Economic Effects of Environmental Regulations on Finding and Developing Crude Oil in the U.S.
Authors: Godec Michael L. , Biglarbigi Khosrow 
Published: December 2007

A number of legislative and regulatory initiatives being considered toprotect the environment could affect the economics of U.S. oil and gas E and P. This paper summarizes the results of a comprehensive assessment of thepotential cumulative energy and economic impacts of some of these initiativeson U.S. crude oil supplies. The results of the analysis clearly demonstratethat increased environmental regulations on U.S. crude oil E and P cansignificantly affect ultimate crude oil recovery. The extent of regulationsimposed will determine the level of impact, but significant effects could befelt over a wide range of regulations, crude oil prices, and levels ofdevelopment of prices, and levels of development of extractiontechnologies.

Introduction

Not all environmental statutes require the U.S. Environmental Protection Agency (EPA) or other regulatory agencies to consider costs and/or energyeffects when establishing regulations. Even when such analyses are performed, they are often limited in scope; they generally consider only the impactsassociated with a specific regulation and almost always assume no effects fromregulations under other statutes. This paper summarizes the results of anassessment of the potential cumulative energy and economic impacts ofenvironmental initiatives on the U.S. crude oil supplies. This assessmentinvolved a review of selected environmental initiatives under the authority ofthe Resource Conservation and Recovery Act. the Safe Drinking Water Act, the Clean Water Act, and the Clean Air Act. The estimated incremental compliancecosts associated with each initiative were based on the practices likely to berequired to comply with the initiative. From a review of these initiatives, three composite regulatory scenarios were developed, representing low, medium, and high levels of incremental compliance costs. The regulatory initiativesconsidered under each scenario are organized by environmental statute andsummarized in Tables I through 4. The three sets of regulatory initiativesproposed in this analysis do not necessarily proposed in this analysis do notnecessarily represent any set of regulations recommended or supported by the EPA; any other federal or state agency, or any specific association, company, or institution. The scenarios proposed are intended to represent the range ofproposed are intended to represent the range of possible combinations ofregulations, used possible combinations of regulations, used only forestimating the impact of various intiatives on U.S. crude oil supplies. Theestimated unit compliance costs are based on analyses performed by the EPA andthe API. Future production from four categories of U.S. crude oil resources wasevaluated:continued conventional operations in known onshore fields in the Lower 48 states,future infill drilling and waterflood projects in knownonshore fields in the Lower 48 states,future EOR projects in known onshorefields in the Lower 48 states, andonshore and offshore crude oil fieldsremaining to be discovered in the Lower 48 states and Alaska.

For some categories of crude oil resources, analyses were performed assuming two levelsof technology-implemented and advanced-described below for each resourcecategory considered. The reservoir data bases used in the assessment did notrepresent the entire U.S. resource base. Analyses were generally performed on asubset of reservoirs fully performed on a subset of reservoirs fully describedin the data base for each resource category. The results for each subset ofreservoirs were not extrapolated; i.e., the results presented correspond onlyto the effects specific to the reservoirs analyzed. In addition, this analysisconsidered only the impacts on crude oil reserves. Many of these regulationscould also affect the development of U.S. natural gas reserves, but theseeffects were not considered.

Summary of Analytical Approach

After currently proved reserves are produced by conventional (primary andproduced by conventional (primary and secondary) recovery methods, nearlytwo-thirds of the known U.S. oil resource (more than 300 billion bbl) willremain unrecovered (Fig. 1). Nearly 100 billion bbl is displaceable by waterbut left in the reservoir at the end of conventional recovery operationsbecause it has not been contacted by existing wells or swept by ongoingwaterfloods. Another 242 billion bbl is not displaceable by water; the recoveryof a portion of this resource depends on the application of tertiary recoveryprocesses. Although not all of this remaining resource in place could ever berecovered, it represents a substantial target for future advanced recoveryoperations. Analysis of the production potential of the known (alreadydiscovered) oil resource relies on the Tertiary Oil Recovery Information System(TORIS) developed by the Natl. Petroleum Council and maintained at the Petroleum Council and maintained at the U.S. DOE Bartlesville Project Office.

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