Category: Juliana Reid

DOI’s Orphaned Well Methane Leakage Insights and VCM Implications

Wells Plugged with Pre-Plugging Methane Measurements by U.S. State, 2022-6/30/24

Note: Wells with non-detectable rates of methane emissions are included in the data and are assigned a “0.00 grams/hour” rate
Source: U.S. Department of the Interior

Key Points. DOI data highlights that most methane leakage from orphaned wells comes from a very small % of those wells; this implies carbon markets might support relatively few wells if only the current leak rates are considered. The DOI report acknowledges that current leaks likely worsen over time, supporting a VCM methodology based on “expected emissions”.

The DOI’s annual report to Congress. The Department of Interior (DOI)’s Orphaned Well Program Office released its annual review last month. The report provides a comprehensive review of the Office’s Orphaned Well Program (OWP), which was funded by the Bipartisan Infrastructure Law (BIL).

This blog examines that methane emissions data and offers thoughts on implications for using the voluntary carbon markets (VCM) to raise private funds (to supplement BIL funding) to plug a larger number of orphans.

Through September 2024, $1.3 billion of the OWP’s $4.7 billion had been obligated (but not spent); 83% of the obligated funds went to states, with the balance to federal and tribal programs. The program had resulted in 9,002 orphaned wells plugged by June 30, 2024, of which 8,813 were plugged by states and the balance on federal and tribal lands.

DOI state data shows relatively few wells are methane emitters… States reported a total of 1,260 wells on which methane leakage measurement had been conducted. Of these, methane leakage was detected on 290 wells, or 23%. Other data presented in the DOI report suggests that at least ½ of these 290 had leakage rates of below 10 grams per hour (i.e. were very small emitters), leaving perhaps 5-10% with more significant emissions rates.

…of which a tiny number are “super emitters”. Of the remaining wells with more significant leakage/emission rates, the report does not detail every larger emitter but does indicate that there was one well that had methane emissions of 33,153 grams per hour (g/h) (seemingly in Colorado) and one that had emissions of 6,500 g/h (in Montana). See Exhibit.

For reference, the largest measured methane leakage/emission rate on an orphaned well was 76,000 g/h (Riddick, S. et. al. Methane emissions from abandoned oil and gas wells in Colorado).

It is very well dependent, but perhaps a minimum threshold for utilizing the VCM is a 250-500 g/h methane leakage rate (equivalent to ~300-600 cubic feet/day). There are several variables involved in determining if a well plugging project can earn an adequate return through selling methane abatement credits in the VCM. These include:

• the cost to plug the well (which can range from a few tens of $thousands to over $1 million)
• the methodology a project developer is using that impacts the crediting period (see a recent Commentary from the Payne Institute for discussion on the different Standard Setters’ methodologies including the logic behind different crediting periods.)
• the price realized for the credits in the marketplace, and
• project developer return requirements

Yet to offer an illustration, a well emitting 250 grams per hour could generate ~$75,000 using CarbonPath’s methodology (which allows up to a 50 year crediting period) at an assumed price of $25/ton (which is in the ballpark of current selling efforts). For relatively shallow/inexpensive-to-plug wells, this appears supportive of an adequate return (presumably covering some allocation of finding expenses, site remediation and/or overhead recovery in addition to the “direct” well plugging costs).

Some other takeaways from the DOI report:

A much larger proportion of wells will be tested for methane leakage going forward. The 1,260 wells with a methane measurement represent 14% of the aforementioned 8,813 wells plugged by states using BIL funding. This low proportion reflects that fact that the Initial grants issued to states under BIL did not require measurement. Subsequent rounds of funding (under the Formula and Performance grants) do require such testing (as well as requiring a screening for groundwater and surface water impacts and providing prioritization approaches for plugging wells), so the proportion of wells tested in future years will be much higher.

The DOI acknowledges that leakage rates can grow over time. The report notes that as “subsurface oil and gas casing and well infrastructure erode over time, deterioration and other factors can lead to increased methane emissions from [a] well.” This is supportive of methodologies that allow crediting based on an “expectation to emit” (discussed in the Payne Institute Commentary referenced above).

12/5/2024