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Regulatory Compliance Issues in the Oil & Gas Industry in USA

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The United States Department of Energy has estimated that 1,800 to 20,000 billion metric tons of CO2 could be stored underground in the United States. These numbers are equivalent to 600-6700 years’ worth of carbon emissions from various commercial sources in the United States of America. In the oil and gas industry, CO2 from natural resources is currently used in enhanced oil recovery operations for improving oil production rates. With advancements in EOR technologies, this injected CO2 can be ultimately sequestered and permanently stored under the ground. As an example, state of North Dakota in the US has one the largest reserves of lignite coal in the world enough for the next 800 years, leading to large uses of coal in the industry.

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From 2005-2009, a series of tests were done regarding carbon sequestration in the lignite coal seam in northwestern North Dakota, which proved North Dakota’s capacity for carbon sequestration. Under these conditions, North Dakota has gone ahead with implementation of large scale carbon-dioxide sequestration projects. Reducing carbon footprint as a lever for maximizing oil production is a new avenue in the oil & gas industry, hence, special regulations are needed to be laid. These regulations were initially handled at the federal level by EPA, however, the state of North Dakota recently obtained its right of self-regulation (primacy).

Regulatory Compliance Issues in the Oil & Gas Industry

Petroleum industry is required to comply with increasingly complex regulatory requirements for facilities, financials, operations and environmental practices and is facing unprecedented challenges in managing risks and complying with these regulations as well as internal policies in a cost-effective manner. Some of the more prominent bottlenecks and issues inherent in regulating the energy sector are:

Industry Specific Issues:

  • Rule Complexity: Rule Complexity is often cited as a major source of non-compliance of entities. Oil and gas companies need to keep a track of rules and regulations, enforced by international, federal, state and local authorities, which results in some discrepancies and complex applicability criteria, exemptions and exclusions.
  • Change Management: Change Management refers to changes in rules and regulations over time leading to unnoticed or unintentional non-compliance. It could also be caused by various factors such as technological advancement or operational changes. It is necessary for companies to keep stringent internal compliance wings to constantly maintain an eye on changing regulatory obligations.
  • Data Compliance: Due to changing regulations and its complicated nature along with the industry’s efforts to stay on top of regulatory compliance, vast amounts of data are constantly being accumulated. Large amounts of data are useful only when processed and presented in a meaningful succinct manner to provide meaningful information.

Regulatory Agency Specific issues:

  • Data Analysis: Due to the vast volumes of data provided by companies to the regulatory agencies, they struggle to analyze and interpret this data. It is also challenging due to the fact that of this vast tracts of data, not all is relevant and useful, hence there needs to be a means of converting these repositories of data into meaningful information. There also exists the problem of missing data leading to inaccuracies and policy errors leading to “false positives”. The amounts of potential errors in these vast datasets can further complicate the regulatory issues.
  • Assessment of Outcomes: The role of a regulatory agency is not limited to monitoring and penalizing companies for non-compliance to standards and regulations. It is also to evaluate the impact of a regulation and reevaluate the effectiveness and adequacy of the regulations. Usually though, it is not clear how they will determine whether the designed rules are achieving the projected objectives following implementation or not.
  • Logistics: Constraints on human and financial resources have made it difficult for the regulatory agencies to sustain the enforcement model they have traditionally had. Regulatory agencies must either endure high transaction costs to conduct fine-grained interventions on a case-by-case basis to reduce the failure cost of over, or under regulation, or they must accept a more generic and wide-scale approach to inspections to lower administrative costs.

General Compliance Issues:

  • Data Management: Data is being generated at a very rapid rate from multiple sources such as downhole sensors, wellhead sensors, equipment measurements of varying formats and attributes. It is necessary to process this information, adapt and present this data in a user friendly and understandable format to make use of this information. Various E-reporting platforms have been made over the last decade to alleviate some of these problems but it is still significant.
  • Lack of Trust and Transparency: Lack of trust and transparency is a major hindrance to the regulatory compliance procedures. It is further substantiated through complex myriad of regulations imposed. The swats of data provided inconsistently by industry to regulators does not alleviate the problem either. The trust and transparency can be improved through collaborative models. However, it requires a better system of communication and management.
  • Detecting and Responding to Incidences: Proactive rather than reactive response is considered the need of the day. Companies are trying to install various software to analyze data in order to predict incidents and take action in advance rather than wait to react to an incident after it has occurred. Advanced data analytics can be used to adapt to different changing regulations and to predict changes in regulations in advance saving the company a lot of money.

Regulatory Compliance in CCS

The technological hurdles to effective implementation of CCS are surmountable. However, the legislative framework within which CCS is conducted will have a major impact on how rapidly the technology is implemented and ultimately determine whether CCS can play a substantial role in the mitigation of carbon emissions and thereby facilitate access to future hydrocarbon supplies.

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