In recent years, the proliferation of oil and gas production, transmission, and distribution activities in the United States has led to a number of regulatory initiatives by state and federal agencies designed to manage new and evolving issues associated with the growing industry. Continuing with this trend, the U.S. Environmental Protection Agency (“EPA”) announced on January 14, 2015 that it will take several steps to curb methane and volatile organic compound (“VOC”) emissions from oil and gas facilities. See EPA, Fact Sheet: EPA’s Strategy for Reducing Methane and Ozone-Forming Pollution from the Oil and Natural Gas Industry (Jan. 14, 2015) (“EPA Fact Sheet”).

Invoking the Clean Air Act (“CAA”), the EPA, in particular, announced that it will (1) issue new regulations to establish standards regarding methane and VOC emissions from new and modified oil and gas sources, (2) extend VOC reduction requirements to existing oil and gas sources that are located in ozone nonattainment areas and states in the Ozone Transport Region, and (3) expand its Natural Gas STAR program, which is designed to facilitate voluntary reductions of oil- and gas-related methane emissions.

The Obama Administration says that these steps, in conjunction with actions that other federal agencies will take, [1] will put the United States on a path to achieving the Administration’s newly announced goal of cutting “methane emissions from the oil and gas sector by 40–45 percent from 2012 levels by 2025[.]” The White House, Office of the Press Secretary, Fact Sheet: Administration Takes Steps Forward on Climate Action Plan by Announcing Actions to Cut Methane Emissions (Jan. 14, 2015).

New Emissions Standards for New and Modified Sources
First, relying on Section 111(b) of the CAA, [2] the EPA intends to craft new regulations that will establish standards related to methane and VOC emissions from certain new and modified oil and gas sources.

Under Section 111(b), the EPA may, by regulation, set “standards of performance” for new and modified sources of air pollutant emissions that fall within a category of stationary sources that it has judged and published to be one that “causes, or contributes significantly to, air pollution which may reasonably be anticipated to endanger public health or welfare.” [3] A “standard of performance,” in this context, is a standard for limiting air pollutant emissions that, “taking into account the cost of achieving such reduction and any nonair quality health and environmental impact and energy requirements,” is based on the “best system of emission reduction” that has been “adequately demonstrated.” [4]

Relying on these principles, the EPA issued regulations in 2012 that establish new source standards of performance for VOC and sulfur dioxide emissions from various types of new and modified oil and gas sources. [5] Those regulations, which the EPA most recently revised in December of 2014, [6] are codified at 40 C.F.R. Part 60, Subpart OOOO (“Quad-O”) and set standards that address emissions from, in particular, the following sources: hydraulically fractured gas wells; certain fugitive equipment components at onshore gas processing plants; gas-sweetening units at those plants; and centrifugal compressors, reciprocating compressors, continuous-bleed pneumatic controllers, and storage vessels to the extent that, in each case, they are used in one or more industry segments. [7]

The standard for hydraulically fractured gas wells, as one example, requires a well operator to use special equipment to separate gas, liquid hydrocarbons, and water that come from the well during the completion (or “flowback”) stage and then sell, reinject, or use the gas, or, if those things are not feasible, flare it. [8]

In the January 14, 2015 announcement, the EPA says that it will “build on” the Quad-O standards “to achieve both methane reductions and additional reductions in VOCs.” [9] The sources that will be covered by its new rulemaking, it explains, “could include completions of hydraulically fractured oil wells, pneumatic pumps, and leaks from new and modified well sites and compressor stations.” [10] The agency says that, in developing the rulemaking, it will consult with the industry, states, and tribes and evaluate a “range of approaches that can reduce methane and VOC emissions” from those sources. [11]

As the EPA notes in its announcement, it identified some of the potential approaches in a collection of draft white papers that it published in April of 2014. In one of those papers, for example, it addressed techniques for mitigating methane emissions from completion and recompletion operations at hydraulically fractured oil wells, including the use of reduced-emission completions, completion combustion devices, and “emerging control technologies for control of associated gas,” a category that includes natural gas liquids recovery, natural gas reinjection, and electricity generation for onsite use. [12] In another one of the papers, the EPA discussed methods for reducing methane emissions from pneumatic devices that are used in oil and gas facilities, including, for pneumatic pumps, the use of instrument-air, solar power, or electricity as a power source, instead of gas. [13] In a third white paper, the EPA addressed techniques for controlling methane leaks at oil and gas facilities, including the use of leak-detection equipment (such as portable analyzers, optical gas imaging cameras, acoustic leak detectors, and ambient monitoring devices) and methods for repairing leaks when they are discovered. [14]

The EPA plans to issue proposed regulations in the summer of 2015 and final regulations in 2016.

Regulation of Existing Sources in Ozone Nonattainment Areas and the Ozone Transport Region
Second, the EPA plans to develop new Control Techniques Guidelines (“CTGs”) to reduce emissions from existing oil and gas facilities that are located in ozone nonattainment areas and states within the Ozone Transport Region (“OTR”). These guidelines would directly regulate VOC emissions, but would also have the effect of reducing methane emissions. 

Under Section 182(b)(2) of the CAA, [15] the EPA’s issuance of CTGs, which are guidance documents, triggers a requirement for States, as part of their State Implementation Plans (“SIPs”), to develop, and submit to the agency, rules that impose reasonably available control technology (“RACT”) requirements on covered sources. Each CTG includes a “presumptive RACT,” reflecting the EPA’s determination as to what constitutes an adequate level of VOC control for sources in the category. [16] While State regulations can deviate from the presumptive RACT determination, the EPA’s approval of each SIP revision is ultimately required.  Imposition of RACT would be a new layer of regulation for many oil and gas facilities that are located in ozone nonattainment areas and the OTR.

The OTR is comprised of eleven northeastern states (Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, and Vermont), the District of Columbia, and Northern Virginia, [17] and there is an outstanding petition to the EPA, submitted by several of these states, requesting the inclusion of nine others (Illinois, Indiana, Kentucky, Michigan, North Carolina, Ohio, Tennessee, Virginia and West Virginia). [18] On November 25, 2014, moreover, the EPA proposed a downward revision to its national ambient air quality standards (“NAAQs”) for ozone, which, if adopted, would result in the designation of significantly more ozone nonattainment areas across the nation. [19] Thus, the confluence of EPA’s planned rulemakings has the potential to force meaningful emissions reductions from existing oil and gas facilities in many areas of the country.

EPA plans to proceed with the CTG rulemaking in accordance with the same timeline as the Section 111(b) rulemaking, with the issuance of proposed guidelines in the summer of 2015 and final guidelines in 2016.

Expansion of Natural Gas STAR Program
Third, the EPA plans to expand its Natural Gas STAR Program by “launching a new partnership in collaboration with key stakeholders later in 2015.”

The Natural Gas STAR Program is an initiative that is designed to encourage members of the oil and gas industry to voluntarily reduce methane emissions from their facilities. [20] If a company opts to participate in the program, it signs a memorandum of understanding that reflects its intent to evaluate technologies and practices for reducing methane emissions, use them in its facilities when it is cost-effective to do so, and report to EPA on those efforts. [21] The company, in turn, develops and executes a continuously evolving plan for implementing and tracking “non-regulatory” steps for reducing methane emissions from its facilities. [22] And then, each year, it submits a “progress report” to the EPA in which it documents, for the year, the activities that it has undertaken, and emissions-reductions that it has achieved, under its plan. [23]

In the January 14, 2015 announcement, the EPA says that it will expand this program by “work[ing] with the departments of Energy and Transportation and leading companies… to develop and verify robust commitments to reduce methane emissions.” [24] It is currently unclear what, in particular, this process will entail.  Needless to say, the EPA emphasizes that “[a]chieving significant reductions through these voluntary industry programs and state actions could reduce the need for future regulations.”

Current Policy and Politics of Methane Regulation
Political reaction to the new effort to regulate methane emissions has been mixed. Although the EPA proposal primarily targets methane emissions from new and modified oil and gas sources, the oil and gas industry remains concerned that regulation of new sources could be a slippery slope leading to more expansive rules regulating methane emissions from existing sources nationwide. Given the environmental community’s negative reaction to the Obama Administration’s failure to tackle methane emissions from existing sources, it is reasonable to believe that environmental groups may dust off legal arguments asserting that once the EPA regulates new sources, the CAA requires corresponding existing source regulations. This is an important issue for the oil and gas sector and we expect it will be watched closely. Regulating methane emissions from new oil and gas sources may present some challenges to the industry; regulating existing oil and gas sources likely would expose it to even greater costs and burdens. 

While much uncertainty over the specifics of methane regulation remains, with the Obama Administration announcing on January 14, 2015 that it will address methane leaks through action by the EPA, BLM and PHMSA, a couple of issues are now clear.

First, it is almost certain that the U.S. House of Representatives and newly Republican-controlled Senate will engage on the issue of methane regulation, resulting in what is expected to be a fierce debate over economic development and environmental regulation. The Republican majority in Congress has vowed to increase its oversight of the EPA and the agency’s issuance of new regulations, including any regulations governing methane capture. As noted by Senator James Inhofe (R-OK), the new chairman of the Senate Environment and Public Works Committee, upon learning of the EPA’s plan to issue regulations, “[t]he EPA has once again announced plans to impose a mandate designed to stifle our domestic energy industries despite successful voluntary steps made by U.S. oil and gas companies to reduce methane emissions.” In contrast, Democrats, led by Senator Barbara Boxer (D-CA), commended the administration, stating that, “[b]y cutting industrial methane pollution, we can protect our children and future generations from the worst impacts of climate change." Moreover, agencies already dealing with critical issues that are the focus of Congressional attention and action, like PHMSA, which is confronting aging pipeline infrastructure and a number of fatal and environmentally damaging pipeline explosions and ruptures, are likely to come under further congressional scrutiny.

Second, it is clear that President Obama is doubling down on climate change, determined to make it a signature issue of the last two years of his administration. The new methane rules from multiple federal agencies are another part of his Climate Action Plan, which includes his November 2014 commitment, made with China, to cut greenhouse gas emissions in the United States 26-28 percent below 2005 levels by 2025. [26]

Finally, we expect that industry will continue to emphasize the significant voluntary efforts that oil and gas companies already are undertaking to reduce methane emissions from oil and gas operations. In light of a deep decline in crude oil prices over the last six to seven months, the industry can be expected to strongly resist new regulations that would likely increase operating costs and administrative burdens on upstream, midstream and downstream oil and gas market participants.

Conclusion
In January of 2015, the Obama Administration, and in particular the EPA, staked out a relatively aggressive, multi-prong strategy for effectuating additional reductions in methane and VOC emissions from oil and gas facilities. “While methane emissions from the oil and gas industry have declined 16 percent since 1990,” the EPA asserts, “they are projected to increase by about 25 percent over the next decade if additional steps are not taken to reduce emissions from this rapidly growing industry.” [27]

As the EPA’s and other agencies’ processes unfold, members of the industry should carefully monitor and participate in it as focused and watchful advocates for their interests.

Notes:
[1] In addition to the EPA actions that are discussed in this article, the White House’s January 14, 2015 Fact Sheet indicates that other federal agencies will take the following actions to reduce methane emissions: (1) the Department of the Interior’s Bureau of Land Management (“BLM”) will update standards to reduce venting, flaring, and leaks of natural gas from new and existing oil and gas wells on public lands; (2) the Department of Transportation’s Pipeline and Hazardous Materials Safety Administration (“PHMSA”) will propose natural gas pipeline safety standards in 2015; and (3) the Department of Energy will issue energy efficiency standards for natural gas and air compressors; advance research and development to reduce the cost of detecting natural gas leaks; work with the Federal Energy Regulatory Commission to modernize natural gas infrastructure; and partner with the National Association of Regulatory Utility Commissioners and local distribution companies to accelerate pipeline repair and replacement at the local level.

[2] 42 U.S.C. § 7411(b).

[3] Id. § 7411(b)(1)(A).

[4] Id. § 7411(a)(1).

[5] See 77 Fed. Reg. 49490 (Aug. 16, 2012).

[6] See 79 Fed. Reg. 79018 (Dec. 31, 2014).

[7] See 40 C.F.R. § 60.5365.

[8] See id. § 60.5375(a).

[9] EPA Fact Sheet at 1.

[10] Id.

[11] Id.

[12] See EPA, Oil and Natural Gas Sector Hydraulically Fractured Oil Well Completions and Associated Gas during Ongoing Production (April 2014) at 23–43.

[13]  See EPA, Oil and Natural Gas Sector Pneumatic Devices (April 2014) at 50–55.

[14] See EPA, Oil and Natural Gas Sector Leaks (April 2014) at 36–54. The EPA also issued draft white papers on compressors and the liquids unloading process, respectively. See EPA, Oil and Natural Gas Sector Compressors (April 2014) and EPA, Oil and Natural Gas Sector Liquids Unloading Process (April 2014).

[15] 42 U.S.C. § 7511a(b)(2); see also id. § 7511c(b)(1)(B).

[16] See 62 Fed. Reg. 44672, 44674 (Aug. 22, 1997).

[17] See 42 U.S.C. § 7511c(a).

[18] See Petition to the United States Environmental Protection Agency for the Addition of Illinois, Indiana, Kentucky, Michigan, North Carolina, Ohio, Tennessee, Virginia, and West Virginia to the Ozone Transport Region Established Pursuant to Section 184 of the Federal Clean Air Act as Permitted by Section 176A of the Federal Clean Air Act (Dec. 10, 2013), available at http://www.dec.ny.gov/docs/air_pdf/otrpetition1213.pdf (last visited Jan. 28, 2015).  

[19] See 79 Fed. Reg. 75234 (Dec. 17, 2014).  Maps depicting current and potential future ozone nonattainment areas are available at http://www.epa.gov/groundlevelozone/maps.html (last visited Jan. 28, 2015). 

[20] See EPA, “Key Components of Natural Gas STAR,” available at http://www.epa.gov/gasstar/guidelines/keycomponents.html (last visited Jan. 28, 2015).

[21] Id.

[22] Id.

[23] Id.

[24] EPA Fact Sheet at 2. 

[25] Id. at 3.

[26] See U.S.-China Joint Announcement on Climate Change (Nov. 12, 2014), available at http://www.whitehouse.gov/the-press-office/2014/11/11/us-china-joint-announcement-climate-change (last visited Jan. 28, 2015).

[27] EPA Fact Sheet at 1.