Methane Emissions from Suspended Wells: Can Internalizing the Cost of Methane Leaks Incentivize Plugging and Reclamation of Petroleum Wells in Alberta?

Abstract

There are currently over 81,000 suspended status petroleum wells in the province of Alberta, Canada. These wells are prone to gas leakage, including methane emissions, and present a liability estimated to be as high as $8 billion in order to have each of them plugged and abandoned. The provincial government faces the dual challenge of protecting the public from this liability and achieving a methane emissions reduction goal of 45% by 2025. A cost benefit analysis shows that private firms are economically incentivized to the leave a well in the suspended state, indefinitely shifting the cost of clean-up into the future. This paper investigates if applying a social cost of methane to the expected emissions from a suspended petroleum well can change the business decision and encourage plugging and abandonment by private firms. Results indicate that the costs of methane emissions will be insufficient to cause a change in behavior as, on average, it will remain less costly for a firm to leave a well suspended than to undergo plugging and abandonment. Tighter controls and regulations will be necessary to reduce methane emissions from these wells; alternatively, finding new purpose for these older wells, such as the production of geothermal energy, can reduce the number of suspended wells and shift the potential public clean up burden from public to private.