How do government regulations impact the oil and gas drilling 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. In recent decades, however, they have been subject to scrutiny on the basis of such environmental issues as air and water quality, offshore regulation and chemicals management. This has occurred in conjunction with other measures used to encourage alternative-energy production and establishing shale gas infrastructure.

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.

Environmental regulation 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 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), and 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.