On May 12, the U.S. Environmental Protection Agency (EPA) released final regulations (the Rules) aimed at reducing methane emissions from certain new and modified oil and gas facilities by 40% to 45% from 2012 levels by 2025. Methane is considered to be a significant contributor to climate change, and the Rules are part of the Obama Administration’s efforts to curb greenhouse gas emissions.

Importantly the Rules are limited to new and modified upstream oil production as well as natural gas production and distribution systems upstream of local distribution systems. They do not cover downstream petroleum distribution, refining and marketing activities. In light of the upstream sector’s recent financial difficulties, the imposition of new requirements on new and modified wells could prove to be another significant hindrance to this sector rebounding. Relatedly and at the same time, developing efficient systems to comply with the Rules is critical since the federal government has moved to a significant enforcement posture across regulatory programs.

EPA also issued a draft information collection request (ICR), which will allow the agency to accumulate data about methane emissions from existing sources in the oil and gas industry, laying the groundwork for guidelines to restrict emissions from these existing sources in a future rulemaking.1

Scope of the Rules

The Rules only cover new and modified facilities within the “oil and gas source category,” which is limited to: (1) crude oil production sources, which extend to the point of custody transfer for “transportation”; and (2) natural gas production, processing, transmission and storage sources, which extend to but do not include the local distribution company custody transfer station. Therefore, facilities like refineries, petroleum storage tanks and blending operations are not covered by the Rules. A “new” source is any facility that commenced construction after September 18, 2015. An existing facility is modified if it undergoes “any physical change in the method of operation . . . which increases the amount of any air pollutant emitted by such source or which results in the emission of any air pollutant not previously emitted.”2

Reducing Methane and VOCs

The Rules amend the New Source Performance Standards (NSPS) at 40 CFR part 60, subpart OOOO, and establishes new standards at subpart OOOOa to address methane-specific emissions as compared to the 2012 NSPS rules that only addressed ozone-forming volatile organic compounds (VOCs). However, EPA has said that it expects that most sources previously subject to the 2012 VOC rules will not have to install additional controls, because the controls to reduce VOCs will also reduce methane.

Even though additional emission controls may not be required, under the Rules the covered oil and gas facilities are required to (i) conduct a leak monitoring survey within one year of the effective date of the Rules (or within 60 days of startup for any sources built or modified after that) in an effort to reduce fugitive emissions, (ii) capture gas from the completion of hydraulically fractured wells, (iii) limit emissions from new and modified pneumatic pumps, (iv) limit emissions from several types of equipment used at gas transmission compressor stations, and (v) within six months of the Rules being published, install technology that captures and treats gas and liquid hydrocarbons which can later be sold, as opposed to flaring, or burning off their emissions, on fracked oil wells.

Furthermore, the Rules impose increased burdens from those originally proposed,3  including (a) removing the leak monitoring exemption for low production wells, (b) doubling the amount of times compressor stations must monitor leaks from two times a year to four times a year, and (c) setting a schedule for monitoring leaks at well sites (twice per year) and compressor stations (four times per year) rather than the proposed performance-based schedule which would have reduced the reporting burden for companies with low methane leak rates.

EPA has estimated the value of the climate benefits related to the Rules to total $690 million, outweighing the estimated $530 million in costs, and contends that by 2025 the Rules will reduce emissions of methane by 520,000 short tons and emissions of VOCs by 210,000 tons. EPA noted that this reduction in methane emissions is equivalent to 11 million metric tons of carbon dioxide emissions.

Publication of the Rules in the Federal Register will trigger a 60-day period in which affected parties may file a petition for review in the U.S. Court of Appeals for the District of Columbia Circuit.

Source Determination Rule

EPA also clarified what constitutes a single “source” with respect to a collection of emitting equipment and activities. This information adds much needed certainty in determining whether emissions must be aggregated and if major source permitting programs apply because more aggregation increases the chances of exceeding “major source” thresholds which would trigger the permitting requirements.

The Rules consider equipment and activities that are under common control to be “adjacent” and a single source if they are located on the same site or if the sites share equipment (such as storage tanks, dehydrators, etc.) and are located within a quarter mile of each other.

Information Collection at Existing Sources

Lastly, EPA has proposed an ICR that would require oil and gas companies to submit information regarding existing sources, including venting of natural gas in connection with the operation of wells, pipelines and other equipment. Information collected will help EPA better understand how the oil and gas sector operates, including details such as what emission controls are currently used and whether electricity is available at the source sites. EPA will use the information to propose a rule regarding methane emissions under Section 111(d) of the Clean Air Act. The public will have 60 days to comment once the ICR is published in the Federal Register.