The Fuse

Congress Eyes Major Program to Clean Up Old Oil and Gas Wells

by Nick Cunningham | April 15, 2021

Cleaning up abandoned and orphaned oil and gas wells has taken on urgency in Washington, and proposals to fund large-scale cleanup programs are gaining momentum.

Such ideas aim to achieve multiple goals at once: Capping wells reduce risks to air and water quality; eliminate a source of climate pollution; reduce serious safety hazards; and have the potential to create tens of thousands of jobs, particularly in areas that will be hit from the energy transition. While there is no guarantee anything will pass in Congress, the stars are aligning for a big initiative.

The problem of millions of unplugged wells

The idea to employ out-of-work oil, gas, and coal workers to clean up abandoned mines and wells has support across the political spectrum, at least in concept. The obvious vehicle will be President Biden’s proposed $2.25 trillion infrastructure package – that package includes a proposed $16 billion to employ hundreds of thousands of people to restore and reclaim abandoned mines and wells.

There are an estimated 3.2 million plugged and unplugged wells across the U.S., many of which were drilled decades ago, according to the Environmental Protection Agency. They pose serious health, safety and environmental problems. Abandoned wells leak methane, leak hazardous pollutants into groundwater, and can occasionally lead to explosions.

In theory, drillers and mining companies have to put up a bond that would fund the cleanup of the site when the well or mine reaches the end of its lifespan. In practice, the bonding requirements are minimal relative to the cost of cleaning up old wells, and often the owners are not around to take responsibility for the site years or even decades later, having gone out of business or sold off the site to someone else.

According to the Ohio River Valley Institute (ORVI), the bonding requirements for a single vertical well across four Appalachian states (Pennsylvania, Ohio, West Virginia, and Kentucky) is just 7.6 percent of the total cost to plug those wells. It is often cheaper to abandon the well and lose the bond than to actually plug the well. Moreover, ORVI notes that many of the millions of wells in question were drilled in the early 20th century, predating modern regulation.

A recent report from the Center for Western Priorities found that on federal lands alone, reclaiming old oil and gas wells could cost $6.1 billion, while the amount stashed away in reclamation bonds only totals $162 million, raising the risk that taxpayers will end up footing the bill.

Grist and the Texas Observer reported that around 100,000 wells in Texas are idle, with 7,000 of them “orphaned,” or without an owner and left to the state to deal with. The report said that another 13,000 could be abandoned in the next few years as the number of oil industry bankruptcies continues to rise, and that the cleanup cost could reach $1 billion. Other estimates put Texas abandoned well cleanup costs at an eye-watering $117 billion.

The current pace of plugging currently underway is unimpressive. According to ORVI, only 2,372 wells were plugged in the U.S. in 2018. At that pace, it would take more than 895 years to plug the estimated 2.1 million wells that remain unplugged.

Put energy workers to work cleaning up old wells

A variety of factors are converging to build momentum for a large-scale federally-funded cleanup program. The climate crisis is accelerating. The clean energy transition threatens to leave energy-producing regions behind. And the current economic crisis has already resulted in millions of people out of work, including thousands of people in the energy industry where many abandoned wells are located. Pumping billions of dollars into a national abandoned well cleanup program could address all of those problems at once.

ORVI published a new report on April 14 that puts forward ideas for how to build up a national cleanup program. In Appalachia alone, a federal program to clean up the estimated 538,000 abandoned wells could create roughly 15,151 jobs per year over 20 years, or 303,000 jobs in total, for a cost of roughly $25 billion. This is based on a calculation that every $25 million worth of investment directly creates roughly 300 jobs, to say nothing of other indirect jobs, according to an industry trade group calculator used by the Pennsylvania Department of Environmental Protection.

By plugging leaking wells, such a program would also eliminate 1.8 million metric tons of carbon dioxide equivalent, about as much greenhouse gas pollution as 383,000 passenger vehicles in a year.

One of the main criticisms of such a program is that it would amount to a “bailout” of the industry, which should have cleaned up the wells in the first place. A federally-funded well plugging campaign could incentivize bad behavior, creating a “moral hazard” going forward by mopping up the industry’s mess.

There are ways to structure a program to avoid some of these problems, such as significantly raising bonding requirements and establishing a fee on the production of oil and gas so that companies pay along the way rather than decades later. It remains to be seen how Congress handles these thorny issues. A Columbia University report from last year says that really old wells that were abandoned decades ago should be prioritized for federal funding in order to avoid bailing out existing companies.

Rep. Peter DeFazio (D-OR) proposed the “Moving Forward Act” last year, which would provide $2 billion over five years for plugging old wells. There were some similar bills introduced by a group of Republicans, as well as one introduced in the Senate. ORVI notes that while they update bonding requirements and provide some funding for plugging old wells, the amount of money proposed in those pieces of legislation is inadequate and short-term. “The scale of the problem in state and tribe areas – where the vast majority of orphan and abandoned wells are located – is much larger,” ORVI concluded. In any event, those bills proposed last year didn’t go anywhere.

There has been more notable movement more recently, no doubt sparked by President Biden’s infrastructure proposal. On April 13, U.S. Senators Ben Ray Luján (D-N.M.) and Kevin Cramer (R-N.D.) introduced the Revive Economic Growth and Reclaim Orphaned Wells (REGROW) Act of 2021, a bill that would provide nearly $5 billion in federal funding to cleanup orphaned oil and gas wells. The legislation is backed by some environmental groups, such as EDF, as well as oil industry associations, such as the Interstate Oil and Gas Compact Commission (IOGCC).

Another proposal has been introduced in the House by Representative Teresa Leger Fernandez (D-NM), which calls for $8 billion to clean up abandoned wells, while raising bonding requirements on drillers. That bill will receive a committee hearing in the House on April 15.

Again, it remains to be seen how these various proposals are shaped in the coming weeks, but there are decent odds that a major abandoned well cleanup program hitches a ride to the massive infrastructure package expected to work its way through Congress.