Report: Proposed BLM methane waste rule will increase production, revenue in New Mexico's San Juan Basin

Apr 28, 2016

Methane is flared off on an oil drilling operation.

Photo by Mason Cummings
A new study by the Conservation Economics Institute has found that the Bureau of Land Management’s (BLM) proposed methane waste rule will have a net positive impact on oil and gas production and revenue in New Mexico’s San Juan Basin.

An analysis of more than 8,700 low-producing natural gas wells in two counties in the San Juan Basin, San Juan and Rio Arriba, determined that BLM’s rule will have little to no negative impact on these marginal wells.

The results of the study indicate that the new rule—which aims to reduce waste from venting, flaring and leaks from oil and gas operations on public and tribal lands—will actually increase overall production and royalties paid to support vital services in the state of New Mexico.

“This study finds that by applying the BLM leak detection and repair provisions in the San Juan Basin alone, the state can expect an increase in royalty revenue of between $1 million to $6 million per year, depending on future price scenarios,” said the lead author of the report Pete Morton, Ph.D., Senior Economist at the Conservation Economics Institute.

“Under all of the price scenarios examined, we estimate that detecting and repairing leaks at natural gas well pads will have a positive effect on production and royalties in the San Juan Basin,” continued Morton. “Our analysis indicates that capturing the methane currently wasted provides a win-win scenario for the environment and for industry’s bottom line.”

The study also found that, under the BLM’s methane waste rule, the vast majority of the marginal wells in the San Juan Basin will see a reduction in emissions and an increase in efficiency and revenue. Costs of implementing BLM’s leak detection and repair (LDAR) requirements will exceed revenue for only the very smallest wells (those producing less than 15 thousand cubic feet per day of natural gas) in the basin, which are responsible for less than 1 percent of the production.

Even then, these costs are projected to be very small—less than 3 percent of annual costs for the average marginal well. And after the new revenue from capturing the leaked methane is factored in, LDAR compliance costs will drop close to 1 percent of annual costs for the most marginal wells. 

“This report fits with what New Mexicans know intuitively to be the case—that less waste of New Mexico’s natural gas resources means more funding for schools, roads and local communities,” said Jon Goldstein, Senior Energy Policy Manager with Environmental Defense Fund. “Despite protestations from some in industry, study after study has shown that capturing methane is very cost effective, not to mention has huge air quality and climate co-benefits.”

CEI’s study examines the economic factors currently impacting the San Juan Basin’s oil and gas industry, determining that the current economic downturn in the basin is due to external factors, such as low commodity prices, competition from shale gas and market saturation—not regulatory burdens. It finds that the cost of the BLM methane rule will not be a primary economic factor for the determination of continued production versus well shut-in, and may very well improve most well financials.

“Reducing natural gas waste is simply common sense,” said Josh Mantell, Carbon Management Campaign Manager for The Wilderness Society. “This independent economic analysis confirms what the BLM has said over and over again: Capturing natural gas is good for consumers, taxpayers and the environment.”

The San Juan Basin is one of the most concentrated areas for oil and gas development on public lands in the U.S. and the site of a large methane hot spot—the most concentrated plume of this pollutant in the country.

The San Juan Basin also has a very high rate of wasted gas relative to the amount of gas it produces. The area is responsible for only 4 percent of U.S. gas production, but is responsible for 17 percent of overall methane loss according to a recent analysis.

These new findings support previous national studies that have found that implementation of methane-capture requirements are very cost effective. In fact, according to a 2014 study, capturing most lost methane costs little more than one penny per thousand cubic feet of gas produced. In addition, a recent study from the Center for Methane Emissions Solutions found that 70 percent of oil and gas producers interviewed in Colorado found compliance with that state’s methane-capture requirements to be very cost effective.

BLM’s new natural gas waste rule is expected to be finalized sometime this year.

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