Oil and Gas Regulatory Push Coming from Obama Administration

Oil and Gas Regulatory Push Coming from Obama Administration
Methane Emissions, Fracking, Arctic Drilling, Rail Tanker Cars All Would Be Subject to New Rules

Amy Harder, The Wall Street Journal
Dec. 29, 2014 4:54 p.m. ET

The Obama administration is planning to release in the coming months a series of regulations on the oil and natural gas industry, a response to the nation’s energy boom that also is aimed at burnishing President Barack Obama ’s environmental legacy in his final two years.

The coming rules—at least nine in total—would include the first-ever federal standards addressing methane emissions, stricter controls on hydraulic fracturing, drilling requirements in the Arctic, new rules governing oil shipped by trains and tougher standards on offshore drilling technology.

The repercussions for the industry could be higher operating costs and fewer incentives to drill on public lands. Mr. Obama and his environmental backers say new regulations are needed to address the impacts of the surge in oil and gas drilling and production.

“The large number of imminent regulations may be a sign that the White House is greening up its oil-and-gas policy,” said Kevin Book, managing director of Clearview Energy Partners, a nonpartisan energy research firm that tracks federal regulations. “Fracking produced numerous regulatory responses at multiple levels, and a lot of the federal rules have been pending for a long time.”

In its first six years, the administration released very few regulations directly affecting the oil-and-gas industry and instead rolled out several significant rules aimed at cutting air pollution from the coal and electric-utility sectors. Some of the coming rules have been in the works for months or even years, and others are required by current laws or court decisions.

The U.S. is now the world’s largest natural-gas producer and is on track to become the biggest oil producer in 2015. Since 2008, U.S. oil production has surged 74% to 8.8 million barrels a day, while natural-gas production climbed 22% to 2.7 trillion cubic feet in September, according to the U.S. Energy Information Administration. Oil and gas production on public lands has declined 16% and 24%, respectively, over the same period, according to EIA data. Several states have enacted regulations in response to the nation’s increased production, but the federal government hasn’t.

“I think it is fair to say that given the changes in technology and the significant changes that we’ve seen in terms of domestic oil-and-gas production, there is a need to keep that regulatory process up-to-date,” said Heather Zichal, an energy consultant who was a top energy and climate adviser in the White House until October 2013.

The White House and energy companies have clashed over proposed fossil-fuel regulations, particularly a rule proposed last spring by the Environmental Protection Agency aimed at cutting carbon emissions from the nation’s power plants. The coming oil-and-gas regulations are likely to intensify that tension.

White House counselor John Podesta said the administration’s plans are part of a continuing effort to move to cleaner sources of power while creating jobs and preserving energy security. “Across the federal government, we’ve taken steps to develop our oil-and-gas resources safely and responsibly, including by partnering with industry and working with states,” he said via email.

One of the most-watched actions is what the EPA does about methane emissions from oil and natural gas drilling operations. The agency is expected to announce in January whether it will expand an existing regulation to further regulate methane indirectly, which is the industry’s preferred option, or begin regulating methane emissions directly, a broader regulatory approach environmental groups are pushing.

Industry executives cite the months long drop in oil prices as an argument against the methane regulations. Greg Guidry, an executive vice president at Shell, said at an event in Washington recently that he doesn’t want EPA to “impose unnecessary costs and burdens on an industry challenged now by a sustained low-price environment.”

The Interior Department, which has jurisdiction over public lands, also is planning to propose a rule in April that would set a standard for how much methane companies can either vent into the atmosphere or flare off when drilling for oil and natural gas, whose main component is methane.

Janet McCabe, the acting assistant administrator for air at EPA, said recently that cutting methane emissions is an important part of the climate agenda Mr. Obama unveiled in June 2013 and that the administration is working to avoid any duplicative regulatory efforts.

“We work closely with our partners at the Interior Department to make sure we’re not walking into situations…where we have inconsistent expectations, duplicative expectations,” said Ms. McCabe, noting that the regulations are being prompted by “an increasing awareness and concern of the role that methane emissions are playing in global climate concerns.”

The Transportation Department is expected to issue a final rule by March requiring tougher standards on oil shipped by rail, including phasing out older railcars within two years.

Thanks to the boom in oil production and lack of pipeline infrastructure, oil shipped by rail has risen from almost nothing in 2005 to more than 400,000 tank cars of crude oil in 2013, according to the Association of American Railroads. Through the first half of this year, shipments rose an additional 11.7%.

The rule, which the department proposed in draft form earlier this year, followed a series of fiery oil-train accidents that began in July 2013 with a derailment and explosion in Lac-Mégantic, Quebec, which killed 47 people. Both the oil and rail industries say they would need more than two years to comply with the rule.

Jack Gerard, president and CEO of the American Petroleum Institute, whose organization is among those calling for more time to comply with the pending rail rule, said the upshot of several of these rules is that Mr. Obama is following through on his pledge to act alone without Congress, a move he opposes.

“There’s this attitude that if the people and the democratically elected institutions don’t agree, we’re going to go it alone,” Mr. Gerard said in an interview. “I think that attitude is permeating some of the regulatory bodies.”

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