As we move further into an election year, the likelihood of Congress passing legislation that impacts the U.S. oil and gas industry becomes smaller and smaller.

While prospects for a badly needed federal permitting bill are still alive, it will most likely need to wait until the next Congress. In the absence of legislation, we are witnessing a slew of executive actions through rulemakings, executive orders and policy decisions that will impact energy.

While the impacts of these actions will be mixed, most of them will not be good for domestic oil and gas production. Cumulatively, they will have a significant impact on the U.S. oil and gas industry, which is getting hit with 1,000 paper cuts.

Earlier this year, the Biden administration set the stage for executive action when it issued a “pause” for new LNG export licenses to non-free-trade-agreement counties. The pause has become a highly politicized issue, with House Speaker Mike Johnson (R-Louisiana) tying passage of the Ukraine aid passage to the lifting of the pause.

Such action, if successfully signed into law, would merely be symbolic since it would not force the administration to issue licenses. The pause itself, however, has created uncertainty for U.S. LNG producers and companies and governments that need future sources of LNG.

The SEC rule

On March 6, the administration released an 886-page Securities and Exchange Commission (SEC) rule that requires all public companies to include climate-related reporting in their SEC filings. The rule, which the SEC has been developing for over two years, requires public companies to report their Scope 1 (emissions from their operations) and Scope 2 (emissions from purchased electricity, steam heat or cooling) and other climate-related materials, including climate-related risks and material impacts, climate risk management processes and climate-related targets and goals.

The rule issued was pared back from an earlier proposed rule by the removal of Scope 3 (emissions from actions upstream and downstream of a company or facility’s value chain), limiting Scope 1 and 2 greenhouse-gas (GHG) emissions disclosure requirements to large accelerated filers and accelerated filers (other than smaller reporting companies and emerging growth companies). Disclosure was only required if emissions are material, and removal of financial impact metrics from disclosure requirements related to financial statement effects.

It also extended safe harbor protections to disclosures surrounding transition plans, scenario analysis, internal carbon pricing and targets and goals and extended compliance timelines. Several states, companies and trade associations have filed lawsuits in several jurisdictions to overturn the rule, arguing its provisions are too stringent, place too much burden on industry, and are unevenly applied and impactful to certain industries. Those lawsuits have been consolidated into one review before the 8th Circuit Court of Appeals, which has issued a stay on SEC enforcement, and the SEC itself has issued its own stay pending a ruling.

The EPA rule

On March 22, the Environmental Protection Agency (EPA) issued a final rule, Multi-Pollutant Emissions Standards for Model Years 2027 and Later Light-Duty and Medium-Duty Vehicles, that is heavily focused on lowering GHG emissions with a goal of reducing gasoline- and diesel-fueled vehicles and transitioning the U.S. fleet to electric vehicles (EVs).

The rule, which was modified to be less stringent after U.S. automakers protested initial requirements, now requires EVs to make up 56% of new vehicle sales by 2032, with an additional 13% being plug-in hybrids, partially electric vehicles, or gasoline-powered cars with higher average miles per gallon.

The rule is viewed by the oil and gas industry as another attack on fossil fuels, but it also presents even greater challenges to the U.S. electric grid, which is already facing supply-side/reliability challenges and a surge in demand from new industrial activity, artificial intelligence and data centers.  

The EPA is also in the process of implementing its methane rule, released last December, that creates a new methane monitoring and reporting program that goes into effect this year. The rule phases out routing flaring at new oil and gas wells, with certain exceptions in the early years. One of the more controversial features of the methane rule is the establishment of a super-emitter program that establishes a program where third-party groups would monitor methane emissions around the country for large methane emissions leaks.

Many comments were received by EPA expressing concerns about how this program would work and how EPA would certify and ensure the legitimacy of the third parties and the accuracy of their reporting. Due to the subjectivity of this program, many lawsuits are being filed challenging EPA’s authority to initiate it. Additionally, many states are challenging the methane rule in court. Texas has filed a legal challenge in the D.C. Circuit Court of Appeals.

The BLM rule

Separately, the Bureau of Land Management (BLM) has issued a final rule that sets limits on methane emissions associated with oil and gas development on federal lands. The rule makes companies pay royalties for “wasted gas” and it caps the amount of gas that can be vented or flared when no pipeline options are available. BLM believes that it can collect $50 million per year in added natural gas revenue from the rule. There will be lawsuits filed in the coming weeks to challenge the BLM rule.  

Beginning in 2025, a methane fee, or waste emissions charge (WEC), will be collected by the EPA for methane emissions over a certain threshold. The fee was established through the Methane Emissions Reduction Program that was included in the Inflation Reduction Act. It will be assessed each year on the prior year’s leaked methane in excess of 25,000 metric tons of CO2 from oil and gas systems. The fee ratchets up over time starting at $900 per metric ton in 2024 and reaching $1,500 per metric ton in 2026 and beyond.

Moving further downstream into the power generation markets, EPA has opened up a “non-regulatory” docket that will allow public input into planned GHG emissions rules for existing natural gas-fired power plants. The announcement precedes a series of future rulemakings where EPA will issue more stringent restrictions of GHG emissions, air toxics and emissions of nitrogen oxides from natural gas turbines in the power sector.  

Finally, the administration is pursuing a broad and encompassing initiative known as natural capital accounting, whereby the government would incorporate the purported impacts that activities have on nature into every federal decision requiring cost benefit analysis. While this concept is in its early stages and has not been widely reported, it is being pursued throughout the federal government and could have an enormous impact to future federal decision making with huge potential implications for the oil and gas industry. It is definitely one that we should all keep our eyes on, along with all of the other pieces of this regulatory onslaught.