How do Regulations Impact the Oil and Gas Sector?

The oil and gas drilling sectors are recognized as being a vital part of the U.S. economy, both in the long- and the short-term. However, in recent decades, the sector has come under scrutiny on the basis of such environmental issues as air and water quality, offshore regulation, and chemicals management. This intense focus has occurred in conjunction with other measures used to encourage alternative-energy production and establishing shale gas infrastructure.

Key Takeaways

  • The oil and gas sector faces heavy scrutiny regarding environmental issues, such as air and water quality and offshore regulation.
  • The Clean Air Act impacts the drilling industry with the overall aim of the act to reduce harmful emissions of greenhouse gases.
  • OSHA regulates worker safety by establishing rules and standards for working conditions, including specific guidelines for drilling.

How Regulations Impact the Oil and Gas Sector

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 gaining these permits are stipulated at the state level. There must also be a public review period, which is often contentious. 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.  

Environmental Regulations

Environmental regulations can be seen as having a 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 economic impacts of this 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 Natural Gas Pipeline 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.

While the implementation of this technology ought to be simple for large, multinational corporations, smaller companies may not be able to budget for the initial start-up 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.

Drilling New Wells

The EPA requires oil and natural gas companies to notify the agency–electronically or in writing–before completing a new hydraulically-fractured well. Each state typically has advance notification requirements for which companies are to comply and notify. For those states that have no advance notification requirements, the EPA requires companies to notify them two days prior to the well's completion.

Health and Safety Standards

The Occupational Health and Safety Administration (OSHA) regulates worker safety by establishing rules for working conditions. According to OSHA, from 2013 to 2017, 489 oil and gas workers were killed on the job as outlined in the Census of Fatal Occupational Injuries. Some of the safety and health hazards occur due to chemical exposures, explosions, and fires. OSHA outlines the guidelines that oil and gas operators need to follow, but the agency also offers tips for injury prevention.

For example, OSHA outlines numerous health hazards involved in drilling, such as proper use of the power tongs, which are essentially hydraulically operated tools that spin the drill pipe in the well. Safety standards include specific guidelines, such as standing at a safe distance to the tongs during drilling as well as proper hand and finger placement.