Frack Attack
Canada and the US Pile Pressure on Struggling Energy Producers

Canada’s new prime minister Justin Trudeau visited the White House today, and to mark the occasion the U.S. and Canada announced a plan to cut methane emissions associated with the oil and gas industry by between 40 and 45 percent by 2025, as compared to 2012 levels. The FT reports:

“Canada is joining us in our aggressive goal to bring down methane emissions in the oil and gas sectors in both of our countries, and together, we’re going to move swiftly to establish comprehensive standards to meet that goal,” President Barack Obama said at a joint press conference with Mr Trudeau.

Gina McCarthy, administrator of the Environmental Protection Agency, said it would start consulting with industry next month about sources of methane emissions and the technologies that can be used to reduce them.

She said that the administration would begin drawing up “common sense and achievable” standards, but would not say whether the new rules would be in place by the time the next president takes office.

Here in the U.S., this cut will be enforced by the EPA under the auspices of the Clean Air Act, but few expect the agency to finalize the regulation before the end of President Obama’s term. That means what whoever wins this November’s election will decide the fate of this commitment—a Republican win would doom it, while a Democrat win would uphold it.

From an industry perspective, this couldn’t come at a worse time. American oil and gas production has boomed over the past eight years thanks to hydraulic fracturing and horizontal well drilling and the bountiful reserves of shale hydrocarbons those dual technologies have unleashed. But a global glut of oil has sent prices crashing downwards over the past 21 months, pushing the fledgling shale industry to the very edge of viability, shrinking margins and forcing companies to get creative in their attempts to fight for their share of an extremely crowded market.

If and when these new rules are enacted, the industry’s already shaky bottom line is going to take a hit. That’s not to say there isn’t a profit motive for companies to go after methane leakage in the first place—that greenhouse gas can be sold if captured—but by forcing the issue the Obama administration is choosing to side with its green base over the drivers of an American energy renaissance, and doing so during these upstart producers’ darkest hour.

These firms weathered the price collapse and continued to produce well after prices dipped below levels most analysts assumed the industry would need to turn a profit, and they did so by employing a host of clever innovations. The question now becomes: do frackers have another ace up their sleeve?

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