Introduction

On May 12 2016 the Environmental Protection Agency (EPA) issued New Source Performance Standard (NSPS) Sub-part OOOOa, its climate change regulations for methane and volatile organic compound (VOC) emissions for the oil and natural gas sector.(1) Although the new rule applies only to facilities constructed, reconstructed or modified after September 18 2015, it may be a first step towards climate change regulations for existing oil and gas sources. The new rule builds on the existing Sub-part OOOO.

Methane regulation

The new rule officially regulates methane emissions, adding methane to the Sub-part OOOO VOC standards, such as the reduced emission completion (REC) standards for hydraulically fractured well completions and the leak detection and repair (LDAR) requirements for natural gas processing plants.

OGI for well sites and compressor stations

Semi-annual optical gas imaging (OGI) monitoring for fugitive methane and VOC emissions is required for oil and gas well sites, such as tank batteries. Quarterly OGI monitoring is required for compressor stations. Method 21 monitoring, with a 500 parts per million (ppm) total organic carbon repair threshold, may be used as an alternative.

Additional sources

The new rule extends a number of Sub-part OOOO requirements to additional oil and gas sources. Significantly, Sub-part OOOOa requires RECs for hydraulic fracturing of all wells, instead of just gas wells. The rule also adds new standards for pneumatic pumps.

Sector-wide expansion

The proposal extends Sub-part OOOO standards for pneumatic controllers and centrifugal and reciprocating compressors (with the exception of well-head compressors) to the entire oil and gas sector.

In general, all Sub-part OOOO requirements have been incorporated into Sub-part OOOOa, with the applicability of many requirements broadened significantly. The most significant elements of the rule are:

  • the extension of REC requirements to fractured and refractured oil wells;
  • OGI fugitive emissions monitoring for well sites and compressor stations; and
  • the application of compressor leak standards to the natural gas transmission segment.

NSPS Sub-part OOOOa was promulgated under Section 111(b) of the Clean Air Act, which means that it applies only to new, reconstructed or modified affected facilities. However, the EPA may eventually propose climate change standards for existing sources under Section 111(d). Because this latter statutory provision is the basis for the EPA's Clean Power Plan regulations for existing power plants, the outcome of the legal challenges to that rule may strongly influence the likelihood and scope of future climate change regulations for existing oil and gas facilities.

Background

When the Sub-part OOOO oil and gas standards were finalised in 2012, the EPA declined to impose explicit requirements for methane reductions, instead allowing methane to be controlled as a "collateral benefit" of VOC reductions. However, the EPA subsequently received petitions for reconsideration in which environmental advocacy groups urged the administrator to adopt standards for the methane pollution released by the oil and gas sector.

The Sub-part OOOOa rule is the EPA's response to the petitions for reconsideration. In the years following the petitions, the EPA collected data on oil and gas sector methane emissions through the Mandatory Greenhouse Gas Reporting Rule and prepared several white papers, issued in 2014, which summarised sector emissions and potential mitigation technologies.

The final rule was also influenced by President Obama's 2013 Climate Action Plan and Methane Strategy and the administration's January 2015 announcement of a new goal to cut methane emissions from the oil and gas sector by 40% to 45% from 2012 levels by 2025. Although not mentioned in the preamble, it appears clear that the new rule is also an element of Obama's plan to employ administrative rules to achieve administration commitments under the Paris Agreement (pursuant to the United Nations Framework Convention on Climate Change).

New and expanded requirements

In the preamble, the EPA states that the Best System of Emissions Reduction (BSER) – the control standard for new, modified and reconstructed NSPS sources – is generally the same for methane as it is for VOCs. Accordingly, Sub-part OOOOa keeps the VOC emissions controls specified under Sub-part OOOO and applies the same measures to the control of methane.

However, the rule also:

  • adds new requirements;
  • extends the applicability of Sub-part OOOO requirements to additional types of sources; and
  • expands coverage to additional segments of what the EPA calls the 'oil and natural gas source category' (ie, the production, processing, transmission and storage segments).

These new and expanded requirements will apply to affected facilities constructed, modified or reconstructed after September 18 2015.

Centrifugal compressors

The rule expands the requirements for wet-seal centrifugal compressors in the production segment to the entire oil and gas sector. The requirement is to capture and reduce emissions by 95%. Well-head compressors are exempt.

Reciprocating compressors

The rule expands the requirements for reciprocating compressors in the production segment to the entire oil and gas sector. The requirement is to capture and reduce emissions by 95% or to change the rod packing every 26,000 hours or 36 months. Well-head compressors are exempt.

Pneumatic controllers

The rule expands the general requirement to use low-bleed controllers (not to exceed 6 standard cubic feet per hour) to the entire oil and gas sector. However, no-bleed controllers will still be the general requirement for natural gas processing plants.

Pneumatic pumps

This is a new requirement. Owners and operators must capture and route pneumatic pump emissions to a control device or process to achieve a 95% reduction if a control device or suitable process is available at the site.(2) Where an existing control device is used, reductions of less than 95% are acceptable. Pneumatic pumps at natural gas processing plants must meet a zero emissions standard.

Well completions

The rule extends the REC and combustion control requirements for hydraulically fractured natural gas wells to hydraulically fractured oil wells. The same partial exemptions that presently apply to natural gas wells (eg, for wildcat, delineation and low-pressure wells) will apply to oil wells. In addition, there is an exemption for low gas-oil ratio wells.

Fugitive emissions

The rule adds fugitive emission requirements to production well sites and compressor stations by requiring periodic OGI surveys and the repair of identified fugitive emissions sources. Inspections will be required on a semi-annual basis for well sites and on a quarterly basis for compressor stations. The following details will apply:

  • Leaks will be visually confirmed with an optical gas imaging device. Method 21 may be used as an alternative, but the repair threshold is stringent (500 ppm).
  • Well sites with only one or more wellheads are excluded. The EPA proposed an exemption for low-throughput sites (less than 15 barrels of oil per day), but did not finalise this exemption.
  • Repairs must be completed within 30 days, with re-monitoring completed within an additional 30 days. Repairs may be delayed for up to two years if it is technically unfeasible to complete the repair within 30 days.
  • A monitoring plan must be developed and implemented that covers all affected facilities within an area defined by the owner or operator.
  • Well sites will be regarded as 'modified' only if a new well has been added to an existing well site or an existing well at such a site has been fractured or refractured.
  • Compressor stations will be regarded as 'modified' only if an additional compressor has been added or one or more compressors have been replaced and the result is a net increase in the total compression horsepower at the facility.
  • Natural gas processing plants remain subject to Method 21 LDAR requirements. However, methane is now a controlled pollutant for gas plants.

Liquids unloading

The EPA solicited comments on liquids unloading. However, due to a lack of sufficient information, the EPA did not finalise standards for liquids unloading.

Next Generation Compliance

The EPA considered Next Generation Compliance options as part of Sub-part OOOOa. The EPA did not finalise some of the more stringent options that it considered, such as compliance verification by independent third parties and third-party submission of compliance information. Nonetheless, the final Sub-part OOOOa rule requires professional engineer certifications for vent system designs and to verify that it is technically unfeasible to achieve 95% control for a pneumatic pump.

Other amendments

The EPA also finalised implementation improvements to Sub-part OOOO, but did not amend the rule's substantive control standards. The most significant amendments are as follows.

Control device monitoring and testing

Unless a manufacturer's performance test has been conducted, the operator must conduct an initial test and follow-up tests every 60 months. Given the large number of dispersed sites for which testing will be required, the provision will represent a significant cost. The performance criterion was raised from 20 to 275 ppm by volume. Monthly monitoring of visual emissions is required (15 minutes using Method 22).

Flare design

The EPA finalised its proposal to clarify that flares must meet the design and operational requirements in 40 CFR Section 60.18.

Large water recycling tanks

The EPA finalised its proposal to remove applicability for large water recycling tanks. Despite very low VOC concentrations, these tanks sometimes exceed 6 tons per year of VOC emissions due to millions of gallons of annual throughput. The new exemption applies to tanks with a capacity of more than 100,000 gallons that store water after two-phase separation.

Comment

Many of the provisions in the Sub-part OOOOa rule could have been promulgated by the EPA as VOC control provisions, without any consideration of methane emissions. However, the measure has been touted as a climate change rule and thus constitutes another step in the EPA's campaign to regulate greenhouse gases under the existing Clean Air Act without additional authorisation by Congress. As such, there will likely be numerous legal challenges to the rule.

The rule's substantive provisions will impose a significant compliance burden on industry. Sub-part OOOOa is the first federal standard to extend leak detection and repair requirements to production well sites and compressor stations. Compliance with the periodic OGI surveys required by the rule will require significant resources by industry – especially since the EPA did not finalise the proposed exemption for well sites with production of less than 15 barrels of oil per day.

The expansion of requirements to apply sector-wide and the extension of control requirements to additional sources will also impose compliance costs. In particular, REC requirements for hydraulically fractured oil wells will be significant, given that many oil production facilities are not connected to sales pipelines, instead flaring separated gas and relying on trucks to convey crude oil and condensate liquids to market.

The requirement for professional engineer certifications for vent systems is also significant. Based on certain consent decrees with oil and gas operators and recent negotiations in the Bakken Formation, the EPA has been seeking to impose a 'no venting' standard for vapour collection systems at oil and gas facilities. The new rule's requirement for professional engineer certifications for these systems is clearly intended to move operators towards this level of design and control. Specifically, the professional engineer will need to verify and certify that the closed vent system is designed to handle all reasonably expected emissions scenarios, including flash emissions based on peak flow, so that thief hatches and other devices will not relieve during normal operations.

For further information on this topic please contact Edward Clark Lewis at Norton Rose Fulbright LLP's Houston office by telephone (+1 713 651 5151) or email (eddie.lewis@nortonrosefulbright.com). Alternatively, please contact Bob Greenslade at Norton Rose Fulbright's Denver office by telephone (+1 303 801 2700) or email (bob.greenslade@nortonrosefulbright.com). The Norton Rose Fulbright website can be accessed at www.nortonrosefulbright.com.

Endnotes

(1) The final rule has not yet been published in the Federal Register. A pre-publication draft is available on the EPA website.

(2) The EPA found that it was not cost effective to require the installation of a control device solely for the reduction of emissions from pneumatic pumps.

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