Impact of US Regulations on the Oil and Gas Sector
The Oil and Gas sector is considered to be a vital part of the US economy. There are many moving parts which make up this industry – some of these are conditions for drilling, mining plant and equipment, worker safety, environmental issues and chemicals management. With the rise in alternative energy production, there has been a corresponding increase in scrutiny and regulatory oversight of this sector. This has led to concerns that Oil and Gas may be adversely impacted by tightening regulations and this can lead to losses in the long term. Are these fears justified? Let’s discuss further on this blog.
Regulatory Process in US Oil and Gas
There is no national oil and gas company in the United States. Instead, there are numerous private businesses operating in the sector, including large international corporations. The activities of these companies are regulated on the state and federal level. To begin exploration for oil and gas drilling, the business must obtain a development permit, a drilling permit and an operating permit – the requirements for which are stipulated at the state level. There must also be a public review period, which is often disputed. All permits must be obtained prior to beginning exploration, or the applicant may face delays and financial and legal penalties. In addition to permits, there are various standards and rules that companies must comply with when operating in the oil and gas industry.
Impact of Environmental Regulations
Environmental regulations, such as those on methane leaks and oil spills, can be seen as having a generally positive impact on the gas drilling sector in particular. Existing measures aimed at reducing greenhouse gas emissions mainly have a negative impact on established coal power plants. The resulting economic impacts have led to an artificial acceleration in the natural gas sector. The government is interested in further exploration of shale gas and has taken measures, such as the House of Representatives-approved Natural Gas Pipeline Permitting Reform Act, to expedite the federal review process for applications for interstate gas pipelines.
The Clean Air Act
The effects of the Clean Air Act have mainly been positive for the gas drilling industry. The overall aim of the act is a reduction in the emissions of greenhouse gases, with a long-term goal of 95% reduction in volatile organic compounds. The act stipulates that operators must take measures to capture natural gas that escapes into the air (green completion). Also, there are incentives for businesses to implement this technology ahead of the deadlines. The technology allows for the natural gases to be caught and treated and then sold instead of being released as waste. The estimated revenues are expected to exceed the costs of compliance. The U.S. Environmental Protection Agency (EPA) suggests that while meeting the Clean Air Act regulations will cost $65 billion from 1990 to 2020, the savings realized from fewer premature deaths, lower health costs, and increased productivity will add up to $2 trillion.
Conclusion
While the implementation of regulatory initiatives ought to be simpler for large, multinational corporations, smaller companies may not be able to budget for the initial implementation costs. About 80% of the domestic oil and gas companies in the U.S. are very small, often with fewer than 10 employees. These initiatives may have a severe impact on the economic viability of these smaller operations.