EPA proposes new standards to cut methane emissions

Natural gas is flared off at Apache Corp.'s Deadwood natural gas plant in Garden City, Texas.
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The Environmental Protection Agency proposed regulations on Tuesday aimed at cutting methane emissions from the oil and gas sector by 40 to 45 percent over the next decade from 2012 levels.

The rules would apply to new or modified sources of oil and natural gas and require energy companies to find and repair leaks, capture natural gas during the completion of hydraulically fractured wells, and limit emissions from pneumatic pumps and several other types of equipment.

Fracking is the process of pumping oil and sand, as well as some chemicals, into wells to break up shale rock and release hydrocarbons.

Fadel Gheit, senior energy analyst at Oppenheimer, said the cost of regulations would not have a significant impact on most oil and gas exploration and production companies, but acknowledged the timing is not ideal.

The cost of crude recently fell to a nearly 6½-year low and natural gas is mired in a protracted slump, down 29 percent from last year. As a result, drillers have slashed spending and may see their ability to borrow reduced this fall.

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"For an industry desperate for an additional dime to move margin higher, everything, even the very little, will count at the end of the day," Gheit told CNBC. "[Energy companies are] being kicked while they're down, but eventually they will comply. There are no ifs or buts about it."

Gheit said many companies have already put in place methane mitigation technology in anticipation of regulation.

The regulations on methane are one part of the Obama administration's strategy to curb greenhouse gases and combat climate change.

Methane is the key constituent of natural gas and has 25 times the impact on global warming than carbon dioxide, according to the EPA. The regulator expects the new rules to reduce methane emissions by 340,000 to 400,000 short tons in 2025.

"Today, through our cost-effective proposed standards, we are underscoring our commitment to reducing the pollution fueling climate change and protecting public health while supporting responsible energy development, transparency and accountability," EPA Administrator Gina McCarthy said in a statement.

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The EPA will take comments on the proposals for the next 60 days and hold public hearings.

The American Petroleum Institute, a national trade association representing the oil and gas companies, on Tuesday said the proposals are unnecessary because the industry has already significantly reduced methane through innovation and existing regulations.

"The oil and gas industry is leading the charge in reducing methane," API President and CEO Jack Gerard said in a statement. "The last thing we need is more duplicative and costly regulation that could increase the cost of energy for Americans."

Studies of the overall scope and impact of methane emissions have been widely disparate, said Bruce Huber, an associate professor at the University of Notre Dame who specializes in environmental and energy law. In his view, the majority of drillers act responsibly, but that does not mean emissions are insignificant.

"The best view is that it's a pretty big problem for a small number of operations that are poorly done," he told CNBC, adding, "It doesn't take too many bad apples for it to become a sizable problem."

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The EPA's proposal will almost certainly attract legal challenges, Huber said, but there is no question the agency has the authority to enact the rules.

"Where the EPA has found itself in the most legal hot water is when it is really trying to get creative or cute in how it applies the laws that govern it," he said. "There's nothing in [Tuesday's proposal] that makes it seem as though they are asking for emissions controls that are technically impossible or unduly expensive."

Indeed, the benefits of installing mitigation equipment stands to offset the costs because every particle of methane that escapes amounts to less natural gas that producers can sell, he said.

The targets in Tuesday's proposal are in line with a January announcement by the Obama administration that it wanted to reduce oil and gas industry methane emissions by up to 45 percent from 2012 levels by 2025.

President Barack Obama unveiled this month the final version of his plan to tackle greenhouse gases from coal-fired power plants, requiring carbon emissions from the sector be cut 32 percent from 2005 levels by 2030.

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—Reuters contributed to this story.