Petroleum systems lose natural gas to the atmosphere in many ways that have drawn a laser focus from regulators seeking to stem the impact of greenhouse gases on global warming. Emission sources include pneumatic controllers at production facilities, venting from compressors, inefficiently flared gas and methane that is simply lost and unaccounted for. But whether you are a producer, pipeline operator or gas processor, a new waste emissions charge (WEC) is poised to create financial penalties for these excess emissions beyond an allowable threshold. Assuming consistent operations, Enverus estimates the WEC will create up to a $2.1 billion annual impact on the oil and gas industry in 2025, adding more than $0.50 per BOE in costs to more than 70 of the country’s largest producers.
In addition to the WEC, two new methane tracking satellites launched in 2024 are intensifying the scrutiny on the industry’s emissions, MethaneSAT in March and the first Carbon Mapper Coalition satellite in August. With so many regulatory and technology cards on the table, a big wildcard that could add fuel to the fire is the EPA’s Super Emitter Response Program (SERP) that empowers approved third parties to search for large sources of methane in the oilfield and report these events to the EPA, potentially creating massive WEC liability for responsible companies.
Let’s delve into the regulations and risks backed by Enverus data and analysis.
The Regulatory Trifecta
The first piece of the emission’s regulatory trifecta works like a carrot and a stick. The carrot? Billions in Methane Emissions Reduction Production (MERP) incentives to retrofit facilities which were introduced in the Inflation Reduction Act (IRA). The stick is the methane fee, also introduced in the IRA, i.e., the WEC. The government’s WEC is going to tax oil and gas companies on excess methane until emissions are lowered to the point the company is largely in compliance with the EPA’s Quad Ob/c rules, the second piece of the trifecta.
While Quad Oa has a history of being enacted by one federal administration then revoked by the next like a game of ping pong, the most contentious Quad Oc rule may prove sticky and should not be ignored. Quad Ob is applied to new or modified facilities; however, Quad Oc requires all existing facilities to be compliant, entailing wide scale equipment upgrades and inspections to reduce emissions.
The WEC will begin hitting balance sheets in 2025 based on EPA emissions reporting from 2024. The charge begins to apply to methane emissions that exceed 0.20% of gas production for upstream operators, 0.11% of throughput for pipeline and storage, and 0.05% for gas processors. At $900 per metric ton starting this year and stepping up to $1,500 in 2026, the impact could be much higher than initially estimated due to the third component of the regulatory trifecta.
The Congressional Budget Office’s $6.35 billion estimate of revenue from the WEC over a 5-year period preceded a new EPA rule finalized in May that drastically changes how emissions are accounted for using much higher default emissions factors across sources. As a result, many companies are likely on the hook for more than they initially estimated, unless they make operational changes. In the example in Figure 1 generated from Enverus Emissions and Regulatory Analytics, the operator more than doubles its methane emissions with the EPA’s updated calculations leading to a substantial $20 million WEC liability.
FIGURE 1 | New emission factors double example operator’s methane creating a $20 million WEC liability
Previous small categories like methane slippage from compressors using the older calculations suddenly appear with the rising emissions factors, prompting urgent action with an exclamation mark! Enverus estimates companies with older legacy assets, typically private E&Ps and private equity backed independents, are going to be hit hardest with the WEC as Figure 2 shows of emissions by peer group estimates.
FIGURE 2 | The WEC and methane revisions disproportionately impact private operators
A silver lining to this perfect storm is the provision in the EPA rule to net emissions across all operated assets. For example, emissions for an Uinta facility that exceeds the minimum threshold can be offset by a Permian facility that comes in well under. Even this silver lining is uncertain, as the currently proposed implementation rules for the WEC require netting to occur at an operator -level, not the parent company -level, a significant distinction that could limit its effectiveness. This distinction may be changed when the final rules are released before the end of the year.
Super Emitter Response Program
The doubling of WEC liability resulting from updated emissions factors is just the base case for the industry assuming prior operational practices. Adding complexity and even more WEC risk is the intense focus on large emissions events, i.e., super emitters, or those releasing more than 100 kg/hr of methane. Such events often go unnoticed and unreported, until now.
Public emissions data capture is improving, increasing both in resolution and frequency of flyovers. This trend intersects with SERP, which authorizes approved third parties using EPA certified technology to identify super emitters. The events are then reported to the EPA, who notifies the operator potentially leading to higher reported methane and adding to its WEC liability.
So far, no one has yet signed up to participate in SERP, which officially aligns with Subpart W reporting and the WEC in January of 2025. We believe it will likely not pose much of a material risk on day one, however, if the prize for SERP participants is greenhouse gas reduction, then environmental organizations are bound to join eventually, including the Environmental Defense Fund who is a primary backer of MethaneSAT.
Absent facility upgrades, your ability to de-risk and reduce WEC depends on how defensible your data is. When an operator receives a SERP notification, accurate data is required to prove the length of the event to estimate the total emissions. Absent defendable data, a maximum duration of 91 days prior to the detection must be assumed creating large WEC liabilities. Strong data can also help show that a SERP event near your facility was actually a pipeline being blown down from neighboring producer.
A super emitter incident rate of ~1% was calculated based on Stanford’s Million Measurement study (Sherwin et al.) that included just under 95,000 Permian sites. Combined with cloud coverage analysis by Enverus and assumptions about satellite specifications, we can generate a range of WEC liability scenarios (Figure 3).
FIGURE 3 | Example SERP risk for a Permian operator with 1,000 sites
What’s Your WEC Risk?
The methane fee established in 2022’s Inflation Reduction Act is suddenly upon us. And with a dramatic plot twist, the fee could triple with revised accounting processes and super-emitter impacts. Arm yourself with the data and analysis needed to navigate the regulatory rapids. While rising emissions factors seemed inevitable, Enverus took an early lead in helping energy companies understand their own emissions liability with our Emissions and Regulatory Analytics in Enverus PRISM®. Emission management is now part of the deal. Enverus data and insights can help you understand where you sit in the industry, forecast what is going to change, screen M&A targets for emissions liabilities, provide well-level WEC liabilities and help compare various federal emissions data to both state and direct measured alternatives. Plus, we can run “what if” scenarios and see the impact of upgrading facilities with zero-emission pneumatic controllers, more efficient flare stacks or combustors, and more frequent LDAR, among other variables.
Attempts to block the WEC have so far failed with a U.S. Supreme Court decision Oct. 4, 2024 that allows the EPA to continue collecting methane fees. As a result, understanding emissions risk has never been more urgent and for many energy companies could see cash flow surprises at a time of uncertain commodity prices. Turn to Enverus for the actionable insights needed to make the best next steps.
Learn more about the trifecta of emissions regulations, SERP and advancements in methane measurement impacting the energy industry in this webinar replay, Emission Economics: Strategic Insights for 2025.
