Federal Oil and Gas Leases: Opportunities Exist to Capture Vented and Flared Natural Gas, Which Would Increase Royalty Payments and Reduce Greenhouse Gases
Released: 2010-11-29T00:00:00

Letter

Background

The Mineral Leasing Act of 1920 charges Interior with overseeing oil and gas leasing on federal lands and private lands where the federal government has retained mineral rights covering about 700 million onshore acres. Offshore, the Outer Continental Shelf Lands Act, as amended, gives Interior the responsibility for leasing and managing approximately 1.76 billion acres. BLM and BOEMRE are responsible for issuing permits for oil and gas drilling; establishing guidelines for measuring oil and gas production; conducting production inspections; and generally providing oversight for ensuring that oil and gas companies comply with applicable laws, regulations, and department policies. This oversight includes the authority to ensure that firms produce oil and gas in a manner that minimizes any waste of these resources. Together, BLM and BOEMRE are responsible for oversight of oil and gas operations on more than 28,000 producible leases.

Interior’s MRM program, which is managed under BOEMRE, is charged with ensuring that the federal government receives royalties from the operators that produce oil and gas from both onshore and offshore federal leases. MRM is responsible for collecting royalties on all of the oil and gas produced, with some allowances for gas lost during production. Companies pay royalties to MRM based on a percentage of the cash value of the oil and gas produced and sold. Currently, royalty rates for onshore leases are generally 12.5 percent, while rates for offshore leases range from 12.5 percent to 18.75 percent.

The production of oil and gas on these federal leases involves several stages, including the initial drilling of the well; clearing out liquid and mud from the wellbore; production of oil and gas from the well; separation of oil, gas, and other liquids; transfer of oil and gas to storage tanks; and distribution to central processing facilities. Throughout this process, operators typically vent or flare some natural gas, often intermittently in response to maintenance needs or equipment failures. This intermittent venting may take place when operators purge water or hydrocarbon liquids that collect in well bores (liquid unloading) to maintain proper well function or when they expel liquids and mud with pressurized natural gas after drilling during the well completion process. BLM and BOEMRE permit operators of wells to release routine amounts of gas during the course of production without notifying them or incurring royalties on this gas. In addition, production equipment often emits gas to maintain proper internal pressure, or in some cases, the release of pressurized gas itself is the power source for the equipment, particularly in remote areas that are not linked to an electrical grid. This “operational” venting may include the continuous releases of gas from pneumatic devices––valves that control gas flows, levels, temperatures, and pressures in the equipment and rely on pressurized gas for operation––as well as leaks, or “fugitive” emissions. It also includes natural gas that vaporizes from oi condensate storage tanks or during the normal operation of natur al gas l or dehydration equipment. Until recently, the industry considered these operational losses to be small, but recent infrared camera technology ha shed new light on these sources of vented gas, particularly from condensate storage tanks. According to oil and gas industry representatives, the cameras helped reveal that losses from storage tanks and fugitive emissions were much higher than they originally thought ( to video). In addition, recent calculations from EPA suggest that emissions from completions and liquid unloading make larger contributions to lost gas than previously thought possible. Operators can use a number of techniques to estimate emissions based on gas and oil characteristics and well operating conditions, such as temperature and pressure, without taking direct measurements of escaping gas.

While venting and flaring of natural gas is often a necessary part of production, the lost gas has both economic and environmental implications. On federal oil and gas leases, natural gas that is vented or flared during production, instead of captured for sale, represents a loss of royalty revenue for the federal government. Venting and flaring natural gas also adds to greenhouse gases in the atmosphere. In general, flaring emits CO, while venting releases methane, both of which the scientific community agrees are contributing to global warming. Methane is considered particularly harmful in this respect, as it is roughly 25 times more potent by weight than CO Other hydrocarbons and compounds in vented and flared gas can also harm air quality by increasing ground-level ozone levels and contributing to regional haze. Volatile organic compounds, present in vented gas, are contributors to elevated ozone and haze, and ozone is a known carcinogen, according to EPA analysis. In some areas in the western United States, the oil and gas industry is a major source of volatile organic compounds. According to EPA, in many western states, including in many rural areas where there is substantial oil and gas production and limited population, there have been increases in ozone levels, often exceeding federal air quality limits. Interior is required to conduct environmental impact assessments in advance of oil and gas leasing and generally works with state environmental and air quality agencies to ensure that oil and gas producers will comply with environmental laws such as the Clean Air Act or Clean Water Act and the related implementing regulations. However, the state agencies may be charged with maintaining the standards established by the federal government in law and regulation, and often have primary responsibility in this regard.

While much of the natural gas that is vented and flared is considered to be unavoidably lost, certain technologies and practices can be applied throughout the production process to capture some of this gas according to the oil and gas industry and EPA. The technologies’ technical and economic feasibility varies and sometimes depends on the characteristics of the production site. For example, some technologies require a substantial amount of electricity, which may be less feasible for remote production sites that are not on the electrical grid. However, certain technologies are generally considered technically and economically feasible at particular production stages, including the following: Drilling: Using “reduced emission” completion equipment when cleaning out a well before production, which separates mud and debris to capture gas or condensate that might otherwise be vented or flared.

Production: Installing a plunger lift system to facilitate liquid unloading.

Plunger-lift systems drop a plunger to the bottom of the well, and when the built-up gas pressure pushes the plunger to the surface, liquids come with it. Most of the accompanying gas goes into the gas line rather than being vented. Computerized timers adjust when the plunger is dropped according to the rate at which liquid collects in the well, further decreasing venting.

Storage: Installing vapor recovery units that capture gas vapor from oil or condensate storage tanks and send it into the pipeline.

Dehydration: Optimizing the circulation rate of the glycol and adding a flash tank separator that reduces the amount of gas that is vented into the atmosphere.

Pneumatic devices: Replacing pneumatic devices at all stages of production that release, or “bleed,” gas at a high rate (high-bleed pneumatics) with devices that bleed gas at a lower rate (low-bleed pneumatics).

In 2004, we reported that information on the extent to which venting and flaring occurs was limited. Although BLM and BOEMRE require operators to report data on venting and flaring on a monthly basis, our 2004 report found that these data did not distinguish between gas that is vented and gas that is flared, making it difficult to accurately identify the extent to which each occurs. In implementing our recommendations for offshore operators, BOEMRE now requires operators to report venting and flaring separately and to install meters to measure this gas on larger platforms. The Energy Information Administration (EIA) also collects data from oil and gas producing states on venting and flaring, but our 2004 work found that EIA did not consider these state-reported data to be consistent and, according to discussions with EIA officials, these data have not improved.

Available Estimates of Vented and Flared Natural Gas Vary, but Volumes Reported to OGOR Are Likely Underestimated because They Do Not Include Some Sources

Available estimates of vented and flared natural gas on federal leases vary considerably, and we found that estimates based on data from MRM’s OGOR data system likely underestimate these volumes because they include fewer sources of emissions than other estimates, including EPA’s and WRAP’s. For onshore federal leases, operators reported to OGOR that about 0.13 percent of the natural gas produced was vented and flared, while EPA estimates showed the volume to be about 4.2 percent, and estimates based on WRAP data showed it to be as high as 5 percent. Similarly, for offshore federal leases, operators reported to OGOR that 0.5 percent of the natural gas produced was vented and flared, while data in BOEMRE’s GOADS system––a database that focuses on the impacts of offshore oil and gas exploration, development, and production on air quality in the Gulf of Mexico region––showed that volume to be about 1.4 percent, and estimates from EPA showed it to be about 2.3 percent.

Onshore leases. Onshore leases showed the largest variation between OGOR data and others’ estimates of natural gas venting and flaring. Operators reported to MRM’s OGOR system that about 0.13 percent of the natural gas produced on onshore federal leases was vented or flared each year between 2006 and 2008. BLM uses guidance from 1980, which sets limits on the amount of natural gas that may be vented and flared on onshore leases, requires operators to report vented and flared gas to OGOR, and in some cases to seek permission before releasing gas. Although the guidance states that onshore operators must report all volumes of lost gas to OGOR, it does not enumerate the sources that should be reported or specify how they should be estimated. Staff from BLM told us that the reported volumes were from intermittent events like completions, liquid unloading, or necessary releases after equipment failures; however, operators did not report operational sources such as venting from oil storage tanks, pneumatic valves, or glycol dehydrators. In general, BLM staff said that they thought that vented and flared gas did not represent a significant loss of gas on federal leases. In addition, we found a lack of consistency across BLM field offices regarding their understanding of which intermittent volumes of lost gas should to be reported to OGOR. For example, staff from some of the offices said that they thought that intermittent vented and flared gas was not to be reported if operators had advance permission or where volumes were under BLM’s permissible limits, while others said that they thought that operators still needed to report this gas. Our discussions with operators reflected this lack of consistency from BLM field office staff. Operators we spoke with said that they generally did not report operational sources, and in some cases did not report intermittent sources as long as they were under BLM’s permissible limits for venting and flaring.

In contrast, EPA’s estimate of venting and flaring was approximately 4.2 percent of gas production on onshore federal leases for the same period and consistently included both intermittent and operational sources. EPA estimated these emissions using data on average nationwide oil and gas production equipment and their associated emissions (see table 1). As noted earlier, venting from operational sources had not previously been seen as a significant contributor to lost gas. With these additional sources, EPA’s estimates are around 30 times higher than the volumes operators reported to OGOR. According to EPA’s estimates, the amount of natural gas vented and flared on onshore leases totaled around 126 billion cubic feet (Bcf) of gas in 2008. This amount is roughly equivalent to the natural gas needed to heat about 1.7 million homes during a year, according to our calculations. See figure 2 for a comparison between EPA’s estimated gas emissions and the volumes reported to OGOR as a percentage of gas production on federal onshore leases.

Similarly, analysis of WRAP data for five production basins in the mountain west in 2006 indicated as much as 5 percent of the total natural gas produced on federal leases was vented and flared. WRAP based its estimates, in part, on a survey of the types of equipment operators were using, and provided a detailed list of sources to be reported. WRAP’s data included similar sources as EPA’s data, as well as estimates of emissions from fugitive sources like leaking seals and valves. Although estimates based on WRAP data varied from basin to basin—between 0.3 and 5 percent—they were consistently much higher than the volumes operators reported to OGOR. The average vented and flared gas as a percentage of production was 2.2 percent across the five basins. See table 2 for a list of the key sources in one of the five basins.

In figure 3, which compares estimates based on WRAP data with the volumes operators reported to OGOR for 2006, for the Uinta basin, the WRAP estimate was about 20 times higher than the volumes reported to OGOR, and for two other basins (i.e., Denver-Julesburg and N. San Juan) no volumes of vented and flared gas were reported to OGOR.

Offshore leases. Offshore leases showed less variation between OGOR data and others’ estimates of natural gas venting and flaring than onshore leases, but the volumes that operators reported to MRM’s OGOR were still much lower than the volumes they reported to BOEMRE’s GOADS system and estimates from EPA. Operators reported to OGOR that between 0.3 and 0.5 percent of the natural gas produced on offshore leases was vented and flared each year from 2006 to 2008; however, they reported to GOADS that they vented and flared about 1.4 percent—about 32 Bcf––of the natural gas produced on federal leases in the Gulf of Mexico in 2008. Although regulations require offshore operators to report all sources of lost gas to OGOR, BOEMRE officials said that that this did not include fugitive emissions. Furthermore, these officials also said that operators likely reported volumes from some operational sources as “lease-use” gas instead of including it in the venting and flaring data, thus contributing to the differences between OGOR and GOADS. GOADS data included sources similar to those included in EPA’s and WRAP’s data for onshore production, including the same operational sources. Further, guidance to operators for reporting to GOADS explicitly outlines the sources to be reported and how they should be estimated, while guidance for OGOR does not. Table 3 outlines the emission sources for volumes operators reported to the GOADS system for 2008. In addition, EPA’s offshore estimates showed that around 2.3 percent of gas produced on offshore federal leases––as much as 50 Bcf––was vented and flared every year from 2006 to 2008. According to our analysis of EPA’s work, additional venting from natural gas compressors, used to maintain proper pressure in production equipment, accounted for the majority of the difference between the offshore EPA and GOADS volumes.

On several occasions BOEMRE has made comparisons between data on vented and flared volumes in the OGOR and GOADS systems, according to BOEMRE officials. In 2004, BOEMRE compared data from the 2000 GOADS study with data from OGOR for a subset of offshore leases and found reported vented and flared volumes were not always in agreement— attributing this difference to different operator interpretations of GOADS and OGOR reporting requirements. BOEMRE officials said they revised reporting procedures for the 2005 GOADS study. More recently, BOEMRE made similar comparisons between data from the 2008 GOADS study and OGOR data for a subset of leases and found they were in closer agreement. BOEMRE officials told us they will continue to make such comparisons to try to ensure the accuracy of the data in each system. In reporting volumes of vented and flared gas to both systems, operators can choose from a broad array of software packages, models, and equations to estimate emissions, and these techniques can yield widely varied results. For example, one study found that various estimation techniques to determine emissions from oil storage tanks either consistently underestimated or overestimated vented volumes. OGOR reporting instructions for both onshore and offshore operators, as noted, do not specify how operators should estimate these volumes.

As part of our review, we analyzed 2008 OGOR and GOADS data for the Gulf of Mexico and found that the OGOR data likely underestimated the volumes of vented and flared natural gas on federal offshore leases. To do this analysis, we compared 2008 data from GOADS’s vent and flare source categories with OGOR data for the same categories—looking at these source categories allowed us to directly compare the two data systems. In doing this analysis, we accounted for OGOR’s exclusion of fugitive emissions and the reporting of sources, like pneumatic valves, as lease-use gas. Our analysis found that the volumes operators reported to OGOR–– about 12 Bcf––were much lower than the volumes operators reported to GOADS—about 18 Bcf. Neither we nor MRM and BOEMRE officials could account for or explain these differences in the two data systems. BOEMRE officials said that they are still working to improve reporting to OGOR and GOADS and expect these two data systems to converge in the future.

To improve reported data, BOEMRE recently released a final rule, in response to the recommendations in our 2004 report, that requires operators on larger offshore platforms to route vented and flared gas from a variety of sources through a meter to allow for more accurate measurement, among other things. BOEMRE officials said that these meters would help to improve the accuracy of data reported to both OGOR and GOADS. However, BOEMRE officials said they have had to address questions from some operators who were not sure which sources of vented gas should be routed through the newly required meters. In this regard, these officials said it may be useful to enumerate the required emission sources for reporting to OGOR in future guidance to offshore operators. They also noted that BOEMRE is planning a workshop in October 2011 to stress to operators the need for accurate reporting on their submissions to both GOADS and OGOR systems. In a similar way, EPA has taken action to improve the reporting of emissions from the oil and natural gas industry. EPA recently proposed a greenhouse gas reporting rule that would require oil and gas producers emitting over 25,000 metric tons of carbon dioxide equivalent to submit detailed data on vented and flared gas volumes to allow EPA to better understand the contribution of venting and flaring to national greenhouse gas emissions. For onshore leases, the proposed EPA rule provides details on the specific sources of vented and flared gas to be measured and proposes standardized methods for estimating volumes of greenhouse gas emissions where direct measurements are not possible. For offshore leases, operators would use the GOADS system to report venting and flaring. Data collection would begin in 2011 if the rule becomes finalized in 2010.

Available Technologies Could Reduce About 40 Percent of Natural Gas Estimated to Be Lost to Venting and Flaring on Onshore Federal Leases, Potentially Increasing Federal Royalty Payments and Reducing Greenhouse Gas Emissions

Data from EPA, supported by information obtained from technology vendors and our analysis of WRAP data, suggest that about 40 percent of natural gas estimated to be vented and flared on federal onshore leases could be economically captured with currently available control technologies, although some barriers to their increased use exist. Such captures could increase federal royalty payments and reduce greenhouse gas emissions.

Available Technologies Could Reduce Venting and Flaring on Onshore Federal Leases, but According to EPA Officials and Technology Vendors, Some Barriers Exist

Available technologies could reduce venting and flaring at many stages of the production process. However, there are some barriers to implementing these technologies.

Available Technologies Could Reduce Venting and Flaring on Onshore Federal Leases

EPA analysis and our analysis of WRAP data identified opportunities for expanded use of technologies to reduce venting and flaring. Specifically: EPA’s 2008 analysis, the most recent data available, indicates that the increased use of available technologies, including technologies that capture emissions from sources such as well completions, liquid unloading, or venting from pneumatic devices, could have captured about 40 percent––around 50 Bcf––of the natural gas EPA estimated was lost from onshore federal leases nationwide. nd significant opportunities to add “smart” automation to existing plunger lifts, which tune plunger lifts to maximum efficiency and, in turn, minimize the amount of gas lost to venting. EPA estimated that using this technology where economically feasible could have resulted in the capture of more than 7 Bcf of vented and flared natural gas on federal leases in 2008––around 6 percent of the total volume estimated by EPA to be vented and flared on onshore federal leases. Similarly, EPA estimated that additional wells on onshore federal leases could have incorporated reduced emission completion technologies in 2008, which could have captured an additional 14.7 Bcf of vented and flared natural gas. Table 4 outlines EPA’s estimates of potential reductions in venting and flaring on onshore federal leases.

Reductions in Natural Gas Lost to Venting and Flaring Could Increase Federal Royalty Payments and Reduce Greenhouse Gas Emissions

Reductions in natural gas lost to venting and flaring from federal leases would increase the volume of natural gas produced and sold, thereby potentially increasing federal royalty payments. If, for instance, a total of 126 Bcf of natural gas was lost to venting and flaring on onshore federal leases in 2008, as EPA has estimated, that loss would equal approximately $58 million in federal royalty payments. If, as EPA estimates, 40 percent of this lost gas could have been economically captured and sold, federal royalty payments could increase by approximately $23 million annually, which represents about 1.8 percent of annual federal royalty payments on natural gas.

Reducing natural gas lost to venting and flaring from federal leases could also reduce greenhouse gases to the atmosphere according to our calculations. Because methane is about 25 times more potent as a greenhouse gas over a 100-year period, and almost 72 times more potent over a 20-year period according to the Intergovernmental Panel on Climate Change, reducing direct venting of natural gas to the atmosphere has a significantly greater positive effect, in terms of global warming potential, than does reducing flaring. Again using EPA’s estimates, if a total of 98 Bcf of natural gas was vented and 28 Bcf was flared annually, those releases would account for about 41 million metric tons of carbon dioxide equivalent released to the atmosphere, which would be roughly equivalent to the emissions of almost 8 million passenger vehicles or about 10 average-sized coal-fired power plants. Capturing 40 percent of this volume would result in emissions reductions of about 50 Bcf, which is equivalent to the emissions of 3.1 million passenger vehicles or about 4 average-sized coal-fired power plants, according to our analysis.

Some EPA officials also told us that they believed that federal efforts to reduce venting and flaring could also have a spillover effect––that is, it could lead operators to use these technologies on state and private leases as well. Data from EPA and WRAP included vented and flared gas from nonfederal leases, and the data showed that there were similar percentages of gas being lost, suggesting that the potential greenhouse gas reductions from the expanded use of these technologies could go well beyond those from federal oil and gas production.

We did not find complete quantitative data on reduction opportunities offshore from Interior, EPA, or others that could be used to fully identify the potential to reduce emissions offshore. However, EPA officials told us that opportunities for reducing emissions from venting and flaring from offshore production platforms likely exist. For instance, EPA found that various production components, including valves and compressor seals, contribute significant volumes of fugitive emissions, but that these emissions could be mitigated through equipment repair or retrofitting. One estimate based on EPA analysis of 15 offshore platforms in 2008, suggests that most of the gas lost through compressor seals could be recovered economically—saving about 70 percent of the overall gas they estimated to be lost on those platforms. However, EPA’s analysis warns that some mitigation strategies may be less cost-effective in the offshore environment because capital costs and installation costs tend to be higher.

Interior’s Oversight Does Not Ensure That Operators Minimize Venting and Flaring on Federal Leases, While a Voluntary EPA Program Has Reduced Vented Gas According to EPA and Industry Participants

Interior is responsible for ensuring that operators minimize natural gas venting and flaring on federal onshore and offshore leases; however, while both BLM and BOEMRE have taken steps to minimize venting and flaring on federal leases, their oversight of such leases has several limitations. Although EPA does not have a direct regulatory role with respect to managing federal oil and gas leases, its Natural Gas STAR program has helped to reduce vented gas on federal leases according to EPA and industry participants.

BLM and BOEMRE Have Taken Steps to Minimize Venting and Flaring on Federal Leases, but Their Oversight Has Several Limitations

As part of their oversight responsibilities, Interior’s BLM and BOEMRE are charged with minimizing the waste of federal resources, and, to that end, both agencies have issued regulations and guidance that limit venting and flaring of gas during routine procedures such as liquid unloading and well completions. However, their oversight has several limitations, namely (1) the regulations and guidance do not address new capture technologies or all sources of lost gas; (2) the agencies do not assess options for reducing venting and flaring in advance of oil and gas production for purposes other than addressing air quality; and (3) the agencies have not developed or do not use information regarding available technologies that could reduce venting and flaring.

Regulations and Guidance Limit Venting and Flaring, but Do Not Address Newer Technologies or All Sources of Lost Gas

Onshore leases. BLM’s guidance limits venting and flaring from routine procedures and requires operators to request permission to vent and flare gas above these limits. If operators request permission to exceed these limits, BLM is to assess the economic and technical viability of capturing additional gas and require its capture when warranted. Although BLM guidance sets limits on venting and flaring of natural gas and allows flexibility to exceed them in certain cases, it does not address newer technologies or all sources of lost gas. Specifically, BLM guidance is 30 years old and therefore does not address venting and flaring reduction technologies that have advanced since it was issued. For example, since the guidance was written, technologies have been developed to economically reduce emissions from well completions and liquid unloading—namely the use of reduced emission completion and automated plunger lift technologies respectively. These two sources of emissions were important contributors to vented and flared volumes that we discussed earlier. Despite this fact, the use of such technologies where it is economic to do so is not covered in BLM’s current guidance. In general, BLM officials said that they thought the industry would use venting and flaring reduction technologies if they made economic sense. Similarly, new lower-emission devices could also reduce venting and flaring from other sources of emissions that are not covered by BLM’s guidance, such as pneumatic valves or gas dehydrators––two sources that contribute to significant lost gas. In discussions with BLM staff about their guidance, staff acknowledged that existing guidance was outdated given current technologies and said that they were planning to update it by the second quarter of 2012.

Offshore leases. Like BLM, BOEMRE has regulations that limit the allowable volumes of vented and flared gas from offshore leases to minimize losses of gas from routine operations. Operators can also apply for permission to exceed these limits and, like BLM, BOEMRE would evaluate the economic and technical viability of capturing additional gas. Further, BOEMRE inspects offshore platform facilities each year and, as part of these inspections, reviews on-site daily natural gas venting records. BOEMRE officials told us that the agency requires operators to keep these venting records and that it uses them to, among other things, identify any economically viable opportunities for an operator to install control equipment. Overall BOEMRE officials said that operators were required to install venting and flaring reduction equipment where economic, even if they would make as little as $1 in net profit from the captured gas. According to agency officials, due to the type of production and operations offshore, reduction opportunities mostly consist of installing vapor recovery units, and these officials said that they generally believe that companies have installed such equipment where it is economic to do so. Although BOEMRE conducts regular inspections, the daily venting records do not include all sources of vented gas. For example, emission estimates from sources of gas such as pneumatic valves and glycol dehydrators are not included, and therefore inspectors are not able to make assessments of the potential to reduce emissions from these sources. Both of these sources were contributors to lost gas offshore from the 2008 GOADS study, suggesting potential reduction opportunities. BOEMRE officials said that the agency considers these sources lease-use gas, and as a result, believed that they could not legally consider the economic and technical viability of this gas and require its capture when warranted. However, based on our review of BOEMRE regulations and authorizing legislation, it appears that BOEMRE has the authority to require operators to minimize the loss of this gas, including requiring its capture where appropriate. BOEMRE officials agreed with our assessment.

The Agencies Do Not Assess Options for Reducing Venting and Flaring in Advance of Oil And Gas Production

Onshore leases. While BLM regulations authorize and direct BLM officials to offer technical advice and issue orders for specific lease operations to minimize waste, BLM does not explicitly assess options to minimize waste from vented and flared gas before production. For example, we identified two phases in advance of production where BLM could assess venting and flaring reduction options—during the environmental review phase and when the operator applies to drill a new well. However, the agency does not explicitly assess these options, or discuss them with operators, during either phase. For example, during the environmental review phase, BLM works with states to assess emissions from oil and gas production, and that air quality assessment may include venting and flaring reduction requirements. According to BLM officials, since states generally have primary responsibility to implement and enforce air quality standards, the standards drive these requirements, and states focus only on the role venting and flaring plays in air pollution, rather than the minimization of waste. Therefore in production basins where air quality standards are being met, or where only minimal use of technology is required to meet them, BLM would not assess venting and flaring reduction technologies to the full extent that they could economically reduce vented and flared gas. One official noted that some BLM officials felt constrained in their ability to consider the use of venting and flaring reduction technologies because of this. Similarly, during the phase when operators apply to drill new wells, BLM assesses detailed technical and environmental aspects of the project, but BLM officials told us their assessment does not include a review of options to reduce venting and flaring.

Offshore leases. Similar to BLM, BOEMRE assesses venting and flaring reduction options in advance of production to determine whether vented and flared gas from offshore platforms would harm coastal air quality, but again, the focus is on meeting air quality standards rather than assessing whether gas can be economically captured. Therefore, when BOEMRE does not anticipate harm to coastal air quality, as is often the case according to officials, the agency does not further consider venting and flaring reduction options at this phase. Further, while the application operators submit in advance of drilling must include a description of the technologies and recovery practices that the operator will use during production, venting and flaring reduction options are not included in that submission.

Agencies Have Not Developed or Do Not Use Information Regarding Available Technologies That Could Reduce Venting and Flaring

Onshore leases. We found that BLM does not maintain a database regarding the extent to which available venting and flaring reduction technologies are used on federal oil and gas leases. As such, it could be difficult for BLM to identify opportunities to reduce venting and flaring or estimate the potential to increase the capture of gas that is currently vented or flared. For example, while BLM guidance provides that the natural gas vaporizing from storage tanks must be captured if BLM determines recovery is warranted, BLM does not collect data on the use of control technologies and available OGOR data do not contain the volumes of lost gas from storage tanks. Thus BLM may be overlooking circumstances where recovery could be warranted. In addition, according to BLM officials we spoke with, although infrared cameras can be used to identify sources of lost gas, BLM has not used them during inspections of production facilities. Although relatively expensive, infrared cameras allow users to rapidly scan and detect vented gas or leaks across wide production areas. BLM officials cited budgetary constraints and challenges in developing a policy and protocols for why the cameras have not been used regularly by the agency.

Offshore leases. Although the GOADS data system contains some information on the types of equipment operators use, BOEMRE has not analyzed this information to identify emission-reduction opportunities according to officials. GOADS contains information about the use of equipment such as vapor recovery systems. These data have not been used by BOEMRE to identify venting and flaring reduction opportunities because the agency has not considered using these data for purposes other than addressing air quality, according to a BOEMRE official. Nonetheless, based on our review of the GOADS data system, by not analyzing such data, BOEMRE is not able to identify emission-reduction opportunities. As a case in point, we found that emissions from pneumatic valves in the 2008 GOADS study made noticeable contributions to overall lost gas, which might suggest the potential to expand the use of low-bleed pneumatics in some cases. BOEMRE officials also noted that, unlike BLM, its inspectors had used infrared cameras to look for obvious sources of vented and flared gas in a few sample locations close to shore. In this regard, they said expanded use of infrared cameras could be useful to help enforce their new rule that requires the use of meters for vented and flared gas. Specifically, they said that the cameras could identify sources of gas that operators may have not routed through the meter as required. They also noted that expanded use of the cameras could help to identify and potentially reduce fugitive gas emissions that currently go undetected.

EPA’s Voluntary Natural Gas STAR Program Has Helped Reduce Vented Gas, According to EPA and Industry Participants

Although Interior has the primary role in federal oil and gas leasing, EPA’s Natural Gas STAR program has encouraged some operators to adopt technologies and practices that have helped to reduce methane emissions from the venting of natural gas, according to EPA and industry participants. Through this program, industry partners evaluate their emissions and consider ways to reduce them, although the reductions are voluntary. The program also maintains an online library of technologies and practices to reduce emissions that quantify the costs and benefits of each emission-reduction option. Natural Gas STAR also sponsors conferences to facilitate information exchange between operators regarding emissions reductions technologies. Partner companies report annually about their efforts to reduce emissions along with the volumes of the emission reductions.

According to the Natural Gas STAR Web site, domestic oil and gas industry partners reported more than 114 Bcf of methane emission reductions in 2008, which amounts to about 0.4 percent of the total natural gas produced that year. However, one industry representative said that, while large and midsize operators were aware of the Natural Gas STAR program, smaller operators were not aware and, even if some smaller operators were aware of the program, they may not have the environmental staff to implement the technologies and practices. Despite the potential usefulness of information from the Natural Gas STAR program to oil and gas producers on federal leases, some of the BLM officials that we spoke with were unfamiliar with Natural Gas STAR.

Conclusions

Fulfilling its responsibility to ensure that the country’s oil and natural gas assets are developed reasonably and result in fair compensation for the American people requires Interior to have accurate and complete information on all aspects of oil and natural gas leases. Interior has collected some information on vented and flared gas through MRM’s OGOR system, but without a full understanding of these losses Interior cannot fully account for the disposition of taxpayer resources or identify opportunities to prevent undue waste. MRM’s OGOR data system does not provide information on all sources of lost gas, which is the primary source of data that BLM uses to measure overall vented and flared gas onshore. Therefore, OGOR data present an incomplete picture of venting and flaring onshore, leading BLM officials to believe that vented and flared gas volumes do not represent a significant loss of gas on federal leases. Similarly, data in BOEMRE’s GOADS data system differ considerably from data in OGOR, and have not been reconciled—raising questions about the accuracy of offshore data sources.

Regarding Interior’s oversight of operators venting and flaring gas, because current guidance and regulations from BLM and BOEMRE do not require the minimization of all sources of vented and flared gas––although legislation exists authorizing them to require that waste on federal leases be minimized––operators may be venting and flaring more gas than should otherwise be allowed. In fact, we found that operators are not using available technologies in all cases to economically reduce vented and flared gas. BLM guidance has not kept pace with the development of economically viable capture technologies for a number of sources of lost gas, and BOEMRE has been reluctant to consider the economic and technical viability of minimizing the waste of “lease-use” gas because officials had believed they were legally constrained from doing so.

In addition to the limitations of these regulations, BLM and BOEMRE have not used their authority in two situations where they could potentially further reduce venting and flaring. First, neither agency has used its authority to minimize waste beyond relevant air quality standards by assessing the use of venting and flaring reduction technologies before production. Second, because BLM lacks data about the use of venting and flaring technologies for onshore leases and BOEMRE does not analyze its existing information for offshore leases in its GOADS data system, these agencies are not fully aware of potential opportunities to use available technologies. Further, neither agency takes full advantage of newer infrared camera technology that can help to identify sources of lost gas— as BOEMRE officials have acknowledged, this technology could help reveal additional sources of lost gas.

Ultimately, a sharper focus by BOEMRE and BLM on the nature and extent of venting and flaring on federal leases could have multiple benefits. Specifically, increased implementation of available venting and flaring reduction technologies, to the extent possible, could increase sales volumes and revenues for operators, increase royalty payments to the federal government, and decrease emissions of greenhouse gases. In addition, our analysis of WRAP and EPA data showed as much or more vented and flared gas on nonfederal leases, and we share the observation with EPA officials that a spillover effect may occur, whereby oil and gas producers, seeing successes on their federal leases, take similar steps on state and private leases.

Recommendations for Executive Action

To ensure that Interior has a complete picture of venting and flaring on federal leases and takes steps to reduce this lost gas where economic to do so, we are making five recommendations to the Secretary of the Interior.

To ensure that Interior’s data are complete and accurate, we recommend that the Secretary of the Interior direct BLM and BOEMRE to take the following action: Take additional steps to ensure that each agency has a complete and accurate picture of vented and flared gas, for both onshore and offshore leases, by (1) BLM developing more complete data on lost gas by taking into consideration additional large onshore sources and ways to estimate them not currently addressed in regulations—sources that EPA’s newly proposed greenhouse gas reporting rule addresses—and (2) BOEMRE reconciling differences in reported offshore venting and flaring volumes in OGOR and GOADS data systems and making adjustments to ensure the accuracy of these systems.

To help reduce venting and flaring of gas by addressing limitations in their regulations, we recommend that the Secretary of the Interior direct BLM and BOEMRE to take the following four actions: BLM should revise its guidance to operators to make it clear that technologies should be used where they can economically capture sources of vented and flared gas, including gas from liquid unloading, well completions, pneumatic valves, and glycol dehydrators. BOEMRE should consider extending its requirement that gas be captured where economical to “lease-use” sources of gas; BLM and BOEMRE should assess the potential use of venting and flaring reduction technologies to minimize the waste of natural gas in advance of production where applicable, and not solely for purposes of air quality; BLM and BOEMRE should consider the expanded use of infrared cameras, where economical, to improve reporting of emission sources and to identify opportunities to minimize lost gas; and BLM should collect information on the extent that larger operators use venting and flaring reduction technology and periodically review this information to identify potential opportunities for oil and gas operators to reduce their emissions, and BOEMRE should use existing information in its GOADS data system for this same purpose, to the extent possible.

Agency Comments and Our Evaluation

We provided a copy of our draft report to Interior and EPA for review and comment. Interior provided written comments that concurred with four of the five recommendations and partly concurred with the remaining recommendation. Its comments are reproduced in appendix II and key areas are discussed below. EPA did not provide formal comments on the report, but the agency’s Office of Air and Radiation provided written comments to GAO staff, which we summarize and discuss below. Interior and EPA also provided other clarifying or technical comments, which we incorporated as appropriate.

Interior’s comments reflected the views of BLM and BOEMRE. BLM concurred with all five recommendations and noted that it plans to incorporate recommended actions into its new Onshore Order in order to improve the completeness and accuracy of its data and help address limitations in its current regulations.

BOEMRE concurred with four of the recommendations and partly concurred with our second recommendation that they consider enforcing the economical capture of “lease-use” gas. It stated that we misapprehended the scope of the regulations governing “lease-use” sources of gas in that BOEMRE does not have current regulations to require the capture of “lease-use” gas. In response to this comment, we reworded our recommendation to clarify that BOEMRE should consider extending its existing requirements for the economical capture of gas to “lease-use” gas. In a related point, BOEMRE also noted that we were unable to quantify the potential volumes of additional gas that could be captured by holding operators to this same economic standard for “lease- use” gas. While current data have limitations, BOEMRE’s GOADS data suggest potential opportunities to capture additional gas from lease-use sources, namely glycol dehydrators and pneumatic devices. As such, we support BOEMRE’s efforts to further evaluate this issue and take action through new guidance or regulations, as it believes appropriate.

EPA’s Office of Air and Radiation commented on three areas of the report: First, EPA emphasized the significant air quality impacts from the volatile organic compounds (VOC) associated with vented gas and provided us with estimates of the potential volumes of these emissions. While we recognize that the impacts of VOC emissions on air quality are important, these impacts were largely beyond the scope of our work. Nonetheless, we incorporated an estimate of these VOC emissions into supporting notes to table 1 that reflected EPA’s estimates of vented and flared gas. We also added additional information to the background regarding VOC emissions.

Second, EPA suggested that we recommend to BLM and BOEMRE that they require the use of the best available venting and flaring control measures during leasing or drilling permitting. We continue to believe that BLM and BOEMRE should require the use of these technologies where economical, and recognize that requiring the use of such controls when the economics of capturing gas are unfavorable is not required by current EPA greenhouse gas regulations.

Third, EPA provided us with its revised emission estimates for vented and flared gas based on updated analysis for its proposed rule on the reporting of greenhouse gases by industry. It also provided us with revised estimates for the use of additional control technologies to reduce the emissions of vented and flared gas. In both cases, we incorporated these revised estimates in our report where applicable.

As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies of this report to the appropriate congressional committees, Secretary of the Interior, Administrator of the Environmental Protection Agency, and other interested parties. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov.

If you or your staffs have any questions about this report, please contact me at (202) 512-3841 or ruscof@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made major contributions to this report are listed in appendix IV.

Appendix I: Objectives, Scope, and Methodology

Our objectives were to (1) examine available estimates of vented and flared natural gas on federal leases; (2) estimate the potential to capture additional vented and flared natural gas with available technologies and the associated potential increases in royalty payments and reductions in greenhouse gas emissions and; (3) assess the federal role in reducing venting and flaring of natural gas.

To examine available estimates of vented and flared natural gas on federal leases, we collected data from the Department of the Interior’s (Interior) Bureau of Land Management (BLM), Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE), including BOEMRE’s Minerals Revenue Management (MRM) program; the Environmental Protection Agency (EPA); and the Western Regional Air Partnership (WRAP). We also interviewed staff from these agencies and oil and gas producers operating on federal leases regarding venting and flaring data collection, analysis, and reporting. We obtained data from four key sources: MRM’s Oil and Gas Operations Report (OGOR) database, BOEMRE’s Gulfwide Offshore Activity Data System (GOADS), EPA’s Natural Gas STAR Program, and WRAP’s analysis of air emissions for a number of western states. We assessed the quality of the data from each of these sources and determined that these data were sufficiently reliable for the purposes of our report.

MRM provided OGOR data on vented and flared volumes and production for both onshore and offshore federal leases for calendar years 2006 to 2008. MRM uses the OGOR data, in part, to ensure accurate federal royalty payments. The OGOR data are operator-reported, and reported venting and flaring volumes are a mix of empirical measurements and estimates from operators. MRM was unable to provide complete estimates of vented and flared gas on all federal leases because a portion of federal leases are managed as part of lease agreements—collections of leases that draw from the same oil or gas reservoir, which may include federal and nonfederal leases. MRM was unable to determine the share of reported vented and flared gas from the federal portion of those lease agreements; it reported venting and flaring from (1) lease agreements that included only federal leases and (2) all lease agreements, which included some nonfederal leases. In this report, we discuss the vented and flared volumes from the agreements that contain only federal leases. As a result, we report vented and flared gas volumes from the OGOR data as a percentage of total production on these leases, rather than as absolute volumes, in order to compare the OGOR estimates to estimates from other data sources.

A second source of venting and flaring data was BOEMRE’s 2008 GOADS data, which contained estimates of gas lost to venting and flaring on federal leases in the Gulf of Mexico—which accounted for 98 percent of federal offshore gas production in 2008. BOEMRE collects GOADS data every 3 years and uses these data to estimate the impacts of offshore oil and gas exploration, development, and production on onshore air quality in the Gulf of Mexico region. BOEMRE also uses GOADS as part of an impact analysis required by the National Environmental Policy Act. GOADS data capture specific information on a variety of sources of air pollutants and greenhouse gases resulting from offshore oil production. BOEMRE provided us with actual volumes of natural gas released from the vented and flared source categories. For the other sources, we used the emissions that were reported in GOADS in tons of methane per year, and we converted these to volumes of methane and then to natural gas, assuming a 78.8 percent methane content for natural gas. In the GOADS study, fugitive emissions are estimated by looking at the number of valves and other components on a given production platform and then assuming an average leak rate. BOEMRE’s data contractor performs a series of quality checks on the data after collection.

A third source of data on vented and flared volumes was a nationwide analysis performed by officials from EPA’s Natural Gas STAR program, a national, voluntary program that encourages oil and gas companies, through outreach and education, to adopt cost-effective technologies and practices that improve operational efficiencies and reduce methane emissions. EPA’s nationwide venting and flaring volumes were based on publicly available empirical data on national oil and gas production for 2006, 2007, and 2008, combined with knowledge of current industry practices, including usage rates and effectiveness of venting and flaring reduction technologies. For example, EPA used data on the number of well completions per year and data on the average venting per completion to estimate a yearly nationwide total from that source, with similar approaches used for estimating total venting and flaring from other key sources. EPA adjusted its estimates to account for the industry’s efforts to control some venting and flaring emissions. EPA’s analysis was limited in some ways, however. For instance, lacking empirical data on actua l nationwide rates of use of certain control technologies, EPA based its analysis on anecdotal information in some cases. In order to be able to compare these data with the OGOR data, we scaled EPA’s national estimates to federal leases based on the proportion of natural gas production on federal leases over total U.S. natural gas production using data from MRM and the Department of Energy’s Energy Information Administration (EIA). flaring based on BOEMRE’s 2005 GOADS data. EPA officials adjusted volumes reported to GOADS based on publicly available information on current industry practices, including usage rates and effectiveness of venting and flaring reduction technologies.

EPA’s initial estimates of venting and flaring were for the methane component of natural gas. These volumes were converted to reflect overall natural gas emissions by assuming, for most sources, an average 78.8 percent methane content for the gas. empirical data from operators in these basins, including drilling and production volume data, as well as data from a survey of operators. This survey asked operators to report actual vented and flared volumes, as well as to provide information on other aspects of their operations, including the emission control technologies they had in place. Similar to the EPA venting and flaring analysis, however, Environ did not have complete data from all operators in each basin and thus estimated some information based on survey data from a subset of operators. In addition, the original WRAP data did not distinguish between federal and nonfederal oil and gas operations, so we provided federal well numbers to Environ so that they well numbers to Environ so that they could identify the federal lease component of vented and flared gas. could identify the federal lease component of vented and flared gas.

To estimate the magnitude of potential increases in royalty payments and reductions in greenhouse gas emissions resulting from capturing additional vented and flared gas with available technologies, we had EPA provide us with estimates of the onshore expansion potential of a number of key technologies and associated venting and flaring volume reductions. For simplicity, EPA developed these estimates by focusing on the expansion potential of a subset of technologies considered to provide the largest emission reductions. These estimates may be conservative, however, because they did not incorporate reductions from a number of other potential venting and flaring opportunities catalogued by the Natural Gas STAR program. These estimates were not based entirely on comprehensive usage data collected from the oil and gas industry, but were based, in part, on publicly available evidence collected through years of experience with the oil and gas industry. In addition, circumstances are constantly changing, and more technological innovations are potentially being used as time goes on, so there is some uncertainty in how much lost gas can be captured. We also compared venting and flaring volumes and the types of emission-reduction technologies used in each of the basins from the WRAP data, allowing us to draw conclusions about the impact of different levels of technology on venting and flaring volumes. We did not identify similar data on reduction opportunities offshore. We also interviewed officials from BLM, BOEMRE, EPA, and state agencies, as well as representatives from private industry, including technology vendors and an environmental consultant regarding the expanded use of available technologies to capture additional vented and flared gas. We conducted background research on venting and flaring reduction technologies, including from publicly available EPA Natural Gas STAR case studies. Finally, we obtained royalty information from MRM to calculate the royalty implications of the onshore venting and flaring reductions, and used conversion factors from EPA to calculate the greenhouse gas impacts of the vented and flared natural gas.

To assess the federal role in reducing vented and flared gas, we conducted interviews with officials from Interior, EPA, the Department of Energy, state agencies, and members of the oil and gas industry. We also reviewed agency guidance and documentation, other studies related to federal management and oversight of the oil and gas industry, as well as prior GAO work that described limitations in the systems Interior has in place to track oil and gas production on federal leases. We conducted interviews with officials in six BLM field offices (Farmington and Carlsbad in New Mexico; Vernal, Utah; Glenwood Springs, Colorado; Pinedale, Wyoming; and Bakersfield, California) and staff from BLM headquarters. We also interviewed BOEMRE staff in Denver, Colorado, and New Orleans, Louisiana.

We conducted this performance audit from July 2009 to October 2010 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.

Appendix II: Comments from the Department of the Interior

Appendix III: Volumes and Sources of Vented and Flared Gas Based on Analysis of 2006 WRAP Data

Volume (Bcf)

Volume (Bcf)

Appendix IV: GAO Contact and Staff Acknowledgments

Staff Acknowledgments

In addition to the individuals named above, Daniel Haas (Assistant Director), Michael Kendix, Michael Krafve, Robert Marek, Alison O’Neill, David Reed, Rebecca Sandulli, and Barbara Timmerman made important contributions to this report.