The routine flaring and venting of natural gas in New Mexico is now prohibited and operators in the state will in the coming years be required to capture at least 98% of the gas they produce. These developments are part of a major rule change approved last week by the state’s Oil Conservation Commission that will come into full effect at the end of 2026.
The adoption of the new measure follows an executive order from New Mexico’s Governor Michelle Lujan Grisham to reduce industry emissions and the waste of natural gas resources through flaring. Policymakers have also emphasized the state's need to address climate change as a key driver behind the tighter regulations.
Under the rule, upstream operators could face the denial of new drilling permits if the state's gas-capture target is not met. New Mexico's regulators are encouraging oil and gas producers to adopt technologies that will mitigate their emission profiles and enable their compliance.
Thanks to the rise of the western portion of the Permian Basin, New Mexico increased crude output in 2020 by 15% to hit a new record high of 1.04 million B/D.
In a statement, Governor Grisham said the methane-intensity regulation “proves that taking bold action on climate change is not at odds with industry and job creation.
“By working together, we have come up with rules that require a higher gas capture than any other state in the nation and that will foster innovation and bring additional revenue to the state by capturing more resources,” she added.
North Dakota had previously had the highest state-mandated capturing threshold of 91%. Not all states have capturing rules, or they quantify their requirements in different ways.
The announcement highlighted that New Mexico will be the first US state to apply methane-emission limits to pipelines and other midstream infrastructure.
Colorado has also prohibited routine flaring but allows waivers if flaring is needed to avoid production curtailments or shut-ins. New Mexico’s rule will not grant such exemptions.
The state is expecting to reap millions of dollars in royalties since the new regulation redefines vented and flared gas as “waste.” Making this change means that operators will now be required to pay royalties and taxes on vented and flared volumes that used to be exempt and still are across most of the US.
The methane rule will roll out in phases. The first will require operators to collect and report data that identify potential sources of methane emissions from wellhead to processing sites and beyond.
After individual benchmarks are set for each operator, the second phase will begin. At that point operators will have to show increasing progress until they reach the 98% capture threshold set by the state.
New Mexico is vying with North Dakota, which ended 2020 with an output of 1.18 million B/D, to become the second-largest oil producing state in the US behind only Texas. However, it remains unclear whether New Mexico can maintain its growth trajectory in the face of lower oil prices and higher regulatory hurdles.
In addition to the rule change on natural-gas loss, a decision made in December by a separate state agency halted freshwater sourcing from state lands for oil and gas operations.
Also, most of New Mexico's oil and gas fields are on US federal lands where a drilling moratorium was among the first executive actions made by President Joe Biden when he took office in January.
Other Key Aspects of New Mexico’s Natural Gas Waste Rule
- New facilities to be built to minimize natural-gas emissions or waste.
- Operators have 3 months to implement data acquisition and reporting programs.
- Methane must be captured or flared during the completion or recompletion process of natural-gas wells to reduce venting.
- Midstream operators must file a single report inclusive of all their subsidiaries to ensure compliance and transparency.
- Reporting and capturing requirements apply to controlled storage tanks in addition to uncontrolled tanks.
- Operators must consider and implement alternative uses for natural gas if gathering systems are unavailable.
- The rule applies to all wells in New Mexico, including stripper wells that produce 10 B/D or less.
