Starting The Descent To Net Zero

EPA’s revised pneumatic rules for oil and gas overdue, still not perfect

Enverus Intelligence Research (EIR), a subsidiary of Enverus, the most trusted energy-dedicated SaaS platform, has released two congruent reports on emission trends related to the oil and gas industry, and the impact of the EPA’s proposed updates to its emission reporting process. EIR’s first report analyzes how the oil and gas industry’s upstream emissions profile evolved since companies began introducing more explicit ESG policies in 2019 and explores how and why emissions have decreased. The second report details the changes the EPA is proposing to pneumatic controller emission reporting and assesses the impacts on basins and operators, assuming the proposal is finalized as currently written.

“EIR believes the current macro environment provides a golden opportunity to change the public image of the North American oil and gas industry as geopolitical tensions and high energy prices drive home the importance of a strong domestic energy industry, yet the push to lower emissions continues to gain relevance. The emission reduction seen by the upstream industry since 2019 is equivalent to swapping 7.7 million gasoline-powered vehicles to EVs, which is great progress but still far from getting to net zero,” said John Gutentag, senior data analyst at EIR.

“We believe the EPA’s proposal is a step in the right direction as it updates old emission factors and provides much needed clarity regarding reported operating time, but the significant uncertainty around regional variability is a headwind for operators trying to prioritize emission reduction strategies. The overall net impact to the U.S. production industry is a slight 5% increase in pneumatic controller volumes based on 2021 reported data and excluding the impact of a new two-tier option involving in-field surveys. Considerable variation exists at the operator and regional level,” Gutentag said.

Key takeaways on emissions trends from oil and natural gas production:

• Reported annual upstream emissions decreased by 34 Mt CO2e between 2019 and 2021, a reduction of 28%, which is equivalent to swapping 7.7 million gasoline-powered vehicles to electric vehicles. We see no widespread evidence of emissions being pushed further downstream with other sectors largely flat over the same period.
• Drilling and completion-related emissions increased by 3 Mt CO2e in 2021, and we predict that they will rise another 1.5 Mt CO2e when 2022 emissions data is released this fall.
• EIR correlated satellite-derived flaring emissions with historically reported data to estimate a flaring emissions profile for 2022 of 14.8 million metric tons of CO2e, a reduction of 30% Y/Y.
• EIR noted large Y/Y decreases in reported venting emissions, and expects this overall trend to continue as operators prioritize methane reductions voluntarily and the EPA moves closer to finalizing the OOOO b/c regulations, which were recently revised and reproposed during COP 27.

Key takeaways on EPA’s proposed rule change:

• The most impactful change in the June 2022 EPA Subpart W reporting proposal is the updated methodology for pneumatic controller emissions, which currently account for 52% of U.S. upstream and gathering methane emissions. The suggested revisions will directly impact operators’ exposure to the upcoming excess methane fee.
• The overall net impact to the U.S. production industry is a slight 5% increase in pneumatic controller volumes based on 2021 reported data and excluding the impact of a new two-tier option involving in-field surveys. Considerable variation exists at the operator and regional level.
• Despite the changes, we continue to believe the impact of the excess methane fee will be minimal on the industry as most operators will get below the threshold before the 2025 implementation date based on 2024 data.