Oil and Gas Operations to be Impacted by Proposed EPA Methane Rule

08/20/2015

On Tuesday, the U.S. Environmental Protection Agency (the “Agency”) proposed a suite of new regulations to reduce methane emissions from the oil and gas sector (including hydraulically fractured wells) as part of a broader effort to reduce these emissions by up to 45 percent by 2025.1 These regulations follow the Clean Power Plan as another tentacle in President Obama’s hydra-like Climate Action Plan and, in particular, the 2014 Strategy to Reduce Methane Emissions, in which the President directed EPA and other agencies to implement regulations to reduce methane emissions from oil and gas upstream activities to reduce greenhouse gases from industrial sources.2  Although EPA asserts that the proposed regulations are “common sense” and have a foundation in existing practices, they may result in industry having to make significant changes to normal practices regarding equipment and operations, at significant cost. Additionally, the proposed regulations, although largely directed at future new or modified sources, open the door for EPA to develop additional regulations that would be applicable to existing sources. The proposal solicits industry, as well as other, comments.

In the proposal entitled “Proposed Updates to New Source Performance Standards (“NSPS”) and Draft Control Techniques Guidelines,” EPA drafts emission limits for methane onto the previous New Source Performance Standards (NSPS) for the Oil and Natural Gas Sector for volatile organic compounds (“VOCs”). The proposal also adds additional sources to be controlled that were not previously included in the prior regulation. For sources to comply with this NSPS standard, they must meet what EPA determines is the Best System of Emission Reduction (“BSER”). For methane, EPA is proposing that sources extend the currently required VOC controls to all the covered emission points.

The proposal contemplates VOC controls or emissions limitations for methane at the following emission points:

  • Well completions: proposes to revise the current NSPS to regulate both methane and VOC emissions from well completions of all hydraulically fractured wells (i.e., gas wells and oil wells);
  • Fugitive emissions: proposes standards to reduce methane and VOC emissions from fugitive emission components at well sites and compressor stations;
  • Pneumatic pumps: proposes methane and VOC standards;
  • Pneumatic controllers, centrifugal compressors, and reciprocating compressors (industry-wide, except for well site compressors, of which only a subset of those equipment are regulated currently): proposes to establish methane and VOC standards across the industry by adding methane standards to those currently subject to VOC standard and VOC and methane standards for all the others; and
  • Equipment leaks at natural gas processing plants: proposes to add methane standards.

Concurrent with this proposal, EPA also published a proposed “Source Determination for Certain Emission Units in the Oil and Natural Gas Sector,” which “clarifies” EPA’s so-called aggregation policy on what constitutes a stationary source subject to the NSPS requirements. In this proposal, EPA states that any oil and gas exploration facilities that have a common owner and that are “adjacent” to one another are considered a single source. The Agency proposed to define “adjacent” as facilities within a one-quarter mile radius of one another, but also is soliciting comments on other alternatives. The grouping together of adjacent operational units into a single source is commonly referred to as aggregation. If sources are aggregated into a single source, they may become a “major source” under the federal Clean Air Act and trigger additional New Source Review and Title V permitting obligations.3

It is worth noting that these proposals only affect new and modified sites. EPA, however, has set forth a protocol to develop voluntary measures for reducing methane at existing sources. The proposals suggest that if industry does not participate in this voluntary effort, standards for existing sources will be promulgated. The adoption of NSPS for new and modified sources opens the door for EPA to promulgate standards for existing sources, similar to what it recently did for power plants. In this vein, sources should take note of EPA’s concurrent release of draft Control Techniques Guidelines (“CTGs”) for reducing VOC emissions from existing equipment and processes in the oil and natural gas industry.

As EPA states, “CTGs are not regulations and do not impose legal requirements on sources; rather, they provide recommendations for state and local air agencies to consider in determining reasonably available control technology (“RACT”) for reducing emissions from covered processes and equipment.” States will then be required to impose RACT on existing sources in most ozone nonattainment areas, including the ozone transport region. And, depending on where EPA sets the new ozone standard this fall, there could be a large increase in the number of ozone nonattainment areas.

Finally, the comment period ends 60 days after this action is published in the Federal Register. Any affected sources that wish to comment on the proposals should be mindful of the short deadline to draft and submit comments. Haynes and Boone is prepared to assist any entity or group of sources in preparing comments to EPA.

For more information please contact:

James D. Braddock
512.867.8462
james.braddock@haynesboone.com
 
Suzanne Murray
214.651.5697
suzanne.murray@haynesboone.com 

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1 See EPA’s web page on Addressing Greenhouse Gases and Smog Forming VOCs from the Oil and Gas Industry for links to these materials: http://www.epa.gov/airquality/oilandgas/methane.html.
2 Industrial source categories impacted by this action are: Crude Petroleum and Natural Gas Extraction; Natural Gas Liquid Extraction; Natural Gas Distribution; Pipeline Distribution of Crude Oil; and Pipeline Transportation of Natural Gas.
3 It will be interesting to see how EPA contends with the Sixth Circuit decision in Summit Petroleum Corp. v. U. S. Environmental Protection Agency, 690 F.3d 733 (6th Cir. 2012) where the court overruled a previous EPA interpretation of the term adjacent as applied to oil and gas operations.

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