Vignesh Gowrishankar’s Blog – Posted: August 1, 2012
Bloomberg Government (BGov) recently released a report [subscription required for full report] that assesses the business implications of the EPA’s regulations to control air pollution from the natural gas industry. While NRDC does not agree with some of the report’s specific cost estimates, NRDC does echo some of the key findings of the report: that the regulations will not be a burden on natural gas producers; that the price of natural gas drives production levels, while regulatory compliance costs have a minimal to imperceptible impact on production; and that the regulations will be lucrative and create jobs for many well service providers and equipment manufacturers, especially small and medium sized ones, which will be vital in this economy.
According to the report, the EPA estimated that the regulations would necessitate upfront industry-wide investments of $170 million, which would be more than compensated for from the sale of captured methane and natural gas liquids, thus generating a net profit of approximately $15 million. Unsurprisingly, in November 2011, the American Petroleum Institute (API) claimed sky-high annual costs of compliance, with an estimate of more than $2.5 billion (yup, with a ‘b’). In comparison, the BGov report estimates a net cost between $300 and $500 million.
At the outset, NRDC takes issue with BGov’s cost estimates for green completions, a process that captures vented, leaked or otherwise wasted natural gas from wells as they are being fracked and readied for natural gas extraction. BGov assumed 15 days for completing a well, at a cost of $4,500 per day. In addition, the report assumes $15,000 for set-up and transportation costs. That’s a total of $82,500. We think that number is too high for a few reasons