A New Gas Rule That Stinks

Weekly WastebasketA New Gas Rule That StinksShort version: This rule sells out the American taxpayer.

As you know there’s lots going on in Washington. The fiscal year ends this weekend, and lawmakers are scrambling to pass a massive spending bill for the Departments of Defense, Labor, Health and Human Services, and Education as well as a continuing resolution to fund other parts of government they haven’t gotten to. A boatload of new damaging tariffs went into effect. There’s an extension or reauthorization of the Federal Aviation Administration, the Farm Bill expires (not a big deal until the end of the year), not to mention a Supreme Court nomination fight that you might have heard about.

But we keep our eye on everything, so even though you might have missed it, we noticed. Last week the Department of the Interior (DOI) issued a final rule concerning the huge amount of natural gas that’s wasted every year during oil and gas drilling on federal lands, and frankly, it’s awful. Explaining exactly why would take a lot of details – we’ve written about this many, many, many times in the past. Short version: This rule sells out the American taxpayer. In fact, the degree to which it accommodates the oil and gas industry is astounding – it’s almost as if DOI doesn’t have the taxpayer interest in mind. Taxpayers, as a result, will be poorer by the millions.

For some background, it’s worth remembering the problem that required a new rule in the first place:

Methane waste during oil and gas production on federal lands is systemic. During the normal course of drilling down into rock formations under federal lands and establishing a well, a lot of natural gas comes to the surface –which is kind of the point. But instead of capturing it, processing it, selling it, and paying taxpayers royalties on it, operators often simply release it into the atmosphere or burn it off. The circumstances and reasons for not capturing it vary, but they all boil down to one explanation – it’s easier and sometimes cheaper not to.

Systemic Waste

The waste is half the problem. The other half is that oil and gas companies operate under regulations written in 1979, before technologies made oil more accessible. And under those regulations, they haven’t been charged for wasting valuable gas. With no incentive to change practice, the amount of lost gas – and royalties owed to taxpayers, the rightful owners of federal lands all of it comes from – has ballooned as production took off in recent years.

In our April 2018 Gas Giveaways report, we detailed just how much taxpayer-owned natural gas is being wasted by oil and gas companies royalty-free. In 2017 alone, of the 21 billion cubic feet of natural gas lost on federal lands, royalties were collected on just 19 percent. For context, 21 billion cubic feet of gas is enough to supply the residents of ­­Mississippi, or Florida, for an entire YEAR. Something needed to be done to fix the problem. Here’s what transpired:

In November 2016, the Bureau of Land Management (BLM) finalizes a rule to address the problem. It’s pretty good, but not perfect. The new 115th Congress is sworn in and they try to repeal the rule. They fail by one Senate vote (in part due to stiff opposition from a certain taxpayer group…). But Secretary of the Interior Ryan Zinke takes up where Congress left off. The rule is delayed, fought over in court, and then suspended from taking effect. The BLM publishes a proposed rule in February, 2017 to replace the one from 2016.

Which brings us to last week, when the BLM finalized the replacement rule. Its problems start with its premise, which is that the 2016 rule needed to be replaced because it “…contain[ed] numerous administrative and reporting burdens that are unnecessary and likely to constrain development.” By “constrain development,” they mean it leads to less energy production.

Less Energy To Market – By BLM’s Own Admission

Ok, fine, we’re all for “American energy dominance” as the administration touts. But hold on, by the BLM’s own admission, as a result of their replacement rule, LESS energy would actually come to market –  299 billion cubic feet of natural gas less, to be precise. Our response to this in comments on the proposed rule was: “This uncontested fact contradicts the BLM’s stated justification for the proposed rule and throws into question the agency’s seriousness in issuing it.” Which is the nicest way we could say, “bull$#*!”

There are myriad other problems, but two others stand out. The first is that the rule casually adds a definition for “waste of oil or gas” that challenges the basic understanding of the word “waste.” According to the BLM, taxpayer resources are only “wasted” if oil and gas companies can capture it without paying too much. If they can’t, then the rule treats the millions of dollars worth of gas floating into the atmosphere like an embarrassing indiscretion. No one mention it, the oil well probably just had too much refried beans for lunch.

And of course, if it’s not “waste,” then oil and gas companies don’t have to pay us for it. Except it is, and they should.

On the subject of when these operators have to pay for lost gas, the new rule also says that the federal agency managing production of federal resources on federal lands, shouldn’t determine when companies should pay for wasting gas. The states should do that. And with a devil-may-care attitude, the BLM admits in the new rule that they don’t actually expect gas waste to go down as a result of deferring to states.

Assessing the rule altogether, the natural question to ask is, “who actually thinks this is good policy?” Answer: Oil and gas companies. In fact, that nugget about redefining waste seems to come directly from the American Petroleum Institute’s comments to the 2016 rule. At the time, the BLM responded by saying there was “no statutory or jurisprudential basis” for that position. But now the new rule tells us, they are ready and willing to sell out taxpayers.