Technical backgrounder: Proposed federal methane regulations for the oil and gas sector

Proposed Regulatory Approach

As part of the Pan-Canadian Framework on Clean Growth and Climate Change, the Government of Canada reaffirmed its commitment to reduce methane emissions from the oil and gas sector by 40 to 45 percent from 2012 levels by 2025. In March 2016, the Prime Minister committed to publishing proposed regulations for the oil and gas sector in order to achieve Canada’s methane reduction goal. Methane is a potent greenhouse gas (GHG) that is 25 times more powerful than carbon dioxide and methane emissions make up about 15 percent of Canada’s total GHG emissions. The oil and gas sector is the largest contributor to methane emissions in Canada.

Environment and Climate Change Canada (ECCC) has developed proposed federal methane regulations to deliver on this commitment. Over the past year, ECCC has consulted extensively with provinces, territories, industry, environmental non-governmental organizations (ENGOs) and Indigenous peoples to develop robust and cost-effective regulations. Technical information was shared with provinces, industry and ENGOs to inform regulatory development, including regulatory design and underlying analysis, emissions modelling, and the cost-benefit analysis methodology. As a result of over 150 hours of discussions with partners and stakeholders, a number of important changes were made to ECCC’s proposed regulatory approach to reduce costs and increase efficiency, while ensuring the methane reduction target was still met.

These outcome-focused regulations will apply to oil and gas facilities responsible for the extraction, production and processing, and transportation of crude oil and natural gas, including pipelines. The first federal requirements come into force in 2020, with the rest of the requirements coming into force in 2023. The requirements target five key methane sources:

1. Fugitive equipment leaks: Upstream oil and gas facilities, except single well-heads, would be required to implement leak detection and repair (LDAR) programs as of January 1, 2020. Regular inspections would be required three times per year and corrective action would be required if leaks are discovered. Leaks would need to be repaired within 30 days, if repairs are possible without shutting down the equipment. If repairs are not possible without shutting down the equipment, the facility operator would be required to schedule a shutdown to take corrective action before the volume of gas from the leak is larger than the volume of gas that would be released by shutting down the equipment. If the facility is located offshore and the equipment cannot be repaired while operating, corrective action would need to be taken within 365 days.
2. Well completions by hydraulic fracturing: These sites would be required to conserve or destroy gas instead of venting as of January 1, 2020. This standard would not apply to British Columbia or Alberta where existing provincial measures cover these activities.
3. Compressors: Measurement of the flow rate of methane emissions would be required from sealing systems, at least once per year, as of January 1, 2020. Corrective action would be required if those emissions exceed 0.023 m³ per minute for reciprocating compressors and 0.17 m³ per minute for centrifugal compressors. All new compressors installed would be required to capture gas from sealing systems.
4. Facility production venting: Upstream oil and gas facilities would be required to limit vented volumes of methane to 250 m³ per month as of January 1, 2023. These facilities would need to capture the gas and either use it onsite, re-inject it underground, send it to a sales pipeline, or route it to a flare. Facilities that vent less than 40,000 m³ per year without destroying or selling any gas would not be required to destroy or conserve the gas.
5. Pneumatic devices: a) Controllers with a total compressor power rating of at least 745 kilowatts (kW) would be prohibited from emitting methane as of January 1, 2023. Other facilities would be required to use low-emitting pneumatic controllers; and b) Pumps would be prohibited from emitting methane or be equipped with an emissions control device at facilities where liquid pumping exceeds 20 litres per day of liquid as of January 1, 2023. Permits for pneumatic pumps would be available when it is technically or economically infeasible for a facility to comply.

The outcome-based federal approach also provides for the establishment of equivalency agreements with provinces and territories, allowing them to develop tailored regional approaches to replace the federal regulations, so long as the provincial or territorial approaches are legally-binding and achieve equivalent methane emission reductions. The Government of Canada remains open to negotiating equivalency agreements with interested provinces and territories, who meet these requirements, or developing other cooperative arrangements to reduce regulatory duplication (such as memoranda of agreements for the Atlantic offshore oil and gas sector).

Regulatory Flexibilities

The proposed regulations were designed to ensure efficient results and limit impacts on smaller facilities. Only oil and gas facilities handling significant volumes of gas (producing or receiving at least 60,000 cubic metres in a year) generally need to comply with the proposed requirements. For example, only 20% of Canada’s crude oil facilities, who are responsible for about 75% of vented emissions, will need to take action under the regulations.

Other proposed flexibilities to reduce costs for facilities, while still ensuring the emissions reduction target include:

• Facilities are not required to inspect for leaks during the winter season. In addition, if repairs are not possible without shutting down the equipment, the operator is allowed to wait more than 30 days to repair the leak – so long as the volume leaked in that period is not larger than would be released by shutting down the equipment.
• Only facilities that vent more than 40,000 m³ per year need to comply with the venting requirement. Facilities have numerous ways to comply with the venting limit – they can capture the gas and reuse it, return it underground, or sell it, or they can flare the captured gas.
• Corrective action on compressors is only required for more significant leaks – when emissions exceed 0.023 m³ per minute for reciprocating compressors, and 0.17 m³ per minute for centrifugal compressors.
• For pneumatic controllers, facilities can delay the application of requirements for a year, for technical or financial reasons. They can also apply for a permit to be exempted from the requirements for pneumatic controllers, for up to three years.

As a result of ECCC’s extensive discussions with provinces and stakeholders, a number of important changes were made to ECCC’s initial regulatory proposal to reduce costs and increase efficiency while ensuring the 40 percent reduction target was still met.

The first federal requirements will come into force in 2020, with the rest of the requirements coming into force by 2023.

This phase-in provides more time for interested provinces to finalize regulatory regimes and negotiate equivalency agreements with the Government of Canada. It provides industry lead time to: manage capital retrofit costs; better manage operational changes; and take advantage of provincial incentive programs. As a result of the significant changes made to the proposal, compliance costs on a present value basis were decreased by approximately $1 billion over an 18-year period.

In addition, administrative burden has been minimized. Existing provincial reporting systems will be leveraged. Oil and gas facilities will be required to register and keep records to demonstrate compliance with the proposed regulations. Facilities would also be required to submit reports at the request of Canada’s Minister of Environment and Climate Change.

Anticipated Benefits and Costs

The proposed regulations would lead to significant reductions in GHG emissions. Over an 18-year period, the cumulative GHG emission reductions attributable to the proposed regulations are estimated to be approximately 282 megatonnes of carbon dioxide equivalent (Mt CO₂e). Using the Social Cost of Methane and Social Cost of Carbon to estimate the economic value of avoided climate change damages at the global level, these reductions are valued at $13.4 billion.

These emission reductions would contribute to meeting Canada’s international obligations. It is expected that the proposed regulations would lead to a 21 megatonne (Mt) reduction in methane emissions in 2025, a reduction of 41 percent below 2012 levels, falling in the range of a 40-45 percent reduction as committed in March 2016. It is also expected that the proposed regulations would lead to a 20 Mt reduction in net GHG emissions in 2030, an estimated 7 percent contribution to Canada’s GHG emissions reduction target under the Paris Agreement.

The total compliance costs attributable to the proposed regulations are estimated to be $3.3 billion over an 18-year period. These compliance costs would be offset, in part, by the recovery of 663 PJ of natural gas with a market value of $1.6 billion.