Originally published on Forbes.com on March 28, 2021

Four stepping stones

The week of March 22, 2021 saw four independent “meetings” on the future of oil and gas in regard to climate change. Each meeting suggested changes that will definitely affect the future of the oil and gas industry in the USA.

The meetings focused on three sticky issues – the ban on federal leasing, methane emissions, and carbon pricing. These are all related to regulation at federal and state level of the climate crisis and the role of the oil and gas industry. The snowball is starting to roll….

For example, according to EDF, the Environmental Defense Fund, methane emissions cause a quarter of global warming.  “Reducing methane pollution from the oil and gas industry is the single fastest, most cost-effective way to slow the rate of warming now.” Now that is significant.

1. National forum on federal leasing and drilling permits

A national forum, the first of its kind, was convened on Thursday March 25 to discuss federal leasing permits. This was hosted by the Department of Interior, as President Biden searches for new policy to control global warming.

Here are the main points of the forum:

• Experts from many organizations were invited to share their views: oil and gas industry, environmental, labor, tribal.
• Interior Secretary, Deb Haaland, opened the forum. “Now is the time for us to have a frank conversation about the future of our shared resources.” She also said that fossil fuels will be around and have a major impact for years to come.
• During the forum, Interior officials refused to take any position on issues presented by attendees.
• An official of API (American Petroleum Institute) argued that oil and gas were essential to the recovery after the pandemic, and that slowing this would be a danger to national security.
• On the opposite side were organizations such as the Natural Resources Defense Council and Earthworks. They wanted a ban on new federal leases for oil and gas development.
• Other groups supported higher royalties they wanted paid by oil and gas companies, which had not been changed for many years, as well as stronger regulations on controlling methane emissions.
• Despite their stance mentioned above, API had in fact just released a document that supported carbon-pricing, funding for carbon capture and green hydrogen, and federal regulations to limit methane emissions.

2. Congress to repeal and clean up methane emissions regulation

The goal is to repeal rules installed last September to remove methane as a cause of air pollution in oil and gas operations, storage and pipeline transmission of natural gas, and leaks from aging oil and gas facilities.

The proposal, introduced by Senator Martin Heinrich from New Mexico on Thursday March 25, is sensible, and support is widespread. Majors such as Shell and bp and trade groups like API have expressed support for such regulation. Final voting on the bill is anticipated in mid-May.

3. New venting and flaring regulations for New Mexico

In a press release dated March 25, 2021, entitled Oil Conservation Commission Approves EMNRD’s Final Natural Gas Waste Reduction Rules, New Mexico finalizes perhaps the strongest requirements in the US for natural gas capture from oil and gas developments both upstream and midstream (e.g. pipelines and gas-processing plants).

New Mexico governor Lujan-Grisham initiated the task in a 2019 executive order on climate change. Source: Office of the Governor

The rule follows two years of research, testimony and outreach to stakeholders. The rule requires:

• Regular reporting of natural gas losses from upstream and midstream operations.
• That routine venting and flaring of natural gas be banned.
• An increasing gas capture target culminating in 98% by 2026.
• Data collection in the first phase: reliable data to identify methane losses at every stage of oil and gas development.
• Operators to decide what methane-control systems work best (this could lead to new jobs.)

Over 50% of greenhouse gases (GHG) in New Mexico in 2018 were caused by oil and gas operations plus fuel combustion in cars and trucks, etc.

Flaring and venting are not the same thing. Venting is the release of methane, the dominant component of natural gas, into the atmosphere, where it has 21 times the warming effect of carbon dioxide, CO2. Flaring is the burning of natural gas as its released, and the methane burns to CO2, which is much less warming.

The trade group, New Mexico Oil and Gas Association, supports the 98% gas capture goal even though it is ambitious.

Gina McCarthy, White House national climate advisor. Source : EPA

4. High-level meeting on carbon-pricing

Gina McCarthy, the White House national climate adviser, met virtually on Monday March 22 with heads of 10 large oil and gas companies, including ExxonMobil, Chevron, and Royal Dutch Shell. She apparently arranged the meeting to hear the views of an industry that had been responsible for growth in both jobs and GHG.

Note: carbon-pricing is a cost applied to carbon emissions to encourage companies to reduce the amount of GHG they emit.

• The companies supported carbon-pricing as a way to reduce GHG emissions that cause global warming.
• Companies based in Europe, such as Shell, wanted to support policies that would cost them more if they emitted more GHG.
• But some US companies warned that if, as a consequence, they were restricted in producing oil and gas, more fossil fuels would be imported to meet demand. This could mean the US would no longer be self-sufficient in crude oil.

Mike Sommers, CEO of API, the largest large oil and gas trade group, said after the meeting, “We are committed to working with the White House to develop effective government policies that help meet the ambitions of the Paris Agreement and support a cleaner future.”

On Thursday March 25, API endorsed a carbon-pricing policy that reversed its own long-lived policy.

Oil and gas companies are different from the bakery down the street. Both have carbon-footprints to address and try to reduce their own GHG emissions from burning fossil fuel. But oil and gas companies make and sell the stuff that burns to CO2, the main greenhouse gas. That puts them in the cross-hairs.

Implications for glide path. 

New Mexico’s oil production jumped by 10.5% in 2020 to an all-time high of 366 million barrels, close to 1 million barrels per day average.

This is a surprise, because 2020 was the year of the pandemic and Saudi-Russian oil-price squabbles, which led to a huge oil-price drop in the spring, when many oil wells across the US were shut-in.

It testifies to the inexpensive cost of producing oil in the prolific Delaware basin, the premier basin in the USA and one of the best in the world.

The forward-looking rules and ideas in the four stepping-stones above are related to what has been called the “glide path.” The current altitude is that burning fossil fuels now causes 75% of greenhouse gas emissions. The landing zone is that oil and gas will still be significant by 2050 – probably 30-50% of energy consumption.  

This concept defines a gradual slowing of demand and supply for oil and gas products to meet the common goal of net-zero GHG emissions by the year 2050.

A glide path transition can entail the following maneuvers:

• Retrain or otherwise preserve jobs of oil and gas workers.
• Switch to green power for all oil and gas operations. For example, drilling or pumping frac jobs.
• Reduce to near zero flaring of gas and leaking of methane from wells, pipelines, and facilities. New Mexico and Colorado are leading the charge here.
• Develop and implement carbon capture and storage in old oil and gas fields. This will be needed to contribute to the net-zero goal and it will preserve jobs. Occidental is leading this effort, even capturing CO2 from the air and injecting it underground.
• Redirect some investments pegged for new oil and gas drilling to renewable energies. BP will be invested 40% in renewables by 2030; Total are investing $2.5 billion in Adani Green Energy, a company out of India, and will own 50% of their solar electricity.
• Understand that a ban on new leasing and drilling on federal lands and waters is not unbearable, even if permanent. This would gradually lower production of oil and gas in New Mexico and Wyoming, the two states most affected. Across the US, 22% of oil and 12% of gas is produced on federal land, but companies have stockpiled well leases that will last four years. Consider this an opportunity to redirect oil and investment into renewables. A small oil company called Kirkwood Oil and Gas, out of Wyoming, has begun looking at prospects for mining minerals needed for future battery construction.