On August 18, 2015, the Environmental Protection Agency (EPA) announced several proposals, including the first federal regulations, which, if adopted, would require the oil and gas industry to reduce methane emissions.

Specifically, EPA issued (i) a Proposed Rule on Emission Standards for New and Modified Sources for the oil and natural gas industry; (ii) draft guidelines for states to reduce volatile organic compound (VOC) emissions from existing oil and gas sources in smog areas, or ozone “non-attainment” areas; (iii) a Proposed Source Determination Rule, clarifying the definition of “adjacent” for purposes of determining whether oil and gas equipment and activities require a permit under the Clean Air Act’s permitting programs; and (iv) a Proposed Federal Implementation Plan for EPA’s Indian Country Minor New Source Review (NSR) program for oil and gas production sources.

The various proposals are part of President Obama’s Climate Action Plan, designed to implement the Administration’s goal of reducing, by 2025, methane emissions in the oil and gas sector by 40% to 45% from 2012 levels.

Comments are due 60 days after publication of the proposals in the Federal Register. In addition, EPA will hold public hearings on all the proposed rules.

The proposals are summarized in the chart below followed by a more detailed description.

A.  Reducing Methane and VOCs from New and Modified Sources

EPA is proposing to amend current 2012 New Source Performance Standards (NSPS) to include standards for reducing methane, as well as VOC emissions, for certain new, modified and reconstructed equipment, processes and activities in the oil and natural gas industry, including production, processing, transmission and storage.

The standards for new and modified sources are expected to reduce 340,000 to 400,000 short tons of methane in 2025, the equivalent of reducing 7.7 to 9 million metric tons of carbon dioxide. EPA estimates that the proposed rule for new oil and gas wells will cost the industry between $320 million and $420 million a year by 2025 and provide estimated climate-change benefits of $460 million to $550 million.

Except for improvements to enhance implementation of existing 2012 NSPS VOC requirements, the proposed amendments do not change the VOC requirements for existing operations and equipment already covered by the 2012 NSPS.

However, the proposed rule would update and expand the 2012 NSPS to add methane as a pollutant covered by the rule. Despite the addition of methane to the rules, sources already covered by the 2012 NSPS requirements for VOC reductions that would also be covered by the proposed 2015 methane requirements would not have to install additional controls because available controls for VOC are the same for methane and achieve the same reduction for both VOC and methane. For example, EPA notes that combustion-based control technologies, such as flares and enclosed combustors, which may be used to reduce VOC emissions by 95%, can be expected to also reduce methane emissions by 95%.

Importantly, the proposed regulations include new standards for methane emissions from sources that currently are unregulated under the current 2012 NSPS, such as hydraulically fractured oil well completions, pneumatic pumps and fugitive emissions from well sites and compressor stations.

The emissions reduction requirements for sources of methane and VOC pollution that were not covered in the 2012 rules would require owners/operators to take the following actions:

• Find and repair leaks. Proposed standards to control methane emissions from equipment leaks at natural gas processing plants. These requirements are the same as the VOC equipment leak requirements in the 2012 NSPS.
• Capture natural gas from the completion of hydraulically fractured oil wells. Many hydraulically fractured wells that are drilled primarily for oil also contain natural gas, which contains methane, VOCs and a number of air toxics. Owners/operators of hydraulically fractured and refractured oil wells would be required to capture the gas using a proven process known as a “reduced emissions completion” or “green completion.”
  • EPA had required green completions for hydraulically fractured natural gas wells in its 2012 rules, but had not included oil wells.
• Limit emissions from new and modified pneumatic pumps. Pneumatic pumps are used throughout the industry – from well sites to transmission compressor stations.
• Limit emissions from several types of equipment used at natural gas transmission compressor stations and at gas storage facilities. These would include compressors and pneumatic controllers. EPA had not included these facilities in its 2012 NSPS rules.

EPA’s chart identifying the sources covered by the 2012 NSPS for VOCs and the proposed 2015 NSPS for VOCs and methane organized by site type, such as the type of location and equipment, is reproduced further below and available at: http://www.epa.gov/airquality/oilandgas/pdfs/og_table_081815.pdf

Except for certain amendments to enhance implementation improvements, the proposed methane regulations would not change the current requirements for existing operations and equipment currently covered by the 2012 NSPS. The current requirements under 40 C.F.R. Part 60, Subpart OOOO would be updated to reflect that they apply to facilities constructed, modified or reconstructed after August 23, 2011, and before the date of publication of the new proposed methane regulations in the Federal Register.

Similarly, the new proposed methane regulations for new wells or equipment would be issued under 40 C.F.R. Part 60, Subpart OOOOa to indicate that those new regulations apply to facilities constructed, modified or reconstructed after the date the new methane regulations are published in the Federal Register.

B.  Reducing VOCs from Existing Source in Areas with Smog Problems

On August 18, 2015, EPA also announced its Draft Control Techniques Guidelines (CTGs) for the Oil and Natural Gas Industry. Although the draft guidelines do not propose regulations and would not have any legal effect, they do provide recommendations for state and local air agencies to reduce VOC emissions from existing oil and gas sources in areas with smog problems or ozone “non-attainment” areas.

Specifically, the recommendations provide state and local air agencies with guidelines for determining reasonably available control technology (RACT) for reducing emissions from covered processes and equipment. States may use different technologies and approaches, which would still be subject to EPA approval, and would have to achieve the requisite pollution reductions. The draft CTGs include information on cost-effective control technologies to help states in making their RACT determinations.
Under the Clean Air Act, RACT applies to ozone non-attainment areas classified as “Moderate” and above, and throughout the Ozone Transport Region, which includes 11 northeastern states (Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island and Vermont), and the metropolitan statistical area that includes Washington, DC and portions of northern Virginia. Affected areas and states would have to address the sources covered in the CTGs as part of state plans for meeting EPA’s ozone health standards.

Finally, EPA expects that regulatory actions taken to reduce methane emissions will impact its future designations of attainment and non-attainment areas to be made in October 2017. EPA expects to issue a final rule to strengthen the ozone health standard to improve public health protection by October 1, 2015.

C.  Clarifying Permitting Requirements

On August 18, 2015, EPA also issued two proposals to clarify and streamline permitting requirements in states and in Indian Country.

First, EPA issued a proposed Source Determination Rule that seeks broad public comment on two options to clarify the agency’s air permitting rules as they apply to the oil and natural gas industry. Specifically, EPA is requesting comment on how to define the term “adjacent,” which is one of three factors used to determine whether oil and gas equipment and activities are considered part of a source that is subject to major source permitting requirements under the Clean Air Act’s air permitting programs.

Second, EPA announced a proposed federal implementation plan (FIP) to implement the Minor New Source Review (NSR) program in Indian Country for oil and natural gas production. EPA highlights that the proposed plan would limit emissions of harmful air pollution while making the preconstruction permitting process more efficient for this rapidly growing industry.

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Since EPA’s proposals would be the first federal rules to regulate methane emissions in the oil and natural gas sector, we expect industry participants to take a close look as to how these rules will affect their operations. 

Further, EPA and other federal agencies are expected to issue more regulations related to methane reductions in the near future. For example, it is expected that the Department of Interior’s Bureau of Land Management and the Department of Energy also will issue rules to curtail methane emissions.

Sutherland will continue to monitor the implementation and pending litigation of these new federal regulations and report on them.

Source: Table, Sources covered by the 2012 NSPS for VOCs and the 2015 Proposed NSPS for Methane and VOCs, by site, available at: http://www.epa.gov/airquality/oilandgas/pdfs/og_table_081815.pdf