OGJ Washington Editor
WASHINGTON, DC, Dec. 1 -- The US government is losing income from oil and natural gas leases because the Department of the Interior does not accurately track losses from natural gas venting and flaring, the Government Accountability Office said in a report it released on Nov. 29.
GAO said that while onshore lessees reported that about 0.13% of produced gas was vented and flared, estimates by the US Environmental Protection Agency and Western Regional Air Partnership suggested volumes could be as much as 30 times higher.
“Similarly, for offshore federal leases, operators reported that 0.5% of the natural gas produced was vented and flared, while data from [a DOI] offshore air quality study showed that volume to be about 1.4%, and estimates from EPA showed it to be about 2.3%,” the report continued.
Volumes reported by operators do not fully account for some ongoing losses, such as emissions from gas dehydration equipment or from thousands of valves, which were key sources in the EPA, WRAP, and DOI offshore air quality studies, it said.
“Data from EPA, supported by information obtained from technology vendors and GAO analysis, suggest that around 40% of natural gas estimated to be vented and flared on onshore federal leases could be economically captured with currently available control technologies,” the report said.
Such reductions could increase federal royalty payments by about $23 million/year and reduce greenhouse gas emissions by an amount equal to about 16.5 million tonnes of carbon dioxide, it said. Venting and flaring reductions also are possible offshore, but data were not available to let GAO develop a complete estimate, it added.
It also noted that barriers exist to implementing these technologies. “We found significant regional differences in use of control technologies in oil and gas production basins in the Mountain West and, subsequently, differences in vented and flared volumes, as a percentage of total basin production,” it said.
WRAP data showed that most pneumatic devices in northwestern Colorado’s Piceance basin were low-bleed units in 2006, while high-bleed pneumatic units were predominant in the adjacent Uinta basin in eastern Utah, according to GAO’s report. “Although the Piceance and Uinta basins are part of the same geological formation and share many characteristics, including type of gas development and extraction methods, the WRAP data show that the venting and flaring volumes on federal leases in the Uinta Basin are nearly double those in the Piceance Basin as a percentage of total gas production,” it said.
Variations in state air quality regulations and the net economic benefit of installing and operating equipment to capture gas which otherwise might be flared or vented are the two main reasons that use of such technology varies among states, within production basins, and among operators, GAO’s report said.
“According to EPA and industry representatives, for operators with sufficient resources—including engineering and cost-estimation teams, as well as capital for infrastructure—decisions to potentially install capture equipment are easy to make based on simple economic considerations,” it said.
“For example, the cost of switching from high-bleed to low-bleed pneumatic devices ranges from $700 to $3,000 per device, which can be recovered in 2 to 8 months, on average, according to EPA documents. Similarly, retrofitting an oil production storage tank with a vapor recovery unit can cost tens of thousands of dollars, but the gas saved can pay for the technology generally within 2 years,” it continued.
It noted that EPA and BLM officials told GAO researchers that some operators already have implemented plunger-lift systems, vapor recovery units, reduced emissions completions, and other technologies for economic reasons. “However, these officials cautioned that the return-on-investment calculation can be complicated by a number of factors, including the geology and location of the production basin and the differences in the composition of extracted oil or gas,” the report said.
Industry representatives and EAP officials noted that the potential for developing markets for recovered carbon also could influence venting and flaring control technology economics, it indicated.
“Operators are increasingly able to document the carbon reductions achieved through installations of the technologies and, in turn, sell these offset credits on open carbon markets according to industry officials. Potential opportunities to claim and sell these carbon offset credits may add to the economic incentives for using these control technologies, according to some industry officials,” GAO’s report said.
It recommended that DOI improve its venting and flaring data and address limitations in its regulations and guidance to reduce gas losses, increase royalties, and lower GHG emissions. DOI officials generally concurred with the recommendations, it said.
Contact Nick Snow at email@example.com.