New Methane Gas Emission Rules Raise Questions​ – MNP LLP

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New regulations to cut methane gas emissions might address some of Ottawa’s concerns about climate change but leave some in the oil and gas industry with questions and concerns about the process.

At issue is the analysis in the government’s Regulatory Impact Analysis Statement released on May 25.  Questions include the source of the data used by the government to craft the regulations, the depth of the impact on an industry already hit by lower energy prices, and how the federal government will reconcile its efforts with those of the provinces.

Lanny Westersund, MNP Senior Advisor for government affairs, said the existence of climate change and the contribution of carbon and methane to global warming are generally accepted.

“Everybody has to work collaboratively to ensure, from an oil and gas standpoint, that methane emissions are capped and reduced so they can mitigate the effects oil and gas development have on climate change,” he said, from Calgary.

“But you have to do that in a fact-based manner and you have to do that by listening to a broad range of stakeholders to decide how best to get there. Because all things are complementary, both from a development side of the resources and from an environmental conservation side.”

The general public, industry groups and provinces can submit their views on the new regulations to the federal government until July 27 and oil and gas industry officials have urged people to do so.

Westersund said a broad, fact-based consultation will be vital to coming up with solutions that will meet everyone’s needs and the ultimate objective.

He said MNP, which serves many clients in the oil and gas industry, can provide useful advice and expertise to help companies work through the regulatory process.

“Methane regulations are the fine tip of the wedge,” he said, explaining MNP’s Oilfield Services team could help ensure a company was well aware of its costs in dealing with the new rules.

Tim McMillan, president and chief executive officer of the Canadian Association of Petroleum Producers, emphasized the industry is eager to be part of the process. “CAPP recognizes the role industry must play in environmental stewardship,” he said in a statement.

“Both British Columbia and Alberta already have strict regulations on flaring, venting and fugitive emissions from upstream facilities that serve as models of success for other jurisdictions domestically and internationally.

“CAPP will work with regulators, government, and stakeholders to deliver action on climate change while realizing the economic benefits the oil and natural gas sector bring to the national economy.”

Gary Leach, president of the Explorers and Producers Association of Canada, said in an interview he believes Ottawa’s objective can be reached. He just has one piece of advice: “Let’s not do it stupidly.”

“Let’s not throw dollars at solutions that don’t recover the most methane, that don’t capture and reduce the most methane volumes. Let’s go after the biggest prizes, the prizes with the biggest bang for the investment buck,” Leach said.

For example, the regulations could be waived for small facilities that emit relatively miniscule amounts of methane, he said. Doing otherwise might mean an economic penalty because the well might be deemed unworthy of the investment to reduce the emission and would simply be closed.

He pointed to a potential ripple effect in these cases where low-producing wells are abandoned, meaning not only a waste of the available energy but losses in royalties, taxes and in some cases, surface leases.

Leach also expressed concerns the new regulations would give another advantage to competitors in the U.S. who don’t face the same rules as Canadian producers.

He pointed out the North American oil and gas industry is “completely seamless” and that when investors are pondering where to put their money, increased regulation might prompt them to spend more down south in an environment that seems more business-friendly.

“The government should have hit the pause button on these initiatives until they waited to see where the United States was going,” he said, adding that is not just his opinion but the position of his organization.

He acknowledged that some firms that specialize in methane emissions mitigation technology and services might benefit from the new rules but added those gains would be offset because other companies would have to divert money from other investments to meet the regulation requirements.

While Leach was not optimistic about seeing any changes as the results of the current consultations, he did expect negotiations with provinces such as Alberta, B.C. and Saskatchewan, which are already devising their own standards, would result in equivalency agreements that would meet the federal targets but be tailored to a specific region’s profile.

He said that would likely work well because each province has different emission sources and different emission profiles require different solutions and spending targets.

“The hope for outcome is the regulations provide enough latitude, they’re more sensibly drawn so that they still can be reasonably assured that they’ll hit those methane reduction targets by 2025 but they’ll do it with the least amount of economic harm,” Leach said.

Contact MNP’s Oilfield Services Team​