On November 15, 2016, the U.S. Interior Department announced the Methane and Waste Prevention Rule – a final rule intended to reduce venting, flaring and leaks of natural gas form oil and gas operations on federal and Indian lands. In response, a lawsuit challenging the rule was immediately filed in federal district court in Wyoming.

The rule, which will be phased in over time, requires oil and gas producers to use currently available technologies and processes to cut flaring in half at oil wells on federal and Indian lands.  The rule also requires operators to periodically inspect operations for leaks and replace outdated equipment that vents large quantities of gas into the air. Other parts of the rule require operators to limit venting form storage tanks and to use best practices to limit gas losses when removing liquids from wells.

The rule is among the last efforts by the Obama Administration to curb greenhouse gas emissions as part of the president’s Climate Action Plan.  According to a fact sheet published by the Interior Department, domestic production from almost 100,000 federal onshore oil and gas wells accounts for 5% of the nation’s oil supply and 11% of its natural gas.  According to the fact sheet, between 2009 and 2015 oil and gas producers on public and Indian lands vented, flared and leaked approximately 262 billion cubic feet (Bcf) of natural gas.  The Interior Department estimates that the rule will save up to 41 Bcf of natural gas per year.

Among other requirements, the rule provides for:

  • Capture targets phase in from 2018-2026 from 85% to 98% of associated gas produced from development oil wells (these target do not apply to exploratory wells or well testing);
  • Capture targets do not apply to “flaring allowable” volumes, which phase down from 2018-2025 from 5,400 Mcf/per well to 750 Mcf/per well on average across operations in a state;
  • Capture targets can be met lease-by-lease or through averaging state-wide across all of an operator’s operations on federal and Indian land leases;
  • Excess flaring beyond the capture targets would require royalty payments and could subject operators to enforcement;
  • Before drilling a development oil well, operators would need to evaluate opportunities for gas capture and prepare a waste minimization plan to be submitted with an Application for Permit to Drill;
  • Operators will be required to use instrument-based leak detection program, such as infrared cameras, to find and repair leaks;
  • Operators must conduct inspections semi-annually for all sites except compressor stations, which must be inspected quarterly;
  • Except in narrowly specified cases, operators may not vent natural gas. Exceptions include emergencies and venting from certain equipment subject to limits;
  • Within one year, operators must captyre or flare gas from storage tanks that vent more than 6 tons of volatile organic compounds per year;
  • An operator may be exempted from the rule by demonstrating that its requirements would impose such costs as to cause the operator to cease production and abandon significant quantities of recoverable reserves; and
  • The Bureau of Land Management, a subdivision of the Interior Department, may grant a variance if a State or Tribal rule will perform at least as well as the provisions of the rule.

In response to the rule, a lawsuit was immediately filed by the Colorado-based Western Energy Alliance and the Independent Petroleum Association of America seeking to halt the rule. Similar to challenges to other Obama Administration greenhouse gas rules, the suit claims the rule exceeds the Interior Department’s authority and unnecessarily duplicates similar rules issued by the U.S. Environmental Protection Agency and states such as Colorado, which issued rules in 2014 requiring companies to look for and repair gas leaks in oil and gas operations.

Given that President-elect Trump has pledged to undo environmental regulations that are overly burdensome to industry, the ultimate fate of the rule remains in question. Once in office, President Trump could direct EPA to rescind the rule via a new rulemaking or refuse to appeal in case the rule is struck down by the federal district court. A similar Obama Administration rule imposing requirements on hydraulic fracturing operations on federal and Indian lands has been challenged in federal court. Earlier this year, a federal district judge in Wyoming struck down that rule concluding that it exceeds the Interior Department’s authority.  That decision is currently under appeal.