Abandoned oil wells: A dormant source of carbon emissions

• Author:
• Author name

  Quantumrun Foresight
• July 14, 2022

Insight summary

Abandoned oil wells pose a significant environmental threat, leaking harmful gases and chemicals, impacting public health, and increasing legal and financial risks for oil companies. To combat this, governments are considering new laws for well management and closure, supported by corporate taxes, aiming for a more accountable oil and gas industry. These developments could lead to more sustainable practices, diversified energy sources, and a shift in labor and real estate markets in affected areas.

Abandoned oil well context

Inevitably, the volume of oil and gas that an energy firm can extract from an oil well decreases over time. Many operators may temporarily cap a well to seal it if it becomes unprofitable to operate. As a result, wells can be left "idle" or "inactive" for months or even years at a time while producing gases that harm the environment.

An estimated 2 million orphaned oil and gas wells throughout the US are suspected of leaking harmful substances into the surrounding environment after being neglected or disregarded by their operators. Over a two-decade period, many orphaned wells emit methane, a greenhouse gas with 86 times the climate-warming capacity of carbon dioxide. In addition, some wells are leaking chemicals into fields and groundwater, including benzene, a known carcinogen.

As per the Environmental Protection Agency's most recent report to the United Nations Framework Convention on Climate Change, released in April 2021, over 3.2 million abandoned oil and gas wells produced 281 kilotons of methane in 2018. This is the climate-damage equivalent of consuming almost 16 million barrels of crude oil.

Many states in the US require businesses to post bonds to pay for well-filling. However, the bond amount is typically far lower than the cost of plugging. An attempt in 2005 to get financing from US lawmakers for a federal well-plugging program was unsuccessful. Many states, notably Texas, Pennsylvania, New Mexico, and North Dakota, pay to plug operations via fees or taxes levied on oil and gas firms. However, these sums are insufficient to fill all of the wells required.

Disruptive Impact

To address the significant environmental and economic challenge of orphaned wells, oil and gas companies may be required to provide security deposits before drilling new wells. This measure ensures accountability for the potential environmental impact and financial liability associated with abandoned wells. Furthermore, companies might need to justify the necessity of new wells, especially when they possess non-operational wells, thereby promoting more responsible resource management.

Legislative actions could mandate oil companies to cap or seal orphaned wells for a specified duration. Such regulations would minimize environmental risks, including groundwater contamination and methane emissions, and hold companies accountable for their environmental footprint. Additionally, lawmakers might consider prohibiting new drilling activities until existing orphaned wells are responsibly managed. This approach could drive the industry towards more sustainable practices and enhance environmental conservation efforts.

The dynamics of the oil and gas market might influence the fate of these orphaned wells. If oil or gas prices escalate significantly, reopening and operating these wells could become financially viable for companies. In a scenario where corporations are increasingly committed to reducing carbon emissions and pollution, partnerships between companies and well owners might emerge. These collaborations could focus on closing or capping abandoned wells, creating mutual benefits for stakeholders and contributing positively to environmental sustainability.

Implications of abandoned oil wells on the environment

Wider implications of thousands of orphaned oil wells impacting the surrounding environment may include:

• Nearby towns experiencing continuous health issues and environmental damage due to poisoned groundwater from orphaned wells, leading to increased public health concerns and environmental remediation efforts.
• Oil and gas companies facing potential class-action lawsuits for health or property damages caused by emissions from abandoned wells, leading to increased legal and financial liabilities.
• Governments creating laws mandating the operation or closure of orphaned oil wells, potentially funded by corporate taxes, leading to a more regulated and accountable oil and gas industry.
• Oil companies strategically reopening wells during high oil price periods, using profits to fund the closure of these facilities, leading to a self-sustaining model for managing orphaned wells.
• Increased research and development in alternative energy sources as a response to environmental and health issues caused by oil wells, leading to a diversified energy sector.
• Enhanced community engagement and activism in areas affected by orphaned wells, leading to stronger public oversight and corporate responsibility in the energy sector.
• Shift in labor market demands, with more jobs created in well management and environmental restoration, leading to new employment opportunities and skill requirements.
• Potential rise in real estate prices in areas cleared of orphaned wells due to improved environmental conditions, leading to economic benefits for local communities.
• Enhanced international collaboration to address the global issue of orphaned oil wells, leading to shared technologies and strategies in environmental management.

Questions to consider

• Do you believe oil and gas companies should be forced to close orphaned wells or supply the financing to do so?
• What measures can state governments put in place to monitor orphaned wells before they cause significant environmental damage?