Obama's Last Year May Be Tough for Oil, Gas

Energy and Climate Report provides current, thorough coverage of clean energy, efficiency, and climate change legislation, regulation, policy, legal developments, and trends in the U.S. and...

By Alan Kovski

Jan. 21 — Tensions between the Obama administration and the oil and gas industry are high and may be headed higher in the last year of the administration.

Industry representatives do not dispute that their industry's relations with the federal government are very difficult, although they consistently express a hope for cooperation. They suggest the difficulties are not a matter of bureaucracies but rather of policies stemming from the White House, and the policies may be driven in 2016 by concerns about climate change and an activist campaign to keep fossil fuels in the ground.

“We just feel that it's a regulatory onslaught,” said Dan Naatz, senior vice president of government relations and political affairs at the Independent Petroleum Association of America.

President Barack Obama pushed the tensions a notch higher in his final State of the Union address Jan. 12.

“Now we've got to accelerate the transition away from old, dirtier energy sources,” Obama said. “That's why I'm going to push to change the way we manage our oil and coal resources, so that they better reflect the costs they impose on taxpayers and our planet.”

The first step in pursuit of that policy has been announced by the Interior Department as a moratorium on new coal leasing on federal lands (11 DEN A-16, 1/19/16).

Oil companies are awaiting the rest of the policy. Among other things, the year could see more delays or even a moratorium on oil and gas leasing on federal onshore lands and a slimmed-down, restrictive five-year plan for offshore leasing.

‘It's at the White House Level.'

“It's at the White House level that those decisions are going to be made,” Randall Luthi, president of the National Ocean Industries Association, told Bloomberg BNA. “Those are going to be political decisions.”

Obama may want to cement a legacy through last-year regulations, a prospect that especially worries the oil industry because of the president's emphasis on the dangers of climate change.

“Climate change is driving so much of what's been going on, this fervor to keep it in the ground,” Naatz told Bloomberg BNA.

The Interior Department will play a central role in the administration's final year of regulations. Requests to Interior for comment on the policy tensions and regulatory prospects drew no responses for this story.

BLM Regulations

Some of the regulatory initiatives stem from the 2010 Deepwater Horizon disaster, when 11 men died and an estimated 3.19 million barrels of oil were spilled into the Gulf of Mexico. The industry has contributed to the tougher regulations with its own revised standards but is worried that the proposed federal regulations are in some ways impractical.

Much remains pending. The Bureau of Land Management, as the onshore leasing agent for Interior, has been delaying leases in the face of environmental activism and working on an array of issues.

The agency is working on a venting and flaring rule to reduce emissions of methane, a potent greenhouse gas (RIN 1004-AE14), and revision of three “onshore orders” (RIN 1004-AE15, RIN 1004-AE16, RIN 1004-AE17) concerning measurement of oil and natural gas and regulation of state and private oil and gas operations that are intertwined in some way with federal land.

The BLM has been considering whether to raise royalty rates in situations where the agency has some flexibility, and it has been looking at the possibility of increasing financial assurance (bonding) requirements, rental fees and other requirements (RIN 1004-AE41).

Those initiatives come atop the long battle over the BLM's new rule on hydraulic fracturing (RIN 1004-AE26). That fight has shifted to a federal court, as have Obama administration actions that can limit oil and gas activities within much of the extensive habitats of the greater sage grouse and the lesser prairie chicken.

Other Regulations Pile Up

Pending from the Bureau of Safety and Environmental Enforcement for offshore oil and gas development is a well control rule (RIN 1014-AA11), a production safety rule (RIN 1014-AA10) and a rule tailoring regulations to Arctic conditions (RIN 1082-AA00). The Bureau of Ocean Energy Management has been refusing oil company requests for lease extensions in Arctic waters.

The administration has repeatedly proposed to Congress that legislation allow for new or higher fees to fund inspections and permit processing.

At the same time, the Environmental Protection Agency recently proposed tighter federal emission regulations for methane and volatile organic compounds from new oil and gas exploration and production (RIN 2060-AS30) and may follow that with stricter standards for existing wells and infrastructure. The EPA last year tightened the federal standard for ozone pollution, a change that poses the risk of barriers to oil and gas facilities of any kind in areas out of attainment with the tougher standard (RIN 2060-AP38).

The Pipeline and Hazardous Materials Safety Administration is working on a pipeline integrity inspection rule that industry groups fear will be too costly (RIN 2137-AE66). It follows a recent PHMSA rule on tighter standards for shipments of crude oil and other flammable liquids by rail (RIN 2137-AE91).

Halt Wanted to Oil, Gas Leasing

Environmental advocacy groups have recognized the potential for moratoria on oil and gas leasing and permitting parallel to the moratorium on new coal leasing announced Jan. 15 by Interior pending a programmatic environmental impact review.

Six environmental activist groups sent a Jan. 14 letter to the White House calling on Obama to order Interior to undertake immediately a programmatic environmental impact statement (PEIS) of the federal onshore oil and gas program and to place a hold on all new federal leasing until the study is complete. One of those groups, WildEarth Guardians, followed that Jan. 20 with a formal petition to the BLM.

“Consistent with Interior's approach to coal leasing, pending completion of the PEIS WildEarth Guardians requests a moratorium on all new oil and gas leasing and approvals of applications for permits to drill,” the group said in its petition.

Questions on Offshore Five-Year Plan

The Bureau of Ocean Energy Management in early 2015 issued a draft proposed five-year plan to govern oil and gas leasing in the federal offshore starting in July 2017. It included the possibility of leasing in part of the Atlantic offshore from Virginia to Georgia, raising cries of protest from environmental activists and many people living along the coast.

Among other questions: Was the Atlantic part of the draft proposal serious? Oil companies obviously feared it would be dropped from the plan at the next proposed stage or the final stage. They filed comments urging the administration to keep the Atlantic portion of the plan (docket BOEM-2014-0096).

Environmental activists want more than just the Atlantic portion removed. Marissa Knodel, climate campaigner for Friends of the Earth, said of the five-year plan, “That's a great opportunity for President Obama to hopefully not offer any new leases on offshore drilling.”

Athan Manuel, director of the Lands Protection Program for the Sierra Club, said he hoped Interior's announcement on the coal moratorium and environmental review was indicative of coming oil and gas actions. In that context, he said he was looking toward the next announcement on the five-year offshore plan.

Fifty-one exploration wells were drilled in the Atlantic offshore during 1976-1984 according to BOEM data. No one reported finding commercial quantities of oil or gas, but it is a long coast with much more room for exploration.

Talking but Not Agreeing

Industry representatives continue to meet with federal officials, though without necessarily agreeing on much.

“We would like to have a more cooperative engagement and dialog,” the IPAA's Naatz said. “Not that they close the doors. They've been open. You can have discussions.”

Naatz said he also is more than willing to talk to environmental activists. “The absolutely worst thing you can do is not talk to people,” he said.

The relations typically are friendlier at field offices around the country, Naatz said. Interior field officials probably end up scratching their heads now and then about the decisions coming out of the department's headquarters, he said.

Naatz and Luthi both stressed the need for some degree of predictability. With consistent, stable regulations, “you can work that into your program,” Luthi said.

With assistance from Rachel Leven in Washington.

To contact the lead reporter on this story: Alan Kovski in Washington at akovski@bna.com

To contact the editor responsible for this story: Larry Pearl at lpearl@bna.com

 

Regulatory Wave

Recent or pending regulatory actions focused partly or wholly on the oil and gas industry are from the BLM, the U.S. Forest Service, FWS, BSEE, BOEM, EPA and PHMSA. In addition, the administration has repeatedly requested higher fees to address permitting and inspection costs.

Pending

 

• BLM venting and flaring rule to reduce methane emissions.
• BLM Onshore Order 3 on regulation of oil and gas operations where state, private and federal lands are interconnected.
• BLM Onshore Order 4 on measurement of oil from federal leases.
• BLM Onshore Order 5 on measurement of gas from federal leases.
• BLM consideration of whether to raise royalty rates, rental fees, financial assurance (bonding) requirements and other requirements for oil and gas exploration and production.
• BSEE offshore well control rule.
• BSEE offshore production safety rule.
• BSEE offshore Arctic rule.
• EPA emission regulations for methane and volatile organic compounds from new oil and gas wells.
• EPA consideration of emission regulations for existing oil and gas wells.
• PHMSA pipeline integrity inspection rule.

 

  Recently Completed

 

• BLM hydraulic fracturing rule.
• BLM and U.S. Forest Service protections for greater sage grouse.
• BOEM rejections of lease extension requests in Arctic.
• FWS protections for lesser prairie chicken.
• EPA tighter standard for ozone pollution.
• PHMSA rule on tighter standards for shipments of crude oil and other flammable liquids by rail.
• Administration requests for new or higher fees.