Oil and gas companies pay the U.S. government for the opportunity to drill on public lands, but they only pay royalties on natural gas that’s captured and sold. When it’s not worth the trouble of bringing it to market, companies either flare off surplus methane or simply release it into the atmosphere, where its near-term climate impact is worse than carbon dioxide’s. A new Environmental Defense Fund report documents the amount of gas being wasted as well as the cost to taxpayers, consumers, and the environment.
Josh Raulerson (00:01):
Today is Friday, March 17th, 2023. I’m Josh Raulerson, and this is Pennsylvania Legacies, the podcast series from the Pennsylvania Environmental Council. Imagine a restaurant cafeteria style, where you have customers moving along a line, loading up their trays with food. At the end of the line, there is a cashier who tallies up all the items on the tray and the customers pay for them. Now, imagine a customer moving through the line, taking items from the counter, putting ’em on the tray, and taking other items, and simply dropping them on the floor, sometimes accidentally, other times, apparently on purpose. Either way, by the time they get to the end of the line, there’s a trail of wasted food behind them. But when they get to the cashier, of course they’re gonna pay only for the food that’s on the tray, not what’s on the floor. Doesn’t really matter how it got there, up till the point of sale, the restaurant is on the hook for the cost of all that wasted product.
Josh Raulerson (00:55):
And somebody other than the customer is gonna have to clean up the mess. Where you might ask, is this analogy going? Stay with me. When a natural gas developer leases a piece of federally owned land, they’re paying for the right to operate there — that’s the lease — but they pay again for each cubic foot of gas that they produce. That’s a royalty: it confers ownership of the product after it’s been removed from the ground and brought to market. Up until that point, the gas in question remains the property of the landowner, in this case, the federal government. Now, this arrangement is based on an understanding that energy production serves a critical public need. Therefore, it’s appropriate for energy companies to profit from the difficult, sometimes dangerous work of harvesting mineral resources, even though strictly speaking, those minerals belong to the public. But what if that public need isn’t being efficiently met?
Josh Raulerson (01:46):
What if billions of cubic feet of taxpayer owned natural gas never make it to consumers because they’re allowed to leak, or worse, are intentionally released into the atmosphere? A new analysis from Environmental Defense Fund shows more than $500 million worth of gas extracted on US public and tribal lands was wasted just in 2019, mostly from intentional venting and flaring. That’s enough gas to meet the needs of 2.2 million households, almost half the homes in Pennsylvania. The value of the lost product is never realized by those consumers, and the royalties are never collected by the government costing Uncle Sam tens of millions a year. And as if that wasn’t bad enough, turns out methane, the chief component of natural gas is also one of the most potent greenhouse gases out there, much worse for the climate than co2, at least in the near term. Now, in theory, developers should want to eliminate as much waste as possible in order to get the biggest return on their input costs.
Josh Raulerson (02:47):
The problem is sometimes it’s cheaper or easier to just dump the surplus product rather than bring it to market. And because royalties are based on the volume of gas produced and sold, rather than the volume extracted, often the producer is effectively incentivized to waste energy. After all, they pay only for what’s on the tray. The mess on the floor is somebody else’s problem. The good news is that the US Bureau of Land Management is currently advancing a new rule aimed at curtailing this sort of waste in the production of oil and gas on federal and tribal lands. The measure compliments EPA’s proposed methane rule, which aims to limit emissions from oil and gas production nationwide. Both proposals are currently open to public comment, but do they go far enough? John Goldstein is Director of Regulatory and Legislative Affairs at Environmental Defense Fund, which published the analysis I mentioned. He joins us now for a closer look, John. Welcome.
Jon Goldstein (03:41):
Glad to be here.
Josh Raulerson (03:43):
Let’s start with some background on this report and kind of the scope and the approach it took. Why focus on us public lands, tribal lands? How is the situation that you’re looking at different from leasing situations on lands that might be state owned or, or private lands or just you know, waste of natural gas in general?
Jon Goldstein (04:04):
Right, right. So part of this is driven by the regulatory regime and the way the laws of the federal government are set up. So there are two primary agencies at the federal level that oversee oil and gas development, and they have complimentary you know, approaches and complimentary legal jurisdictions, but they’re slightly different. And so the Environmental Protection Agency, which is the one that most folks are probably aware of, you know, they oversee oil and gas development and their primary drive and, and driver is air quality and looking at things like climate change, looking at things like ozone pollution from oil and gas development and trying to limit you know, the, the, the precursors to that through their regulations. They have a set of rules that are you know, on the way to being finalized that will help with this issue.
Jon Goldstein (05:05):
And then alongside that, but separate is what’s called the Bureau of Land Management. That’s a part of the Department of Interior, and it is, for lack of a better word, sort of the landlord of federal lands in the us. And their primary responsibility is ensuring that the minerals under those lands are managed to the maximum benefit to the taxpayer. So they do things like lease sales and have regulations that govern how companies go in and produce the energy that lies beneath the federal mineral state. And they also have a, a set of rules that are being finalized, that are designed to try and limit the amount of waste of natural gas that happens. So, you know, you can think of methane as a very powerful greenhouse gas, which it is. You can think of, you know, all the important public health reasons to limit methane emissions from oil and gas development. You can also think about methane in terms of it being the primary component of natural gas, the gas that we use to heat our homes and cook dinner. Many of us. So that’s the way BLM looks at it. And they’re trying to get rules in place to limit the waste of methane or natural gas resources. And that’s why we wanted to specifically kind of focus in on that land type to be able to look and see kind of what the potential benefits were to getting strong rules in place.
Josh Raulerson (06:45):
So there, there’s all these different ways of coming at this issue, and they’re interrelated. Some speak to each other, but we’re gonna focus on ways, as you said — what are some of the, well, there are different methods, I guess, by which methane that should be in a pipe somewhere ends up in the atmosphere. Could you break down the different ways that emissions happen in, you know, in, in natural gas production and why the distinctions are important?
Jon Goldstein (07:10):
Yeah. So I I think the, the easiest way to think about it is there are three main buckets of methane waste from oil and gas production. One are leaks, and that’s the biggest bucket. So these are unintentional releases of methane. You know a valve gets stuck open, you know, a hatch on a tank pops and is allowing methane to escape, things like that. That is a, a very large source of emissions, but it’s not the only one. There are also vents. So these are intentional releases. These are pieces of equipment like pneumatic controllers and other things that are designed to release methane. So that’s another one. And then the third one, which isn’t a huge deal in Pennsylvania, but is a huge deal in other parts of the country is flaring. Flaring is when usually it happens in oil development.
Jon Goldstein (08:09):
So you’re going in, you’re drilling a well in, you’re trying to produce oil, but the resources don’t exist underneath the ground separate from each other. So in drilling and oil, well, you’re gonna get some natural gas that comes out with it. What do you do with that? Natural gas too often in areas like the Permian and the Bakken in North Dakota in particular producers will just burn that gas off. And no one benefits from that. You don’t get tax and realty revenue from the natural gas. You know, and when it’s gone, it’s gone. And so that’s a significant source of waste that we hope that the Bureau of Land Management is gonna do something about as it works to finalize these rules.
Josh Raulerson (08:55):
And again, not, not getting too far off the main subject of the waste, but is there a, you know, qualitative difference between venting and flaring when it comes to climate impacts? Like in theory, anyway, methane burns clean, it’s more in the extraction and the production that we run into climate problems. Is that true? Like it would — all other things being equal — be better if we were flaring than venting?
Jon Goldstein (09:15):
Yes, that is absolutely correct. Flaring is sort of a necessary evil, is the way I think about it, better to combust methane than to allow it to go out unc combusted into the atmosphere via venting. You know, methane is a very powerful greenhouse gas more than 80 times more powerful than carbon dioxide pound for pound in the short term. So better to, to combust that. However what we’re learning about flares as they operate out in the field in West Texas and North Dakota, for instance, are that too often they’re not operating as advertised. And so some of the assumptions that get put into how efficient they are and how much of the methane that’s being sent to them that’s being combusted is being shown to be incorrect by the scientists that are going out and taking measurements.
Jon Goldstein (10:12):
So what we feel like is the best way to address that, both from an air quality and from a waste perspective, is just to stop sending so much gas to flares in the first place. Really try andend the practice of routine flaring, you know, where day after day, night after night, you can see these flares lighting up West Texas, lighting up the western half of North Dakota like a birthday cake. And you know, really trying to limit that down to the sorts of emergencies and upsets you know, very finite periods of time when flaring has to occur better to flare at than event it, but not to see them happening, you know, week after week after week.
Josh Raulerson (10:55):
But from a waste standpoint, really anything that doesn’t end up on the market, it doesn’t end up being available for consumers to use, is, is wasted, essentially. And I think here it would be helpful to have a little explanation of how, you know, how these leases actually work at the federal level. If an oil and gas company wants to extract oil and gas from a piece of land that’s owned by the federal government, you know, how is that deal structured and how does that inform the, the situation you’re documenting with the study?
Jon Goldstein (11:25):
Right, right. So the Bureau of Land Management holds periodic lease sales where they offer the opportunity for producers to come in and bid on parcels that they wanna develop. You know, those can generate a lot of revenue in places that are very active for drilling. Like you know, the Permian Basin in New Mexico, for instance, where there’s a lot of federal land and a lot of drilling going on they can generate little interest in, in other areas where maybe the, the resource isn’t as attractive. Once those leases are in hand, then the producers come back and, and come up with plans of how they intend to drill and produce, you know, the oil or gas or oil and gas from those leases. And that’s where things like these BLM rules come in. In the past it’s been sort of a wild west situation where you know, other than, than paying royalties, there was not a lot of oversight from the Bureau of Land Management about how that production was happening and trying to ensure that you know, the, the there was maximum benefit to the taxpayer and minimizing sort of the negative impacts to things like, you know, the environment and air quality and climate.
Jon Goldstein (12:49):
The Bureau of Land Management is, is now at the direction of president Biden working on some rules to try and improve their regulatory approaches and try and limit waste better. What they’ve proposed so far is mainly focused on raising revenue and assessing royalties on that wasted natural gas. That’s good. That’s a step in the right direction. You know, definitely wanna see the, the US taxpayer at least get the royalties due to them from this production of, you know resources that belong to all of us. The problem is though, that I don’t think it’s gonna have the impact that it needs to have to really sort of end routine venting and flaring. I, I, I’m afraid that though that’ll just become a cost of doing business and companies will just write a check and they won’t actually do anything to reduce the volume of gas that’s being vented or flared.
Jon Goldstein (13:58):
And the reason I’m worried about this is that we actually have a, an example of this where the Carlsbad field office in New Mexico has been assessing royalties on this gas, this quote unquote wasted gas that’s being sent to flares for many years. And it’s had no impact on the amount of gas that’s being flared. It’s just become this cost of business problem. And so what we’d like to see BLM do before these rules get finalized is to try and improve upon them to build from the foundation of what leading states have put in place. Most recently, both Colorado and New Mexico have put regulations in place at the state level to end routine venting and flaring. And we’d like to see BLM build from that and, and try and put some more teeth and some more restrictions on venting and flaring at the federal level as well.
Josh Raulerson (14:57):
So the, the royalties are assessed on the basis of the volume that’s actually sold, right? Not necessarily the, the amount that comes out of the ground. And that’s part of the issue, right? So I mean, is it, is it accurate to say, is it fair to say that up until that point of sale that the gas is the property of the US taxpayer, of the government?
Jon Goldstein (15:17):
Absolutely. I think that’s a, that’s exactly right. And, and the way it works is that those royalties that are collected are divvied up just about 50 50 between what goes into the Federal Treasury and what goes back to the state in which the resource was produced. And this is a significant source of revenue, particularly for Western states where a lot of this federal land production occurs. So you’re talking about millions and millions of dollars a year that’s either going to be able to flow into state coffers and fund things like education and infrastructure and healthcare and all those important state needs or that won’t, and that’ll just get left on the table.
Josh Raulerson (16:01):
How are we defining waste, both in terms of, as we’ve been talking about kind of the, the market value or use value of the actual CH four, you know, combustible methane, and then there’s this whole other category of revenues that are being left on the table. What are the different kinds of <laugh> different forms, I guess, that this waste is taking that, that you see in the report?
Jon Goldstein (16:23):
Yeah, so, so, you know, to try and understand this issue better we worked with an independent analysis firm to try and come up with some numbers around this. So we you know, went out and contracted with Synapse Energy Economics and teamed up with a, a national group called Taxpayers for Common Sense to try and put some numbers around this problem. And what Synapse found was significant. So looking at 2019 as the base year, and we can talk about why 2019 but what they found was 500 million worth of natural gas was wasted, so vented, flared or leaked in that year which is a lot of, of money, that’s a lot of natural gas that didn’t get brought to market. And what that translates to in terms of revenue had that all been captured and the, the federal cash register run that would’ve meant nearly 64 million in additional revenue to states, tribes, and the federal government that wasn’t realized because of this waste problem.
Josh Raulerson (17:42):
So we’re going keep going back and forth, I think, between these two poles, but looking at how the, the actual gas, the volume of gas how much are we talking about that is being wasted in terms of cubic feet or whatever? And, and even better would be, if you can conceptualize that somehow in terms of equivalence, how do, how do you get your mind around the volume of, of gas that’s being
Jon Goldstein (18:03):
Wasted? So you know, to, to put this in a volumetric perspective, we’re talking about 163 billion cubic feet of lost methane. So that’s enough wasted natural gas to meet the needs of 2.2 million households which is nearly as many households as are in New Mexico, North Dakota, Utah, and Wyoming combined. So that’s a lot of gas. That’s, that’s not being produced and that’s especially important right now if you think about what’s going on internationally and all the important emphasis that’s being put on trying to help our European allies get off of Russian natural gas right now to, to not, you know, further support the horrific war that Putin is perpetrating in Ukraine. And so it’s unconscionable, I think that we’re wasting that much natural gas here at home that we could be helping, you know, our, our friends and allies in Europe out with right now.
Josh Raulerson (19:12):
You know, according to this report, 56% I think is lost just to flaring alone. So when you look at venting and flaring together, as you said earlier, you know, these are not just things that have, these are intentional actions, not like leaks, not like infrastructure malfunctions. Why would an operator elect to vent or flare some gas, which in theory has value, they could, could sell that. Why would you choose not to? Is there actually a financial incentive in play here to, you know, to do these practices?
Jon Goldstein (19:40):
That’s a big part of it. It’s, it’s just economics and, and what I think economists would consider a market failure. These are mostly problems at oil wells. So these are wells that were drilled to produce oil, not to produce natural gas. In that case, the natural gas is treated as like a nuisance and something to be gotten rid of, not something to be produced. And the problem here is that you know, oil is the more lucrative commodity. So it’s, it’s going to garner a, you know, a higher price point on the market than natural gas is. So that’s why, you know, a, a company that’s publicly held and then has to report, you know, their, their the biggest return on investment possible to their shareholders they have a limited capital budget. They can invest that capital budget, say in drilling another oil well, that’s gonna give them, you know, a multiplier on their profits, or they can invest that capital budget in building out natural gas infrastructure to stop venting and flaring and to get that natural gas to market.
Jon Goldstein (20:49):
The market alone is always gonna drive that company to drill another oil well. It’s gonna make more money from that than it is from trying to build out an infrastructure for natural gas. And so that’s a market failure and that’s where the role of regulation steps in to try and sort of level that playing field and, and correct that problem just because it may not be in the financial best interest of that publicly traded company to make sure that that natural gas isn’t wasted. That natural gas belongs to all of us as taxpayers. And so it’s in our best interest to make sure it doesn’t get wasted. Cuz once it’s gone, it’s gone. And so that’s where I think BLM is rightly trying to step in and, and correct that.
Josh Raulerson (21:34):
We’ve been talking about this in terms of the effect on US taxpayers and we obviously we addressed climate. What are the other impacts in play here that are, you know, not necessarily directly related to the economics of it, but other environmental impacts, maybe public health? Is there a way to quantify all these other costs that are associated? And did your study account for those as well?
Jon Goldstein (21:57):
This study doesn’t look at those sort of bigger, you know, externalities and impacts, but certainly a lot of research and studies have, and it’s absolutely right that, you know, while waste is the, the primary driver for the Bureau of Land Management, it’s far from the only problem that you see with oil and gas development. And that’s where the complementary regulatory issues that the Environmental Protection Agency are working on come into play too. So methane, you know, very powerful greenhouse gas responsible for, I think as much as a a as a quarter of the climate change that we’re already experiencing. So really important to get a a grasp on that from a climate perspective. Methane leaks, when they’re addressed in production infrastructure you know, wells in Western Pennsylvania and across the US also limit pollution of volatile organic compounds.
Jon Goldstein (23:02):
These are the, the precursors to ozone or smog formation that is a problem in Pennsylvania and a problem in oil and gas areas across the us. So there’s a big co-benefit there in terms of also limiting you know, exposure to, to smug that can lead to things like asthma and cardiovascular problems, and particularly in kids in the elderly. Not to mention that addressing those leaks also limit pollution of air toxics, things like benze that are known carcinogens. So really important, you know, for the, for global warming for the globe, but also really important for local communities that have to live on the front lines of this development.
Josh Raulerson (23:52):
Well, and other local impacts include economic impacts that aren’t directly tied to any of this. And again, Pennsylvania, right now we’re very much focused, at least at the Pennsylvania Environmental Council, we’re focused on the role of public lands in our outdoor economy, which is one of the largest and fastest growing. I know certainly that’s the case in a lot of western states. Colorado’s definitely out there. How are, I mean, maybe not just limiting your response to that category of, of the outdoor economy, but what are some other economic players out there that are affected by these practices directly or indirectly?
Jon Goldstein (24:27):
You’re definitely right to, to put a spotlight on the outdoor recreation industry. You know, the, these public lands are, are not just you know, used for, for oil and gas development, obviously. They’re also big drivers of outdoor recreation economies across the us and that’s an industry that I think has been very vocal in terms of wanting to make sure that that that industry doesn’t get unnecessarily harmed by things like poor air quality that might lead people to be like, you know what? Like, I don’t really wanna go ride my mountain bike in that smoggy sort of you know, area. So I’m gonna, I’m gonna take my dollars elsewhere. So that’s, that’s an important one. The other one that comes to mind is one that might not be front of mind for everybody, but there’s a big and growing methane mitigation industry.
Jon Goldstein (25:25):
So these are the companies that make the infrared cameras that are used to find and fix these leaks outta the oil and gas field. They manufacture and then deploy the valves that are not going to leak as much, that then get installed out at the well sites et cetera. And these jobs, this industry is growing and the jobs tend to cluster in areas where, one, the development is occurring and two, where there are efforts in place to try and limit the problem that creates a market for these solutions. And so we’ve seen these jobs grow in places like New Mexico that have put state level rules in place. Colorado is another example, and we’re really I think encouraged by the potential for this to grow nationwide, you know, once these federal rules get, get in place.
Josh Raulerson (26:22):
I guess that’s the flip side of a, of a market failure is sometimes there are market solutions available, at least in theory, in the realm of solutions. You’ve mentioned regulatory approaches, you know, the different various three letter agencies have their own approaches and their own agendas, some promising things maybe on the horizon. I’m wondering if, if there are other approaches that might work, like for example, is there anything in the way the leases are structured or, or just the way the leasing system is, is set up that could be changed or modified to, you know, remove some of these perverse incentives? Does the fact that the US government is the landowner here, put them in a better position to kind of force change and, you know, and if that’s the case, could states do that too?
Jon Goldstein (27:07):
Yeah, I think there’s absolutely opportunities there. I don’t wanna pretend that I have all the solutions I have, I work with, with folks that I think are far more expert in that area and the need for reform, leasing reform than I am. One thing I do know is that I think the, the royalty rates that are as assessed are, haven’t been updated in several decades. So I know that there’s a lot of groups that are working on trying to have those royalty rates be increased so that, you know, there’s, there’s more benefit being felt and more, more revenue being realized from these sorts of production activities. But there, I think there are, there are other groups that could probably speak to that in that broader push for releasing reform than I can.
Josh Raulerson (27:54):
Is there anything that, that Pennsylvania could be doing or should be doing to, to make things better in this area?
Jon Goldstein (28:00):
Yeah, definitely. There, there’s definitely a role for the state to play. So the state has put some rules in place under governor Wolf. They were not as robust or as strong as what the leading state approaches have been in places like New Mexico and Colorado, for instance. And I think there’s an opportunity for the state under new Governor Shapiro to raise that bar. I think that the opportunity will come likely after the EPA rule gets finalized. We’re anticipating that that will happen in August, that will then kick it over to the state to adopt and to you know, make sure that at a minimum it’s meeting those federal finalized requirements, but it doesn’t have to stop there. Like there, there could be an opportunity for, for further reductions. And so we’re, you know, gonna be very much looking at that opportunity and are, are excited about you know, working with the Shapiro administration to get those rules in place so that they start benefiting folks in Pennsylvania as soon as
Josh Raulerson (29:12):
Possible. John Goldstein, senior Director of Regulatory and Legislative Affairs with E D F. Thanks so much for being on Pennsylvania legacies today.
Jon Goldstein (29:20):
My pleasure, Josh. Great chatting with you.
Josh Raulerson (29:25):
That’s John Goldstein with Environmental Defense Fund. We’ve got the link to their recent report on natural gas waste on US Public lands in the post accompanying this podcast episode on our website, which you’ll find at pecpa.org. All of our past episodes can be streamed from the website as well. And if you hadn’t noticed yet, we’ve also begun posting transcripts of these interviews for easy reference and as an alternative to audio, find them again at pecpa.org. That’s all for this edition of Pennsylvania Legacies. Glad you were able to join us and hope you’ll do so for the next one. Until then, for the Pennsylvania Environmental Council, I’m Josh Raulerson. Thanks for listening.