Booming U.S. oil production brings increased concerns about environmental compliance

November 25, 2013

Booming U.S. oil production brings increased concerns about environmental compliance

Booming U.S. oil production brings increased concerns about environmental compliance

The production of oil and gas has increased dramatically in the United States during the past few years, generating a rare sense of optimism about the economy but also growing concerns about environmental compliance.

IEA, private-sector analysts project ongoing growth

Last month, the International Energy Agency (IEA) announced that it expects U.S. oil production to overtake that of Russia during the first half of 2014, which would make the United States the largest producer outside the Organization of Petroleum Exporting Countries (OPEC). The IEA has also described scenarios in which the U.S. could briefly surpass Saudi Arabia to become the global leader in oil production.

According to a report from PIRA Energy Group, the United States is already the top producer when “oil” is defined as a group of liquid energy resources that includes crude oil, condensate, natural gas liquids and biofuels. The consulting firm asserted that this position “looks to be secure for many years.”

“[The U.S.] growth rate is greater than the sum of the growth of the next nine fastest growing countries combined and has covered most of the world’s net demand growth over the past two years,” PIRA wrote.

Total U.S. production of the liquids referenced by PIRA has risen by about more than 3 million barrels per day during the past four years. Much of this increase has been driven by horizontal drilling and hydraulic fracturing in previously inaccessible reserves such as the Bakken formation in North Dakota, where producers have broken multiple production records this year.

Production has also been increasing rapidly in Texas, which has long been the nation’s top producer, accounting for more than 20 percent of all the oil produced in the United States. Louisiana also remains a major source of domestic oil and gas.

Environmental compliance becoming more expensive for energy companies

Maintaining compliance with federal, state and local environmental, health and safety (EHS) regulations is increasingly costly for companies in the energy sector. Lux Research has predicted that the industry’s total EHS spending will reach $56 billion per year by 2030 – an increase of more than 60 percent over the figure for 2011. According to Lux, a growing portion of this expense will be borne by midstream companies – those that operate transportation, storage and marketing infrastructure – although firms involved in exploration and production will continue accounting for the majority of EHS investments.

Producers will face new engineering and regulatory challenges as they pursue opportunities in more difficult drilling environments, as they may face increased risk from the elements. Establishing comprehensive plans for responding to any contingencies that may emerge isn’t just a good business practice – in many cases it is a legal requirement.

The production of new types of hydrocarbon resources, such as the heavier crudes being extracted from Canada’s so-called oil sands, will also doubtlessly bring new compliance concerns for many facilities, requiring them to adapt their operations. If the highly publicized Keystone XL Pipeline is ever completed, this issue could become a particular concern for companies that operate pipelines, storage facilities or refineries in the South. Updating SPCC Plans to account for the different characteristics of unconventional resources will only be one part of the process.

Waste disposal attracting more attention from regulators

The rapid increase in production from hydraulic fracturing has spawned a need for large-scale wastewater disposal. This has forced companies to examine a wide range of options for storing, shipping and processing this material, and prompted regulators to expand their compliance programs. For example, the U.S. Coast Guard recently outlined a proposal to regulate the transportation of Shale Gas Extraction Waste Water (SGEWW) through inland waterways on commercial barges.

Because the chemical composition of SGEWW varies considerably between loads, the Coast Guard is designing special permitting and reporting processes for barge owners who want to ship the material. To carry fracking waste, a vessel’s operator would be required to have individual chemical analyses conducted for each load by a state-accredited laboratory. Inspection surveys of barges would also be required, with regulators expressing particular concern about ensuring ships have adequate ventilation systems to prevent a dangerous buildup of radioisotopes.

Facilities involved in the transfer of wastewater to and from barges will also doubtlessly face closer scrutiny as officials move forward with the rulemaking process. The Coast Guard will be accepting comments on its SGEWW proposal until November 29

Energy companies in the Southeast face unique environmental risk due to the region’s exposure to hurricanes and other types of extreme weather, which can damage facilities and overwhelm conventional safeguards. For assistance maintaining regulatory compliance and managing potential environmental liabilities in a cost-effective manner, companies should reach out to a full-cycle provider of environmental engineering and consulting services.