• Natural Gas News

    Editorial: Proportionate regulation [NGW Magazine]


The upstream industry has to expect official scrutiny of its operations, but too little can be as damaging as too much. [NGW Magazine Volume 4 Issue 16]

by: NGW

Posted in:

Premium, Editorial, NGW Magazine Articles

Editorial: Proportionate regulation [NGW Magazine]

On the face of it, Donald Trump’s decision to remove methane emissions from US regulatory scrutiny appears to be striking a blow for common sense. And it is consistent with the US president’s hands-off approach, contrasting with his predecessor’s green agenda. Barack Obama’s crowning glory was the Paris Accord, from which Trump has withdrawn the US.

Imposed by the Obama administration in 2016 and managed by the Environmental Protection Agency, the regulation requires oil and gas companies to install technologies to inspect and repair pipelines and storage facilities that can leak methane. 

The change also means that government cannot regulate methane without first proving that it is a pollutant under the Clean Air Act.

The reporting standards imposed an administrative burden for small producers, already struggling in today’s low-price world. Others have welcomed it as an opportunity to cut emissions and increase sales.

But the risk is that gas will have a harder struggle ahead of it as it strives to retain acceptance as a relevant fuel in a green economy, as it will be seen to be excused from jumping through the usual hoops. And being championed by a man who tends to shoot from the hip rather than give weighty consideration to scientific questions could be a problem for gas producers. His aggressively non-green credentials have made a vocal part of the US despair for the environment and now gas is part of that.

If methane has economic value, not tightening up the valves, maintaining seals and so on is only costing the industry lost sales. So there is a financial incentive – albeit one that has been lost in an apparently endless era of $3/mn Btu Henry Hub gas – as well as environmental gain from minimising leaks.

True, methane emissions are hard to monitor accurately and cheaply, as pipelines snake for hundreds of miles across and under land; and if a law cannot be enforced uniformly it only risks breeding resentment. No doubt some companies would conceal damning data, while others might be too transparent. But now all producers will be tarred with the same brush, in the absence of regulations.

If leaks really are hard to monitor, then maybe the answer is to spend some time developing the technology for this, rather than dropping the idea. As methane is a worse greenhouse gas than carbon dioxide in the short term – and there are different ways to calculate its harmfulness – then it should be the object of official scrutiny. Not to include it is only handing ammunition to the opponents of fossil fuels, who will be able to be even freer with their facts in the absence of official data.

There were similar arguments against lowering the cap on sulphur emissions from shipping, which will come into effect in a four months’ time: some fleet operators, it was said, would slavishly adhere to the cap and adopt expensive mitigation technology or run their ships on different fuels, including LNG; or different engines; while others would burn high-sulphur fuel oil on the open sea, until they came into sight of port. At that point, they would switch over to cleaner fuel to avoid a fine. But there was the fear that some operators would gain commercial advantage from flouting the regulations. Now perhaps the aerial detection of sulphur and sophisticated tracking technology will stop that kind of dodging.

In the UK by contrast regulations are designed to discourage exploration. Cuadrilla is producing a steady and abundant flow of seismic data, but not so much gas. In fact, it wants the downtime it has had to endure for breaching the arbitrary seismicity threshold to be added on to the end of its licence, so that it actually has the time it had expected in order to assess the commercial prospects of shale gas production in Lancashire.

Given that the record tremors in August – the meter recorded a seismic event of 2.9 local magnitude (ML) compared with the regulated limit of 0.5ML – were still far below the level permitted in other countries, and lower than the limit set for other kinds of subsoil activity in the UK such as quarrying and heat pump construction, the review into raising the threshold needs to be speeded up.

If the UK is to reduce its imports of LNG and pipeline gas and so reduce its carbon footprint through domestic production, let alone develop a series of manufacturing and service industries that in a post-Brexit world may be useful at least, then maybe a second’s tremor every now and then is a small price to pay. The fact is, there is no certainty what life will be like if fracking is normal in the UK. But no stable and despatchable source of megawatts comes without some intrusion into the environment.

And there is self-interest to be considered: Cuadrilla will want to avoid the fate of NAM, whose production at Groningen has brought hundreds of billions of guilders into the Dutch treasury over 50 years, but also damaged many buildings. The Shell-Exxon joint venture is now looking at terminating output in 2030 but it is complicated: it might decide that it is not worth producing the trivial amounts the government might allow it, meaning a sale to other operators or early closure some years earlier than that. With this example just across the Channel to contemplate, it would not do Cuadrilla any good to frack recklessly – a truism the government must recognise.