The curious and potentially catastrophic case of your tax dollars being lit on fire. Oil and gas companies waste billions of cubic feet of natural gas extracted from federal lands, royalty-free, every year by just venting it or burning it off. Hit play for the facts about how methane waste on federal lands is causing economic damage to all taxpayers – and the climate.  Host Steve Ellis is joined by TCS Vice President, Autumn Hanna; Mia Huang, TCS Research and Data Analyst; and Tyler Work, TCS Development and Research Associate.

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Episode 29 – Transcript

Announcer:

Welcome to Budget Watchdog All Federal, the podcast dedicated to making sense of the budget, spending, and tax issues facing the nation. Cut through the partisan rhetoric and talking points for the facts about what’s being talked about, bandied about, and pushed in Washington. Brought to you by Taxpayers For Common Sense. And now the host of Budget Watchdog AF, TCS President Steve Ellis.

Steve Ellis:

Welcome to all American taxpayers seeking common sense. You’ve made it to the right place. For 25 years, TCS, that’s Taxpayers for Common Sense, has served as an independent nonpartisan budget watchdog group based in Washington DC. We believe in fiscal policy for America that is based on facts. We believe in transparency and accountability because no matter where you are on the political spectrum, no one wants to see their tax dollars wasted. And yet today as we come on the air with episode 29 of Budget Watchdog AF, guess what? That’s right, we have another remarkably and entirely preventable case of your tax dollars being lit on fire. If the story you’re about to hear wasn’t so life threateningly serious, it would almost be funny. Funny that in the year 2022, the US government could still be so careless with regard to taxpayer dollars that they allow oil and gas companies to waste billions of cubic feet of natural gas extracted on federal lands royalty free every single year.

Steve Ellis:

Yeah, that’s a great deal of lost revenue to taxpayers, but here comes the tragic part. The wasting of natural gas is achieved by failing to capture it. Instead, oil and gas companies either vent it or burn it off. What could go wrong? It’s only lost money, right? Actually, no. Joining us now to explain how the methane waste on federal lands is causing economic damage to all taxpayers and the climate is TCS vice president, Autumn Hannah, Mia Huang, TCS research and data analyst, and Tyler Work, TCS development and research associate. Welcome to the program, all.

Mia Huang:

Good to be back.

Autumn Hanna:

Good to be here, Steve.

Tyler Work:

Great to be here.

Steve Ellis:

Great. We’re glad you’re here. So Autumn, let’s start with you. I know that TCS has just released another report on methane waste. What’s the problem of the gas lost on federal land?

Autumn Hanna:

Well, Steve. Methane is the largest component of natural gas, and thanks to some really outdated and irresponsible practices, we lose a lot of this valuable resource from federal oil and gas operations. That’s drilling oil and gas from the federal mineral estate, from the public lands and the publicly owned minerals taxpayers own. Over the years, TCS has been tracking this methane waste as you mentioned, and we’re looking at all federal operations, and we’ve been calling for reforms to stop the waste and get taxpayers a fair return. Under the current rules, we allow methane to be released into the atmosphere, either leaking or venting it or burning it off, and taxpayers are taking a double hit. We’re not getting any compensation for the oil and gas because it doesn’t get brought to market, it’s not charged to royalty, and we’re paying in the long run because that released methane carries a significant climate impact and taxpayer liability.

Autumn Hanna:

As we’ve discussed on the podcast before, taxpayers are paying for climate change impacts now and will be paying even more down the road. Many of our government policies are really making the problem worse. Instead of decreasing climate harms and taxpayer costs, we’re increasing them and that’s the case with methane.

Steve Ellis:

Well, I definitely see that the methane connection and the issue on climate. These climate costs are urgent and increasing. I know we’ve already got some good attention to our latest analysis, a couple of news stories and the folks on Capitol Hill are often taking notice.

Autumn Hanna:

We have been calling attention to this problem for years and folks know that we have, and we’ve been diving into the data so they’re looking for these analyses. And at the end of last month, we released our latest gas giveaways too, and the subtitle this time around was Methane Waste is Business as Usual, which is unfortunately an appropriate subtitle. That’s because this waste has become business as usual for the oil and gas industry and it’s a huge problem for taxpayers. There’s already been close to a billion dollars worth of lost gas over the last decade, so consumers aren’t getting that gas and taxpayers aren’t getting any royalties for it either.

Steve Ellis:

Well, business as usual doesn’t seem like good business to me, but before we dive into it anymore, it might be helpful to understand a little bit more about what we are talking about here. Tyler, I’m going to turn to you. Can you provide us some background on what methane is and why and how we waste it?

Tyler Work:

Absolutely, Steve. As Autumn said, methane is the largest component of natural gas, which is why the terms methane and natural gas are sometimes used interchangeably. Like oil, natural gas is formed from organic matter buried under the earth’s surface and subjected to intense pressure for millions of years. And when companies drill for oil or natural gas, methane is frequently released into the atmosphere, both purposely and accidentally. Purposefully, operators may vent methane, directly releasing it into the air, or burn it, which is flaring. Accidentally, natural gas may leak into the atmosphere because of old or improperly sealed equipment. Leakage by its nature is difficult to track and is sometimes referred to as fugitive emissions.

Steve Ellis:

Well, fugitive seems appropriate. I mean, it did escape.

Tyler Work:

It’s true, those did escape, but it’s important that all of these emissions, venting, flaring and leakage, really add up over time. Over the last decade, oil and gas operators on federal lands vented, flared and leaked 300 billion cubic feet of natural gas. And as Autumn mentioned earlier, the loss of this valuable resource is a double hit for taxpayers because methane is such a potent pollutant. Methane is a greenhouse gas so its presence in the atmosphere contributes to climate change and the taxpayer costs associated with climate change. Methane has a global warming potential 80 times higher than carbon dioxide for the first 20 years it’s in the atmosphere. Globally, oil and natural gas systems are responsible for about 34% of manmade made emissions.

Steve Ellis:

And you hear so much about CO2, and understandably and it’s important, but we were saying here, methane is such a bigger impact per cubic foot I guess you would say, and that is a huge impact. Now, so I understand the what and how we waste methane but what about the why? It seems to me the operators can sell this gas so why are they wasting it?

Tyler Work:

In an ideal world, there’d be no methane leakage and operators would only vent or flare methane in emergency situations, but the reality is that operators have other priorities which sometimes results in wasting gas. Of the two purposeful sources of methane emissions, venting and flaring, flaring is far more prevalent and accounted for 82% of all gas lost on federal lands over the past decade. And Steve, something you might find surprising is that this flaring isn’t evenly distributed. Most flaring occurs at oil wells. You see, since oil and gas form under such similar conditions, operators drilling for oil will frequently find natural gas as well. But the infrastructure needed to capture that commingled natural gas is obviously different than what’s needed to capture oil.

Tyler Work:

So in the end, what we’re seeing is many oil drillers are choosing to flare the gas instead of building the infrastructure needed to capture it, and why wouldn’t they? Right now, oil operators don’t have a big enough incentive to capture this commingled natural gas. It’s not their gas, it’s the taxpayers gas, so while operators are losing an opportunity to capture and sell valuable methane, at the end of the day, it’s taxpayers who are watching our resource disappear into thin air, literally.

Steve Ellis:

And I can tell you, there’s a lot of people who are going to be looking at their natural gas bills this winter wishing some of that had been captured.

Tyler Work:

As they should, because the thing is, Steve, we have the technology to capture methane and prevent this waste. In 2010, the Government Accountability Office, that’s the nonpartisan investigative arm of Congress, found that about 40% of vented and flared natural gas on federal lands could have been economically captured with the currently available technology, and more recent studies have reiterated this fact suggesting that a large share of methane emissions can be eliminated at a relatively low cost. But the solution to methane waste on federal lands is more than just capturing what is economical for the oil and gas industry. We don’t fault industry for doing what industry does, prioritizing producing and selling oil and natural gas for profit. Taxpayers and the federal government just have different priorities like managing our federal resources to preserve their value, ensuring a fair return to taxpayers from private interests who use those resources for profit, and avoiding future taxpayer liabilities. And we believe that this blatant waste of methane on federal lambs is an example of the government not fulfilling these responsibilities, and they haven’t for a while.

Steve Ellis:

So what you’re telling me, Tyler, is this is not a new issue. This has been around and they just haven’t done squat about it.

Tyler Work:

Exactly. This is not a new issue at all. Evidence of unauthorized venting and flaring appeared in the public record more than three decades ago. All the way back in 2004, the Government Accountability Office was reporting that the federal government did not have an oversight mechanism in place to monitor the amount of venting and flaring that was happening, and the problem has only been getting worse, partially because of technological advancements in drilling like hydraulic fracking. Between 2006 and 2012, the annual amount of methane lost on federal lands every year increased by about 70%, and by a 2015, only three years later, that amount had more than doubled. So yeah, methane waste on federal lands has been a growing issue for decades.

Steve Ellis:

So we already had a problem, then new technology came and made that problem even worse. We have the climate change issue going on and it’s accelerating through the methane waste, and so this is just kind of staggering. Thank you for this, Tyler. Taxpayers are facing really a triple whammy, this vented, flared and fugitive methane is a potent greenhouse gas so that increases taxpayer liabilities from climate change, taxpayers aren’t getting the revenue from this gas, and industry is wasting natural gas that could have been used to power homes while gas from federal lands is literally going up in smoke. Sheesh.

Steve Ellis:

You’re listening to Budget Watch Dog All Federal, the podcast dedicated to making sense of the budget, spending, and tax issues facing the nation. I’m your host, TCS president, Steve Ellis. Before we continue with Autumn Hannah, Mia Huang and Tyler Work, I want to call something to your attention, Budget Watchdog AF faithful. I hope you’ll take a look at the weekly waste baskets up right now at taxpayer.net. The title of the article is Extra Cash for the Tax Man, and you’ll get our take on why keeping the IRS underfunded and understaffed helps no one. Mia, you’ve been on the sidelines so far this podcast but I know you’ve been sifting through the ashes of our burnt money. How much have taxpayers lost?

Mia Huang:

Well, Steve. According to self-reported data from operators over the last 10 fiscal years, approximately 300 billion cubic feet or Bcf of natural gas was vented, flared and lost on federal lands. Tyler talked about these 300 Bcf numbers but what does it really mean? To put it into perspective, that’s enough energy to power more than 3.2 million households’ electricity use. If we used the average monthly Henry Hub Natural Gas Spot Prices, this gas had an estimated value of close to a billion dollars.

Steve Ellis:

What do you mean about self-reported data?

Mia Huang:

That’s a great question, Steve. There’s really no point in talking about data when you don’t address the limitation of the data itself. So the data we use in the report are self-reported by oil and gas operators and collected by the Office of Natural Resources Revenue, or ONRR, within the Department of the Interior. There’s really little to no incentive for operators to estimate the volume of lost gas accurately because there’s little oversight by the DOI to check if they have. So during the covered periods in the report, operators were not required to check for leaks or detect fugitive emissions, even though these are really common occurrences throughout the oil and gas production process.

Mia Huang:

There are also inconsistencies within government data. For example, different agencies like the Government Accountability Office using EPA data and the Bureau of Land Management have had different estimates over the years. We also know that studies using satellite imagery to measure flaring also indicate that actual volumes lost are much greater than available data suggests. For example, in 2015, operators reported flaring 29 Bcf of natural gas in New Mexico. The satellite data indicates that 42 Bcf gas was actually flared, 46% more than what was actually reported. So the data we currently have does not tell the full story by any stretch. We also lack information about emissions from abandoned or poorly sealed wells, which are also significant sources of lost gas. But the DOI does not collect that data either so the 300 Bcf of lost gas may very well be just the tip of the iceberg.

Steve Ellis:

Or just some of the ashes of our burnt money, the other stuff is hidden elsewhere on public lands. And I think that there’s no incentive for these companies to actually tell government what it is but it’s not something that they really see as their job and certainly it’s not costing them anything. So from what I’m getting, Mia, is that this problem could be much larger, but even with the limitations of this self-reported data, we can still see that there’s a massive problem. What else did we find when you look through these numbers?

Mia Huang:

As previously mentioned, this 300 Bcf gas has an estimated value of around $1 billion, which could very well be an underestimation. And if royalties have been collected at the rate of 12.5% on all of that loss gas over the last decade, taxpayers would’ve received $120 million. Instead, only $43 million were collected in royalties on gas vented and flared, approximately only a third of what taxpayers should have gotten.

Steve Ellis:

Okay. So there’s another layer here and so we’re not getting the cash on this lost gas or wasted gas. So tell our listeners, what did lead to this under collection of royalties?

Mia Huang:

So oil and gas producers are currently operating under a role that was first issued in 1979 when oil and gas production looked a lot different, before fracking became prevalent. The rule known as NTL 4A does not have clear guidance on when royalties should be collected on that gas waste. This ambiguity led to an inconsistent imposition of royalties in different states and even different field offices within the same state, as well as differences from one year to the next. Like Tyler mentioned, a lot of that gas waste was caused by operators rushing to produce oil without establishing proper infrastructure that could capture gas, and independent studies have said a lot more gas could have been brought to the market.

Mia Huang:

But the current rules lack that clarity and some agency offices consider that gas as unavoidably lost, and therefore basically aren’t charging a single penny at all. For example, over the last decade, operators in New Mexico reported losing about 1.4 times the volume of lost gas reported in North Dakota. However, ONRR collected a lot more revenues in New Mexico than in North Dakota, 4.4 times more to be exact. And this happened because there is inconsistent administration of what is considered avoidably lost gas under the current rules. New Mexico lightly has stricter rules compared to North Dakota for determining when that loss gas should be charged a royalty.

Steve Ellis:

And so certainly, our theory of change here is that if we actually were charging them for this gas that they vented, flared and lost, the fugitive gas, that then they would have much more incentive to actually capture it and bring it to market and actually offset those royalties with some actual revenues. All right. Let’s go back to you Autumn. With all this going on, what happens next?

Autumn Hanna:

So as we’ve discussed, there’s clear evidence that the current policies are falling dramatically short. We continue to waste taxpayer natural gas through venting, flaring and leakage. We make clear in our new report, we need a new rule from the Bureau of Land Management as soon as possible. The BLM has clear authority and indeed a statutory obligation, “To prevent waste of oil and gas developed in the land,” and to assess and collect royalties on the produced resources.

Steve Ellis:

So just to be really clear and underscore this point, Congress has directed BLM to actually prevent waste of oil or gas developed in the land. So this is something that isn’t like it’s a good thing to do or nice thing to do, it’s what they’re legally required to do.

Autumn Hanna:

That’s right. We need them to stop the waste we need. We want them to create clear guidance and ban all non-emergency flaring to help alleviate the growing costs of climate change and curtail the wasted gas, the taxpayer owned gas from all of our leases on federal lands. We had a new rule in 2016 but that was thrown out during the Trump administration, and now the Bureau of Land Management is working on a new rule and we hope to see a draft very soon.

Autumn Hanna:

The Inflation Reduction Act also created a fee for loss gas from oil and gas operations. Operators will be charged $900 per ton of methane over a certain threshold with that amount increasing in 2025 and 2026. However, the methane fee would only apply to facilities emitting more than 25,000 metric tons of carbon dioxide equivalent, or GHD. Despite this limited approach, it’s a positive step and we were excited to even see that it was included. It really draws attention to the problem and shows we need to do something about the methane waste. We’re planning to monitor how this fee is implemented and better understand its impact on lost gas from federal land.

Steve Ellis:

Budget Watchdog AF listeners, you all know the Inflation Reduction Act, which was the FY ’22 budget reconciliation package, and so some of this stems from limitations on what can be included in reconciliation. You can listen to a couple of podcasts ago to get a little bit more into the weeds on that, but basically, policy is not something that can be in reconciliation, it has to be revenue, spending or the debt ceiling.

Autumn Hanna:

And Steve, one more thing. The Environmental Protection Agency is also involved in the rule making that covers methane beyond federal oil and gas operations. Since methane carries such an outsized climate liability, this is an important rule for taxpayers to watch as well.

Steve Ellis:

Gotcha. Good point. Thank you for that. So we’re really just going to have to wait and see how these policy updates progress, but meanwhile, we’ll keep alerting folks to this problem. The taxpayer costs, the climate impacts and liabilities definitely mean this is a problem that policy makers have to tackle. We need to get this right. We should not be allowing oil and gas companies to operate under 30 year old rules that provide no real incentive to stop the waste.

Steve Ellis:

So there you have it, listeners. Carelessness is costly and climate impacts need real solutions. Taxpayers must demand better. This is the frequency. Mark it on your dial, subscribe and share, and know this, Taxpayers for Common Sense has your back, America. We read the bills, monitor the earmarks, and highlight those wasteful programs that poorly spend our money and shift long term risk to taxpayers. We’ll be back soon with a new episode and I hope you’ll meet us right here.