Ep 1: Understanding EPA's Methane Rule

Adam
Welcome to the inaugural episode of our podcast, Fueling Conversation. I'm Adam Ragsdale, Manager of Creative Solutions for Flogistix, and today I am joined by Kristen Hinke, Vice President of Sustainability and Public Policy for Flogistix. Welcome, Kristen.

Kristin
Thank you, Adam. Happy to be here.

Adam
So, Kristen, can you tell our listeners a little bit about your team and what their duties are here at Flogistix?

Kristin
‍Sure. So, my team handles projects for our company ranging from government affairs to community relations to corporate communications to sustainability reporting. We produce our employee newsletter as well as our annual sustainability report. And we touch just about every department of the company. Okay, so in the public policy arena, what has been the top issue your team has been monitoring?

Well, just like about everybody else in the oil and gas industry, we've been watching the development of EPA's methane rule since it was first introduced in November of 2021. We've been spending a lot of time reading the documents, participating in industry calls where the specifics of the rule have been discussed.
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So we can understand how these regulatory changes are going to affect our customers and how we can help them address these regulations within their own companies.
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Adam
In a nutshell, can you tell us what the rule pertains to?

Kristin
‍There have been three separate changes that have been proposed under the Clean Air Act.

The first action is what is known as the OOOOb and it would regulate emissions in new sources or those modified or reconstructed after December 6th of 2022. It would outlaw flaring for new oil wells, and it also calls for zero emission standards for pneumatic controllers. This rule goes into effect 60 days after the rule is published in the Federal Register.

The section of the rule known as OOOOc focuses on legacy wells, which are older wells that were constructed prior to December 6th of 2022. These facilities will be regulated by emissions guidelines established by the individual states. So, if you are, say, in Colorado or New Mexico, Those states have been very proactive in developing rules governing emissions, so customers there already know what is expected of them.

If you are in a state like Oklahoma or Texas, local regulators will have two years to develop a plan, or they can adopt the plan recommended by the EPA for managing these older wells. The third piece of this puzzle is known as Appendix K, and it establishes a protocol for detecting methane leaks both at the well site and in the midstream sector using a thermal infrared camera.

EPA will now require the use of Optical Gas Imaging, or OGI, and there will be requirements that apply to the performance of the camera, the training the camera operator is expected to have, and the record keeping that must accompany these detection surveys.  You might have heard some discussion about a methane tax, and that's another initiative pushed by the Biden administration, except it's part of the Inflation Reduction Act that was passed by Congress in August of 2022.

And it is not part of EPA's methane rule. This Act amended the Clean Air Act by adding a section that establishes the Methane Emissions Reduction Program, or MERP. Among other things, the MERP establishes a charge on methane emissions from specific types of facilities that are currently required to report their greenhouse gas emissions to EPA's Greenhouse Gas Emissions Reporting Program.

This is known as the Waste Emissions Charge, or the WEC.
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‍Adam
Wow, that's a lot of information to unpack. Since methane is the focus here at Flogistix, how are we addressing all of these changes?

Kristin
‍Well, our sales team has been reaching out for months to our customers to discuss the implications of this rule on each one of them.

Every operator's situation is different, and we have been evaluating their concerns and discussing solutions we could provide, not only through vapor recovery, but also through our methane detection program. Our sales team knows and understands the process of capturing vapors in all situations, and they have been using their expert knowledge to help us, as a company, develop solutions we can offer to our customers.

The engineering team has been using this feedback to really look at problems in a different way and think outside the box to provide solutions to our customers. And the folks in manufacturing have been taking these new plans and making it all happen. It's really been a whole team effort.

Adam
Would you say there is one group of customers that you believe will be particularly affected by this rule?
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Kristin
‍Well, yes, we at Flogistix and the industry as a whole are extremely concerned about how the marginal well producers are going to be able to meet the regulatory requirements of this rule.
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Adam
So what classifies as a marginal well?

Kristin
‍So a marginal well is a well that produces 15 barrels of oil or less a day and 90 mcf of gas.

There are 750, 000 marginal wells in the United States. These wells are extremely different from larger wells. They don't operate continuously, especially as their production declines. They are connected to timers and many only operate a few days a week, some only one day a week. As a team, we've been brainstorming on how to help these producers comply with the new regulations and remain in business.

AdamCan you explain what specifically will be required of the producers who have these older wells?

Kristin
Well, for pre existing wells with documented methane emissions of 40 tons per year or less, flaring will be permitted provided the gas is routed to a flare or control device that achieves a 95 percent reduction in methane.

However, for those with emissions of more than 40 tons, flaring will be prohibited unless the operator can show why it is technically infeasible for the emissions to be captured and routed to a sales line or used as an on site fuel source.  This is a big change in industry practice. These emissions have been exempted in the past because the amount is so small.

Keep in mind the impact of this standard will touch every basin in the United States. Industry experts are estimating that 300, 000 of the nation's 750, 000 low production wells could be shut down because they only produce one barrel a day. So complying with these rules is uneconomic.

Adam
Wow, that's a big number.

How would that affect the industry?

Kristin
Well, in the big picture, these wells are not a substantial percentage of production. However, the majority of the marginal well producers are small businesses. Many are family owned, and they are based in small towns all over the oil patch. Plugging these wells could have long term implications for small town America.

People will lose their jobs, tax revenues will fall, and small communities will suffer.

Adam
Okay, so I know the industry has been engaged from the start. What has been done to try and address these concerns with EPA?

Kristin
Well, to begin with, more than a million comments were submitted on the proposed rule. Now, keep in mind, not all of these comments came from the oil and gas industry, but many did.

There were also numerous virtual public meetings where individuals, companies, trade groups, and non profits had the opportunity to voice concerns, objections, and ideas related to the proposed rule. My team has spent many hours listening to these meetings and webinars, gathering as much information as we could about how the rule is being interpreted by not only the small, marginal producer, but also the larger independents and the supermajors.

Each one has its own take on the proposal and how it would affect not only their company, but the industry as a whole. It was also interesting to hear the feedback from opponents of our industry and to hear not only their concerns and fears, but also the misinformation that has been spread about emissions in the oil and gas industry in the United States.

That's been a frustrating part of the process. There's been a lot of misinformation out there.

Adam
So how can our listeners keep up with what Flogistix is doing in regards to these regulatory changes?

Kristin
The best way is to follow us on social media. We're on LinkedIn, Facebook, Instagram, and we're also posting updates on our blog at Flogistix. com.

Adam
Thank you, Kristin.

Kristin
You're welcome.

Adam
Well, that wraps up our first episode here on Fueling Conversation. Thank you for tuning in as Flogistix Vice President of Sustainability and Public Policy, Kristen Hinke, walked us through the OOOOb section of the new methane rule here in the US. What to expect next and how to stay proactive in our ever changing environment here in the oil, gas, and energy industry, especially if you're one of our marginal well producers.

As Kristen mentioned, follow along with us on all social media at Flogistix or visit our website. Stay tuned for more insights from Flogistix on future episodes of Fueling Conversation. I'll see you next time.