USA Methane Tax Faces Wrath of Oil and Gas Producers Amid Soaring Natural Gas Prices

The methane tax proposed last month by the Biden’s government to cap methane emissions is not going down well with the oil and gas producers of the USA. The proposed tax will charge the oil and gas producers for methane leaks during the entire process of oil/natural gas collection, pipeline transfer, storage in tanks, and distribution to the downstream sectors for further processing and derivatives production. The tax, which is still moving through the budget process, is estimated to generate an annual revenue valuing approximately USD 1 billion to 10 billion on implementation.

The basis for the opposition to the methane tax by the oil and gas producers as well as the American Petroleum Institute lies in the current state of the country which is witnessing strong natural gas prices at the moment. The industry insiders expect the new tax to add around 17% more expense to the already spiralling bill amount of natural gas in the country. The price for residential natural gas in August 2021 witnessed a 15% hike from the price recorded in August 2020. Furthermore, the soaring natural gas prices have added a burden to the consumer pockets who are paying around 30% more for natural gas required for household heating purposes.

Methane is one of the greenhouse gases which are responsible for causing global warming on our planet. The methane which escapes the drilling, refining, storing, and transportation processes is termed as a vented or fugitive emission. The companies have been making efforts to prevent methane leakage by capturing it. Since methane is the major component in natural gas, losing it during transportation will only incur losses to the manufacturers.

As per ChemAnalyst, the natural gas prices in the USA reached record highs in the last month, falling only slightly in the current month. The implementation of the methane tax would increase the burden of already-existing regulations which are efficient enough. The major disadvantage comes in the form of its potential to trigger the natural gas prices to a new high as the tax will add to the total manufacturing cost which will be passed on to the consumers. Moreover, the sought benefits of the proposed tax upon methane emission are also looking feeble in the long term as the overall high production cost may reduce the USA market competitiveness compelling some of the downstream industries to invest in more economic but highly polluting alternative sources.