Source: https://www.taxpayer.net/energy-natural-resources/comments-to-the-bureau-of-land-management-on-the-2018-methane-waste-rule/
Timestamp: 2019-04-25 20:57:37+00:00

Document:
Proposed section 3179.201 is irresponsible because the BLM fails to set a minimum threshold for gas captured or establish necessary component criteria for the state or tribal regulations to which it is deferring. The BLM requested comment on whether the section achieves the agency’s goal of deferring to state and tribal regulations that “…provide a reasonable assurance to the BLM that operators will not be permitted to engage in the flaring of associated gas without limitation and that the waste of associated gas will be controlled.” TCS asserts that the provision, as written, does not achieve that goal because there is no language in the provision that sets standards for qualifying state and tribal regulations. Without some minimum requirements, it’s impossible for the BLM to have “a reasonable assurance” about any effect of state or tribal regulations.
Deferring to state and tribal authorities to determine when federal gas resources are royalty-bearing, without setting some parameters for when the named authorities should allow for flaring of associated gas, is also entirely inappropriate. The BLM is vested with the authority and obligation to ensure federal resources are developed in the taxpayer interest. State and tribal regulatory authorities do not share that obligation. Deferring to state and tribal regulations to establish what return federal taxpayers get for federal resources, without precondition, is an unjustified abdication of the BLM’s unique responsibility.
The proposed section 3179.201 would also harm federal taxpayers by failing to change the status quo. By the BLM’s admission, the amount of associated gas losses has “increased dramatically” in recent years. The BLM, under the guidance of the NTL-4A, deemed only a fraction of that gas as royalty–bearing. According to ONRR data, only 16.3 percent of all gas lost in 2016 was deemed “avoidably lost” and incurred a royalty. In light of the BLM’s statutory obligation to limit the amount of waste on federal oil and gas leases (see Section I of these comments), the current state of affairs requires the BLM to somehow improve or reform its current practices.
Instead, by deferring to state and tribal regulations already in effect, proposed section 3179.201 does not provide for any reasonable expectation that oil and gas operators will deviate from current practice. Oil and gas operators already comply with state and tribal regulations where they are more stringent than federal requirements. Removing federal standards for when venting and flaring is authorized will therefore not change the incentives operators already have to capture or flare natural gas. If anything, the proposed abdication of authority to state and tribal entities will allow oil and gas operators to operate with less accountability where federal regulations previously set the prevailing standard.
The result of the proposed section 3179.201, including its reversion to NTL-4A guidance where state or tribal regulations do not exist, will be to perpetuate the waste of federal natural gas resources and increase foregone revenues for taxpayers. See the section below on proposed § 3179.4 for further comments.
The NTL-4A has been ineffective at constraining the royalty-free loss of natural gas in large part because of confusion about when lost gas should be considered avoidably lost or unavoidably lost under its guidance. This confusion, particularly surrounding the treatment of gas flared from oil wells, increasingly led operators to submit requests to the BLM to approve flaring to determine its royalty status. The result of this practice was that operators were almost entirely unrestricted in their ability to flare gas royalty-free in every state except New Mexico, where royalties were charged on a fraction of the gas. According to ONRR data, of all reported gas losses from 2007-2016 on federal land outside of New Mexico, only 1.3 percent was deemed avoidable and charged a royalty. Over the same decade, 26.6 percent of losses in New Mexico were deemed avoidable.
In keeping with this determination, the BLM introduced the concept of “excess flared gas” into its definition of avoidably lost gas. As noted above, “excess flared gas” consists of gas that is flared above the applicable capture target and flaring allowable volume, both of which could be calculated on a per lease/unit/communitized area basis, or averaged over a county or state in which an operator is producing oil. The BLM modeled its approach on existing regulations in North Dakota and expressly attempted to ease the burden the capture targets would impose on operators by implementing them over time, outlining exceptions to them, and creating alternative capture requirements for certain cases.
The BLM estimated at the time that the inclusion of “excess flared gas” in the definition of avoidably lost, in conjunction with the established capture targets, would lead to a substantial decrease in flaring from the baseline, and increased royalty collection of $70-$91 million over 10 years.
In the proposed rule, the BLM takes a different approach. For avoidably lost, the proposed rule effectively reverts to the definition provided by the NTL-4A. The definition of unavoidably lost also borrows from the NTL-4A, but the listed operations or sources of gas in proposed subsection 3179.4(b)(2) are carried over from the 2016 rule, with some variations. The proposed rule deviates from the 2016 rule’s definition of unavoidably lost primarily in what it omits.
Elsewhere in the rule, the BLM proposes rescinding sections instituted by the 2016 rule that require operators to replace certain types of equipment with high emissions rates (§ 3179.201, § 3179.202), and fix leaks identified after implementing a leak detection and repair (LDAR) program (§ 3179.301-305). In conjunction with those rescissions, the BLM is proposing to remove parts of the 2016 unavoidably lost definition that pertain to gas lost from the specified equipment, it the operator had otherwise acted responsibly.
More notably, the BLM also proposes to remove the subpart of the 2016 rule’s definition that allowed gas vented or flared from wells not connected to a gas pipeline to be considered unavoidably lost. Without the capture requirements of the 2016 rule, this would have allowed for unmitigated royalty-free venting and flaring from certain wells.
In removing the relevant subpart of the 2016 rule’s unavoidably lost definition, the BLM is demonstrating a tacit intent not to sanction “unrestricted flaring from wells not connected to gas pipelines.” Yet by deferring to state and tribal regulations, without condition, there is no way for the BLM to ensure that such flaring is in fact restricted to a desired extent, or at all. Under the proposed § 3179.201, it would be entirely permissible for state or tribal authorities to authorize flaring from oil wells if operators simply give advance notice. In which case, operators would have no incentive to restrict their flaring.
In proposed § 3179.201, the BLM proposes that where venting and flaring from oil wells is not covered by state or tribal regulations, operators would have to submit a request to the BLM to flare in much the same way as the NTL-4A directed. While the proposed § 3179.4(b)(3) clarifies that all approved flaring would be deemed unavoidably lost, a source of confusion under the NTL-4A, enshrining the system of case-by-case evaluation for venting or flaring is an unjustified reversion to a defunct system. The GAO amply demonstrated in its 2016 report that the BLM’s processing of flaring requests has been inconsistent and unworkable. Deferring to state and tribal regulations would reduce the amount of requests to flare from oil wells. But the inclusion of § 3179.4(b)(3) will likely lead to increased requests to vent or flare from gas wells if operators see an opportunity in the subsection’s inclusivity to avoid paying royalties on certain gas-well losses. Moreover, because gas-well losses are not covered by § 3179.201, the BLM does not specify any requirements, such as the inclusion of justifying engineering and economic data, for foreseeable requests to vent or flare from gas wells.
The BLM is obligated to minimize the waste of public resources on federal lands and ensure taxpayers get a fair return for them. The BLM’s management of oil and gas development on federal lands, and the treatment of lost gas during that development under the NTL-4A, did not satisfy the agency’s obligations. Instead of proposing changes to the regulatory framework of the NTL-4A that would reduce gas waste from oil wells or increase the assessment of royalties on it, the BLM has simply proposed to: redefine “waste” so that the problem doesn’t exist (§ 3179.3); defer to other authorities to deal with it where it persists (§ 3179.201); and, resort to the old basis for royalty determinations (§ 3179.4).
TCS urges the BLM to set minimum expectations for responsible development of oil wells, and issue rules that guarantee operators will meet those expectations, regardless of the state in which they operate. The 2016 rule sought to do that by giving operators a flexible target to hit for capturing emissions. If the BLM continues to believe that structure was “overly complex” or too “prescriptive,” it is incumbent on the agency to develop an approach to minimize unreasonable waste that is less complex and more flexible, rather than abdicate its responsibility outright.
TCS recommends that the BLM withdraw its proposed definition of “waste of oil or gas” and incorporate some new mechanism in its definition of avoidably lost gas that includes gas vented or flared from oil wells beyond necessary or reasonable amounts. Whether the standard of reasonable venting or flaring is constructed through the enumeration of allowable or prohibited practices in specified circumstances, or as quantitative upper bounds for gas losses, we leave to the agency’s discretion. Regardless of its structure, the resulting standard must provide for a reduction in both the amount of natural gas lost on federal lands, and the royalty-free proportion of that gas.
Much of proposed § 3179.301 “measuring and reporting volumes of gas vented and flared” is a holdover from § 3179.9 instituted by the 2016 rule, but with important changes that will harm taxpayers’ interest if finalized. Both the 2016 rule and the proposed rule require operators to estimate or measure all volumes of gas vented or flared, and report those volumes under applicable ONRR reporting requirements. The BLM is soliciting comment on the most efficient and least burdensome means to make appropriate data available to the public. But, the proposed rule does not place a limit on the amount of gas that is allowed to be estimated. Under the 2016 rule, operators are required to measure or calculate total emissions from a gas flare if the operator estimates it has flared more than 50 thousand cubic feet (Mcf) per day, on average, over the previous year or the life of the flare. The proposed rule eliminates this requirement.
The proposed rule also defers to state and tribal regulations to set standards for when and how operators must measure or estimate volumes of lost oil and gas. As noted above, deferring to state or tribal authorities without condition is bad practice that cannot assure the BLM that desired operator behavior is achieved.
TCS recommends the BLM place an upper bound on the volumes of gas operators can report venting or flaring without being required to measure the source of gas losses. Placing restrictions on self-reporting by operators can ensure abuse of the system is kept to a minimum, provide greater accountability for the gas that is lost, and ensure taxpayers receive the royalties they are due from energy production on federal lands.
The proposed rule would not amend the existing §3103.3–1 instituted by the 2016 rule, which governs royalty rates applicable to onshore oil and gas leases. Prior to 2016, the BLM’s regulations set a flat rate of 12.5 percent for both competitive and noncompetitive onshore leases. The updated provision kept the rate at 12.5 for standard noncompetitive leases, but for competitive leases, brought the regulatory language in line with the Mineral Leasing Act for, which states: “A lease shall be conditioned upon the payment of a royalty at a rate of not less than 12.5 percent in amount or value of the production removed or sold from the lease.’’ [emphasis added] (30 U.S.C. 226(b)(1)(A)). That is, the 2016 provision made it possible for the BLM to raise the royalty rate above 12.5 percent for certain leases.
TCS strongly agrees with the BLM’s decision to keep the current royalty rate provision in its proposed rule. The BLM’s previous failures to raise onshore royalty rates, or to amend the regulations to allow further increases of royalty rate above the minimum by administrative action, represented a significant loss to taxpayers for resources developed on federal lands. As BLM has noted, state and private lessors charge royalty rates higher than 12.5 percent. The standard royalty rate for offshore oil and gas leases, meanwhile, was raised to 18.75 percent years ago. By making it clear that the BLM has the flexibility to set rates at or above 12.5 percent, the provision provides the agency with the authority necessary to ensure it can collect equitable royalties from energy production on the federal lands it manages.
 Office of the Inspector General, U.S. Department of Interior, “Inspection Report: BLM and MMS Beneficial Use Deductions,” March 2010.
 BLM, 2016 Final Rule, 81 FR 83020 (Nov. 18, 2016).
 See provisions of the 2016 final rule concerning LDAR (43 CFR 3179.303); storage vessels (3179.203(c)(3)); pneumatic diaphragm pumps (3179.202(f)); pneumatic controllers (3179.201(b)(4)); flaring during well completion and related operations (3179.102(c)); gas capture requirements and alternative capture requirements (3179.7-8); etc.

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