August 5, 2011 • Current Events, Energy Efficiency, Energy Generation, Natural Gas, Sustainability

The Summer of Policy – Oil and Natural Gas Air Pollution Standards

by Eric Bickel

Welcome back to the “Summer of Policy” series! In the first post we discussed CSAPR, and its potential impact on you and me. This time around, we’ll talk about ONGAP…and…its potential impact on you and me.

This one’s actually pretty new from the EPA. It is a ruling which looks to limit the amount of methane released in the process of hydraulic fracturing (see here for more on that), and is expected to be finalized by February 28, 2012. According to the fact sheet for the ruling, the regulation will save the industry some $30 million as producers will be able to capture the rogue methane emissions, and then sell them into the market.

The reason why this ruling is aimed solely at wells using hydrofracking technologies is simply because fracking is the hot topic right now in the world of oil and gas production.

Fracking is essential for shale gas resources to be financially viable, as it gives the ability to cover vast areas of space to get larger economies of scale. This is done by producers using horizontal rigs to go vertically lower into the shale formation, and then turn at a 90° angle into the shale (kind of like an elbow). Therefore, as shale gas and oil drilling increases, so too does fracking and horizontal gas rig counts.

To illustrate this growth, the figure below shows the total horizontal rig count in the US versus the total non-horizontal rig count. Horizontal rigs have been going crazy since 2009, with no sign of slowing. This is why this particular legislation is aimed at wells using fracking techniques: the EPA is looking to curb the growth of methane emissions by incentivizing the fastest growing population of emitters to capture methane and re-sell it.

Without a final ruling, or clarity of its future impacts, it would be rash to predict how or if this will impact the natural gas market. Without a finalized rule we can make a billion scenarios both ways, but in reality, we just have to wait and see.

“But…What does this mean for me?”

If ONGAP comes into play, and profit from the methane captured does not offset the increased cost to capture, then shale plays become less profitable. This would raise the price of natural gas, and in combination with CSAPR could provide a higher-cost for electricity.

If ONGAP comes goes into play and the methane captured more than offsets the cost to capture, then we could see even more growth in production from shale. But to reiterate, the unknowns here are crucial, ultimately meaning the impact from ONGAP on the individual is in the “wait-and-see” phase for now.

Industry Reaction

This one is getting a little ping-back from the producers, as they mostly believe that the industry is already pretty well regulated. However, the original talk on the town was pretty light as the ruling itself was over 600 pages long. Give this bad boy a few more weeks so the industry can really come to terms with what it means, and we should start to see some feathers get ruffled pretty quickly.

In the final part of this series, we’ll take a look at the new fuel economy standards goal released from the Obama administration. This one is of the utmost relevance, as everyone hates their current gas mileage anyways.

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