Opinion: The need for balance in the regulation of the oil and natural gas industry

Colorado is a national leader in its commitment to safe and responsible stewardship of the state’s oil and gas resources. Over the past several years, Colorado has implemented precedent-setting regulations, from baseline groundwater testing and monitoring, to air regulations targeting methane leak detection and repair. But we still have a long way to go, and while it’s not an easy road for regulators, it’s crucial we stay the course.

When Gov. Jared Polis signed Senate Bill 181 into law in 2019, the landmark legislation increased regulations on oil and natural gas development and operations in Colorado, with a focus on public health, safety, welfare, the environment and wildlife resources. While that law is the most comprehensive oil and natural gas legislation Colorado has seen, its passage marked the beginning, not the end of this journey. The ultimate impacts will be determined by many regulatory rulemakings at both the state and local levels.

Colorado was the first state to enact leak detection and repair regulations in 2014 to reduce methane emissions. In 2019, those rules were made more rigorous by the Air Quality Control Commission and are the toughest air regulations in the country.

Operators would prefer stability, predictability, and time to adjust to new regulations, yet if anything, the pace is picking up. We heard from one stakeholder that this is the 25th rule-making program that she has been a part of in the last five years. The state has been busy, but has it been effective?

Colorado is facing a balancing act in addressing public concerns over greenhouse gas emissions, enacting regulations specified by legislative action and allowing the oil and gas industry to continue to supply the market. It is not the state’s responsibility to ensure operators are profitable or that new technology companies grow their business. The objective is compliance with existing laws and regulations. In the case of air quality rules, it’s a moving target, with the goal being the state’s net zero road map.

Regulations and inspections are tools for the state to attempt to strike this balance. In an ideal world, all operators have the same motivation and capability to meet pragmatic expectations, but in reality, some operators will lead the pack in the adoption of new methods while others will lag behind. The right balance will be to encourage those companies that are out in front and, eventually, penalize those that cannot or will not meet the higher standards. New regulations should be written with an eye towards impacted communities and helping smaller firms with fewer resources meet the same standards that will legally apply to all.

For their part, operators face a patchwork of regulations. While it is obvious that many federal, state and local regulatory agencies are moving forward with new rules on methane emissions for upstream and midstream oil and gas production, processing and transportation, it is also clear that most of these agencies are taking different approaches. This is not a surprise given the overall  federal/state governance philosophy that exists in the U.S., but it does contribute to a fragmented regulatory landscape for oil and gas operators to navigate. The impact of new rulemakings will be different state to state, basin to basin, facility to facility.

Greenhouse gas emissions from oil and gas operations are falling in the U.S., but meeting the new targets by 2030 will make it difficult to balance the goals of the state’s Net-Zero Roadmap and the industry’s objectives to maintain production without an emphasis on next-generation facilities and greater monitoring and measurement of greenhouse gas emissions. The nature of unconventional reservoir development requires new drilling to offset rapid decline. New drilling permits and practical limits on emissions from production will have a significant impact on future production forecasts.

The new rule for methane emissions verification reporting is an important step toward a better understanding of industry sector methane emissions, but it is not the final destination. This approach is still based on engineering factors not direct, site-specific or source-specific measurements of greenhouse gas emissions.

Many are expecting the state to respond to community concern with direct, accurate, independent, site-specific, and real time measurement and reporting for local communities. This expectation is too ambitious for now and officials need to communicate clearly what can realistically be done. The implications of a “measurement-informed inventory” on regulatory agencies, the industry (even the best operators) and the current state of the measurement technology still involve many uncertainties and challenges.

Air quality measurement is a complex topic that is rapidly evolving, and the technical models and statistical details are not easy to communicate to the public. There is a heightened awareness that actions to reduce methane emissions are needed, but this ruling is only one part of the sprawling regulatory and industry best practices response. We need more time, more education and better communication, and collaboration between all stakeholders to get this right.

Some voices are urging the progress toward net-zero decarbonization to accelerate, and that we are out of time. Others suggest we are already moving too fast. Regulators are caught in the middle. After considering the significant implications of this move towards measurement-informed inventory reporting, it is our conclusion that the state is making an important step in the right direction, but that it is likely to face serious hurdles in execution.

To get the balance between environmental action and economic reality right, we all need more collaboration. This is not an argument for inaction but for more focus and clearer communications. Each cycle of measurement, reporting and inspection will lead to lower emissions. All stakeholders have to keep the priority on this issue. Some operators already have facilities that meet stricter standards, but not all. Enabling technology to help the industry move faster and help regulators and communities understand what is being done is essential. Effective regulations are an art form, and we must shape our expectations accordingly.

Jennifer Miskimins, of Golden, is professor and head of the Petroleum Engineering Department at Colorado School of Mines.

Jim Crompton, of Colorado Springs, is a professor of practice of petroleum engineering at Colorado School of Mines