Analyst: Energy companies should prepare for more stringent regulations regarding methane

November’s presidential election will impact environmental regulations, but a federal law expert says energy company leaders should keep something in mind; regulations rarely disappear.

“Frankly, over time, regardless of who is in office, environmental regulations are becoming more and more stringent,” said James Dolphin, a partner at Kirkland & Ellis LLP in the environmental transactions practice group. “In reality, this means formulating a clear plan for meeting regulatory obligations and rethinking obligations related to methane emissions and other regulated areas.

“Because your capital and your investors will be focused on this when assessing… liabilities to your company or assessing deals. That will be the focus.”

Dolphin appeared at the Hart Energy SUPER DUG Conference and Exhibition to discuss federal regulations and the energy industry, particularly the new methane requirements introduced in December 2023. The regulations are scheduled to be phased in over two years.

Dolphin said the best path for E&P and midstream companies to take is to prepare for the new regulations, but added that the results of the next election or lawsuit could have a dramatic impact on how the rules are first implemented , and that legal actions are still pending.

The new regulations require utilities to modernize infrastructure to prevent leaks, and in 2024 a fine of $900 per metric ton for methane leaks will be imposed. The law also requires frequent monitoring of emissions by independent third parties. Twenty-four state attorneys general filed a lawsuit challenging the regulations, arguing that the Environmental Protection Agency (EPA) overstepped its authority.

Congress has given the current administration permission to update methane emissions regulations as part of the 2022 Inflation Reduction Act. If President Joe Biden is re-elected, energy companies can expect strict interpretation of the rules and more regulations aimed more broadly at the oil and gas industry as a whole.

If Donald Trump returns to office, “We can expect his administration to attempt to roll back or repeal regulations when possible, or to limit enforcement of existing regulations if it has the discretion,” Dolphin said.

For now, the place of battle is the courts. In March, 24 states seeking to prevent implementation of the new regulations filed a lawsuit against the EPA.

Without predicting the final outcome of the legal proceedings, Dolphin said one recent ruling shed some light on how the Supreme Court would react if the case goes that far.

“There is precedent in the power generation sector where the Supreme Court has stepped in and struck down regulations that it says cause or result in a forced shift to various types of renewable resources,” he said.

Dolphin cited the court’s 2022 decision to invalidate the Clean Power Plan implemented by the Obama administration in 2015. The court ruled that the EPA did not have the authority to force utilities to change their electricity production methods to reduce greenhouse gases.

“These methane regulations are issued under similar provisions of the Clean Air Act, and that may be something the Supreme Court will take into consideration if a dispute comes to fruition,” Dolphin said.

Regardless of the outcome of the court case or election, the oil industry actually has current electricity demand trends on its side, Dolphin said, thanks to the rapidly growing U.S. industrial and technology sectors.

“The demand is and will be there,” he said. “The reality is that emerging energy technologies cannot currently meet this demand.”