JONATHAN COHN DECEMBER 15, 2010
It’s always an exciting opportunity when the federal government can raise revenue and protect the environment while simultaneously increasing profits at private businesses. That’s why a recent Government Accountability Office (GAO) report on waste from the energy production processes is encouraging, even if it’s irritating.
When energy companies like Shell, BP and the hordes of other, smaller firms drill for oil and natural gas, some gas inevitably bubbles to the surface or seeps out through leaky pipes and ineffective storage systems. The companies burn off some of the bubbles. That’s called “flaring.” The rest escapes into the air. That’s called “venting.”
The companies are required to report how much gas they flare and vent. But, according to the GAO, companies wildly underreport the amounts. From 2006 to 2008, for example, companies reported venting or flaring about 0.13 percent of natural gas produced. But the real amount, according to EPA estimates, was actually 30 times higher—approximately 4.2 percent of production or around 126 billion cubic feet of gas.
That’s enough gas to heat 1.7 million homes for an entire year.
Wait a minute—natural gas is really valuable. Venting and flaring it lowers local air quality and contributes to climate change. So why are energy companies releasing so much of it?
The GAO blames several culprits: a lack of technological sophistication, severely outdated regulations and the structure of the energy industry, but it seems that the fundamental problem is ignorance. Until recently, producers assumed the losses were minimal. According to the GAO, however, advances in infrared-camera technology have “helped reveal that losses from storage tanks and fugitive emissions were much higher than they originally thought.” This video provides several examples of how substantial leaks can appear non-existent. But the private sector hasn’t acted alone. Government has also been painfully slow to adapt. It hasn’t updated its venting and flaring regulations since 1980, before the new technologies existed.
Tighter regulation would benefit everybody. The federal government annually misses out on tens of millions of dollars worth of potential royalties. And what we call natural gas is technically known as methane, a greenhouse gas at least 25 times more potent than carbon dioxide. Limiting the amount that seeps into the atmosphere helps fight climate change. And the private sector? They actually stand to make a lot more money. At least 40 percent of the gas squandered in on-shore production “could be economically captured with currently available control technologies,” according to the GAO.
The payoff for investing in waste-reduction is remarkably high, too. One EPA program’s participants found that within one year, the improvements generally paid for themselves. After that, they generated substantial profits for their owners. Meanwhile, capturing only the “economically recoverable 40 percent” would also make a sizable impact on greenhouse gas emissions—about the same as taking 3.1 million cars off the road.
Some firms are already taking steps to reduce venting and flaring. BP, for example, reportedly installed and retrofitted equipment to minimize the problem, and they saw revenues rise by $5.8 million as a result. But progress is uneven. Smaller companies, the GAO reports, are often “unaware of the economic advantages” in part because “they do not have the time or expertise to undertake the engineering analysis to understand whether and how they can benefit.” The Interior Department, which is responsible for overseeing drilling, agrees with the GAO and is updating its rules. Let’s hope they finish that job soon. There’s money to be made. And cleaner air to be inhaled.