On May 12, 2016, the US Environmental Protection Agency (EPA) released its final rules aimed at reducing methane emissions from the oil and gas industry, in support of the Obama Administration’s efforts to cut methane emissions from the oil and gas sector by 40 to 45 percent from 2012 levels by 2025. EPA introduced a suite of rules including New Source Performance Standards (NSPS) that will curb emissions of methane, smog-forming volatile organic compounds (VOCs) and hazardous air pollutants such as benzene from new oil and gas sources. The final NSPS will achieve greater methane reductions than estimated at proposal due to changes made in response to public comments. EPA also finalized the Source Determination Rule, which clarifies how EPA intends to aggregate onshore oil and natural gas emission sources for purposes of its Title V, Prevention of Significant Deterioration (PSD), and New Source Review (NSR) permitting programs.

We previously discussed discussed EPA’s draft proposal. This post summarizes the final NSPS and describes key revisions from the proposal, as well as the Source Determination Rule and information requests that were released.

Summary of NSPS

The final NSPS builds on EPA’s 2012 rules to curb emissions from new, reconstructed and modified processes and equipment, along with reducing VOC emissions from sources not originally covered in EPA’s 2012 rules. Because many states and other federal entities (such as the Bureau of Land Management) have also adopted regulations or programs in the field, EPA designed the final rules to complement existing regulations.

Leak Detection and Repair EPA’s final rules include new requirements for finding and repairing leaks (or fugitive emissions) at natural gas well sites, transmission compressor stations, processing plants, production gathering and boosting stations and at oil well sites. Leaks are a significant source of methane and VOC emissions in the oil and gas industry, and EPA’s final rule provides new requirements for detecting and repairing leaks. For example, the rules require:

  • Owners/operators to implement a leak monitoring plan and utilize optical gas imaging to conduct a biannual leaks survey. “Method 21,” an EPA method for determining VOC emissions from process equipment, may be used as an alternative to optical gas imaging.
  • Owners/operators to repair leaks within 30 days unless the repair requires shutting down production. In that case, owners/operators are required to repair the leak at the next shutdown, or within two years.

Recognizing that new technologies are constantly being developed, EPA also provides a pathway to approve the use of emerging alternative leak detection technology. Under the new rules, owners and operators are required to submit information demonstrating that using alternative technology will still achieve methane and VOC reductions equivalent to those originally provided in the rules.

Compressors The final rule requires a 95% reduction of methane and VOC emissions from wet seal centrifugal compressors (except for those located at well sites). Dry seal systems are not covered by the final rule. Additionally, the final rule requires owners and operators to replace rod packing systems in reciprocating compressors either on or before every 26,000 hours of operation, or every 36 months.

Pneumatic Pumps EPA did not finalize requirements for pneumatic pumps at compressor stations or gathering and boosting stations at this time. Comments on the proposed rule, in addition to information in the record, led EPA to determine that the prevalence of pneumatic pump use at compressor stations or gathering and boosting stations was not reliable enough to establish a final rule. At natural gas well sites, however, owners and operators are required to route methane and VOC emissions from the pumps to a control device on site.

Proposed Rule Updates The proposed rule exempted low-production well sites (well sites with an average combined oil and natural gas production of less than 15 barrels of oil equivalent per well day), from the requirements to find and repair leaks. In response to public comments, EPA did not exempt low-production well sites from the final rules.

Source Determination Rule

EPA also finalized the Source Determination Rule, which clarifies how EPA intends to aggregate onshore oil and natural gas emission sources for purposes of its Title V, Prevention of Significant Deterioration (PSD) and New Source Review (NSR) permitting programs. Each of these permitting programs impose stringent permitting requirements on “major stationary sources,” or those sources that emit above a certain amount of regulated pollutants each year. The greater the number of minor emission sources that are aggregated, the more likely an owner/operator will become subject to the requirements of these permitting programs.

Under the PSD and NSR programs, a “stationary source” is “any building, structure, facility or installation which emits or may emit a regulated [] pollutant.” A “building, structure, facility or installation” includes “all of the pollutant-emitting activities which belong to the same industrial grouping, are located on one or more contiguous or adjacent properties, and are under the control of the same person (or persons under common control)…” Similar requirements are included as part of the Title V program.

Until now, the term “adjacent” had not been defined. Instead, EPA has issued its interpretation through a series of guidance memorandums and case-by-case determinations. Recent guidance relied primarily on the proximity of emissions sources in determining whether multiple emissions sources should be aggregated for permitting purposes. By 2009, EPA was beginning to reject this simplified approach in favor of a more fact-intensive investigation. As applied, this included making the determination “based on a ‘common sense’ notion of a source and the functional interrelationship of the facilities, rather than simply on the physical distance between the facilities.” This as-applied approach was challenged by Summit Petroleum Corporation (Summit) after EPA determined that the emissions from one of Summit’s sweetening plants should be aggregated with its sour gas wells, some of which were more than 8 miles away from the sweetening plant, and therefore, would be a major stationary source subject to EPA’s Title V permitting program. While not rejecting EPA’s interpretation of “adjacency” as articulated in its guidance memorandums, the Sixth Circuit Court of Appeals did reject EPA’s consideration of “functional interrelatedness” as a factor as inconsistent with the plain meaning of the term “adjacent” and EPA’s own guidance memorandums.

EPA stopped relying on the “functional interrelatedness” of emissions sources when making adjacency determinations in areas within the jurisdiction of the Sixth Circuit, but continued to rely on the “functional interrelatedness” of emissions sources elsewhere. The Sixth Circuit has jurisdiction over Kentucky, Michigan, Ohio and Tennessee, which includes portions of EPA Region 4 (Kentucky and Tennessee) and Region 5 (Michigan and Ohio). Other states within Regions 4 and 5 were not affected, nor were states located within the jurisdiction of EPA’s other eight (8) regions. This policy was later challenged by the National Environmental Development Association’s Clean Air Project in the US Court of Appeals for the District of Columbia. The court rejected this policy, holding that the policy is “contrary to EPA’s own regulations, which require [it] to maintain national uniformity in measures implementing the [Clean Air Act.]”

In response to this litigation, in September 2015, EPA proposed two options to clarify the meaning of “adjacent” in its Title V, PSD, and NSR regulations. Option 1, which was EPA’s preferred option, would have established a bright-line rule by requiring the aggregation of “all onshore oil and natural gas equipment that are within the two-digit SIC code 13, are under common control of a single person, and are located within ¼ mile of each other.” Option 2 would aggregate “all of the interrelated equipment that is under common control, is in the two-digit SIC [code 13], and is on contiguous or adjacent property, where the EPA would presume that equipment in an oil and gas field is ‘adjacent’ if it is proximate, or if it is exclusively functionally interrelated.”

The final rule takes from both of these options. EPA will consider onshore oil and gas emission sources belonging to SIC code 13 adjacent “if they are located on the same surface site; or if they are located on surface sites that are located within ¼ mile of one another (measured from the center of the equipment on the surface site) and they share equipment. Shared equipment includes, but is not limited to, produced fluids storage tanks, phase separators, natural gas dehydrators or emissions control devices.”

EPA is expected to publish the Source Determination Rule in the Federal Register in June 2016; it will become effective 60 days thereafter. This rule, however, only applies to EPA administered permit programs, and will not apply in those states with EPA-approved permitting programs unless and to the extent those permitting authorities choose to adopt EPA’s approach and then submit the amended state programs for EPA approval.

Information Requests

In addition to its new rules, EPA issued a draft Information Collection Request (ICR) titled “Information Collection Effort for Oil and Gas Facilities.” The ICR will be used to assist the EPA in developing new methane emissions standards for the oil and gas industry pursuant to section 111(d) of the CAA, as well as to implement the commitment to work together to reduce methane emissions made by President Obama and Canadian Prime Minister Justin Trudeau on March 10, 2016. A notice of the draft ICR and supporting statement were posted to EPA’s website on May 12, 2016.

The ICR will be broken into two parts:

  1. An “operator survey” that will be sent to all operators of oil and gas production facilities (EPA anticipates 22,500 respondents represented 698,800 facilities). This survey will collect information on various sources of methane emissions, including natural gas venting from process and maintenance activities, equipment malfunctions and flashing emissions from storage tanks. The operator survey will have a 30-day response deadline, and is not expected to contain any confidential business information.
  2. A more detailed “facility survey” that will be sent to a representative sample of oil and gas facilities across different industry segments, excluding offshore production facilities and local natural gas distribution facilities (EPA anticipates 3,385 respondents). The survey will collect detailed unit-specific information on emissions sources and any emission control devices or emissions reduction practices utilized at the facility. While EPA expects most of the information requested to be available in company records, some data will need to be compiled from actual component equipment counts or measurement data. The facility survey will have a 120-day response deadline and is expected to include confidential information.

Operators and facilities will submit their surveys using EPA’s electronic Greenhouse Gas Reporting Tool (e-GGRT). In addition to the two types of required surveys, EPA’s notice indicates that it will issue a voluntary Request for Information giving owners, operators, states, NGOs and academic experts an opportunity to contribute information.

The draft ICR is now open for public comment, which must be submitted by July 11, 2016, after which the draft will be submitted to the Office of Management and Budget (OMB) for review. OMB will then issue a revised draft, which will also be open to public comment for 30 days after issuance. EPA anticipates sending the surveys by October 30, 2016 and estimates the cost to industry of completing the surveys to be just over $40 million.

Looking Forward

As noted, EPA did not finalize several of its proposed rules, citing the need for additional information. Additionally, EPA’s draft ICR seeks information to allow the agency to further develop rules and standards for existing oil and gas sources. These issues will not be addressed before the end of the Obama Administration. It will therefore be the responsibility of the next administration to develop standards based on the additional information garnered by the ICR. A win by presumptive Republican nominee Donald Trump would likely result in the agency ceasing its efforts to regulate existing sources. Democratic front-runner Hillary Clinton would likely continue the work started by the Obama Administration, as she has voiced her support for methane regulations.

The presidential election also has implications for legal challenges to the proposed rules. With only eight justices sitting on the Supreme Court, contentious cases present the possibility of a 4-4 split that fails to resolve the issues presented on a national level and leaves the lower court decision in place. As a result, the court is likely to avoid taking some cases, and to craft narrower rulings in those to which it does grant certorari. In the meantime, President Obama’s nomination of DC Circuit Judge Merrick Garland, who is generally considered fairly deferential to agency determinations, remains in limbo. The Republican leadership has stated their intent to block a confirmation vote on Judge Garland until after the election, but if Hillary Clinton appears likely to win the election, Republicans could decide to confirm Judge Garland to avoid a less favorable nominee from the incoming President. The Republican-controlled Congress also has 60 days from the publication of the proposed rules to pass a resolution of disapproval, in which case the rule may not go into effect unless the resolution is vetoed by President Obama.