performance standards and emissions guidelines for the oil and gas industry by September 2021.
Benefits for Industry
Many ESG-conscious oil and gas companies are in favour of the new emission controls. Hurt by the deteriorating image of US fossil fuels, many top producers including Royal Dutch Shell, Exxon Mobil Corp. and BP PLC, have endorsed greater federal oversight as they encounter growing pressure from investors to improve on climate issues. This past year, institutional investors with a collective $5.35 trillion in assets have called for tougher mandatory regulations and stronger enforcement on the sector to ensure future compliance as well as protection of shareholder value.
These sorts of regulations are an inevitable part of the energy transition and as such provide the industry with the important opportunity to make significant gains in addressing climate change. These gains will allow the oil and gas sector to strengthen their social license to operate and to confirm their long term viability. Given methane’s high global warming potential, methane reductions go a long way in decreasing the industry’s climate impact, which would pay dividends for both investors and oil and gas companies alike.
Moreover, new regulations may not be much trouble for the bulk of oil and gas companies given that many of them, especially the larger entities, have already implemented voluntary methane management practices that exceed that currently required by regulation. While indeed the industry anticipates the EPA to draft stricter methane regulations, it expects that those regulations will naturally build upon past rules. For example, the Obama-era rules had required the industry to use manual technology to monitor for leaks, and the new regulations could offer flexibility on innovative, remote sensing technologies as many low-cost emissions measurement and management alternatives are available today. It is too early to determine at this point how the allowances for these alternative LDAR technologies will be carried out in the new regulations.
References
[1] US Senate votes to restore methane rules for oil and gas sector (Financial Times, 2021) - https://www.ft.com/content/37b3c7c2-216f-4cfc-bf16-42ea39dcf87b
[2] Senate votes to reverse trump era loosing of methane emissions rules (Wall Street Journal, 2021) - https://www.wsj.com/articles/senate-votes-to-reverse-trump-era-loosening-of-methane-emission-rules-11619645144
[3] Webinar roundup: The DNA of innovation in a post-covid world (S &P Global Market Intelligence - https://www.spglobal.com/marketintelligence/en/news-insights/blog/webinar-roundup-the-dna-of-innovation-in-a-post-covid-world
[4] Oil and gas investors call for tougher methane emissions curbs (Pensions & Investments) - https://www.pionline.com/esg/oil-and-gas-investors-call-tougher-methane-emissions-curbsries