Handling produced water from the development of coalbed natural gas has been a critical environmental issue for state and federal agencies and the industry since the coalbed natural gas (CBNG) boom hit its stride in the late 1990’s. Recent federal and state regulatory developments indicate that handling CBNG produced water could get more challenging and more costly, in the not too distant future.

In June and again in July, EPA held a teleconference to discuss its plans to assess whether or not CBNG technology-based effluent limits should be developed. On December 18, 2006, pursuant to Clean Water Act (CWA) §304, EPA identified the CBNG industry as an industry for which an “effluent limitation guideline” (ELG) may be required as a special subset of the existing federal regulation of the Oil and Gas Extraction category (40 CFR § 435). An ELG for CBNG would be a national control on produced water that would likely limit the menu of water-handling options currently used by industry. Some options – treatment or injection – could significantly raise the costs of handling CBNG produced water.

First steps will include a CBNG “information collection request,” a survey of a representative sample of CBNG operators and other “stakeholders” from all regions where CBNG is produced.

EPA has stated it needs more detailed information on the characteristics of produced water and the technology options available to address potential environmental impacts. Information will be collected on: current regulatory controls, geographical differences in characteristics of CBNG water, potential environmental impacts, and the availability and affordability of treatment technology options. See EPA PowerPoint material at: http://www.epa.gov/guide/304m/2007/cmb-slides.pdf. EPA will supplement the survey data collection with industry site visits and produced water sampling. Response to EPA on either the survey or a site visit is mandatory for NPDES permit holders. CWA §308(a). Based on the information collected, EPA will determine if a rulemaking to revise the effluent guidelines for the Oil and Gas Extraction category is necessary to address unique CBNG impacts.

The EPA survey will be conducted in August 2008 and the preliminary results published in October 2009. However, EPA will initiate site visits and meetings with stakeholders this summer and publish two Federal Register notifications in late 2007 and spring 2008 in advance of the survey to solicit input into the structure of the survey. The information collection process is led by EPA headquarters in Washington, D.C. and updates on the survey will be posted at http://www.epa.gov/guide/plan.html . Industry involvement in the information collection will be critical to ensure that EPA’s final decision is based on accurate data.

Why? We have been down this road before. Although CBNG water is unaltered groundwater, it can contain elevated levels of TDS (measured by EC) and SAR that can make certain soils impermeable and harm some plants. The Resource Councils in Montana and Wyoming (Northern Plains Resource Council and Powder River Basin Resource Council) have been particularly vocal at both the state and national level in arguing for greater regulation of CBNG produced water. In a 2003 decision, Northern Plains Resource Council v. Fidelity Exploration & Development Co., 325 F.3d 1155, 1160-61 (9th Cir. 2003) cert. denied, 540 U.S. 967 (2003), the Ninth Circuit ruled that CBNG produced groundwater satisfies the CWA definition of “pollutant” because it is an “industrial waste” and a “man-made alteration.”

In 2001, EPA Region VIII argued that the existing Oil and Gas Extraction ELG did not address CBNG produced water and began the preparation of a “best professional judgment” (BPJ) technical guidance for CBNG in the Region. EPA prepared a draft BPJ in 2003 that was replete with anecdotal information that failed to consider the economic consequences of required treatment or injection on CBNG production. See EPA, Region 8, “Best Professional Judgment”, A Coalbed Methane BPJ (Feb. 2003) (on file with author). The U.S. Department of Energy (DOE) responded to EPA with a critical report that demonstrated that increased water handling requirements (beyond surface discharge/storage) would severely limit production of Powder River Basin CBNG. See U.S. Dep’t of Energy, “Powder River Basin Coalbed Methane Development and Produced Water Management Study” (DOE/NETL-2003/1184, Nov. 2002), available at:

http://fossil.energy.gov/programs/oilgas/publications/coalbed_methane/PowderRiverBasin2.pdf .

The Region VIII BPJ for CBNG was shelved and never completed.

Nonetheless, Northern Plains Resource Council used the draft BPJ information in a 2004 report to argue that Montana should regulate CBNG for “zero discharge” and injection of all produced water.

Montana did not require injection or treatment directly, but did put in place strict numeric water quality criteria for EC and SAR and revised another aspect of its CWA program, anti-degradation (designed to maintain existing water quality), to further ratchet up control of CBNG produced water.

Industry and the state of Wyoming challenged these actions in litigation filed in 2006. Pennaco Energy Inc. v. EPA, No.06-CV-0100-B (D. Wyo. filed April 25, 2006). To further complicate the situation between Montana and Wyoming, in August 2006, EPA granted Montana’s Northern Cheyenne Tribe “treatment as a state” status to promulgate water quality regulations that would be stricter than Montana’s regulation of CBNG. See http://www.epa.gov/region8/water/wqs/NCheyenneDecisionDocument.pdf

In response to continuing concerns over CBNG produced water, the Energy Policy Act of 2005 at §1811 directed the National Academy of Science to study CBNG produced water management. During the 110th Congress, environmental groups were successful in encouraging Representative Mark Udall (D-CO) to introduce language to further regulate CBNG produced water management. This language was included in the August 4th House-passed Rahall energy bill. (HR 3221, § 7223).

An important related CBNG water management issue – water quantity impacts – continues to develop at the state level. The Resource Councils and others are pushing greater regulation of CBNG water production as a water quantity matter either to prevent harm from “too much water” or to avoid “waste” of water. In 2006, the Powder River Basin Resource Council was successful in convincing the Wyoming Environmental Quality Council, over the objection of the Department of Environmental Quality (DEQ), to approve a rule that would limit the quantity of CBNG produced water discharged. In April 2007, Governor Freudenthal refused to endorse the rule arguing that regulation of water quantity is a job for the State Engineer, not DEQ. In May, the Powder River Basin Resource Council filed suit in state court to challenge the Governor’s action. Powder River Basin Resource Council v. Freudenthal, et al., District Court, Laramie County, Case Number: 169944 (May 22, 2007). Similarly in Colorado, a Colorado Water Court held, over the objection of the State Engineer, that the state must require oil and gas companies to obtain a water right permit to pump and reinject groundwater used in CBNG development. Vance v. Simpson, District Court, Water Division 7, State of Colorado, Case Number: 2005CW063 (July 2, 2007). The state and BP America Production Company argued that CBNG produced water was a byproduct of CBNG production and its management governed by the Colorado Oil and Gas Conservation Commission.

The Water Court disagreed and found that CBNG produced water is an appropriation for a “beneficial use”, and so needed a state Ground Water Act permit.

How bad could CBNG produced water regulation get? In February 2007, the provincial government of British Columbia put in place a zero discharge standard for CBNG. No discharge period – even with treatment. http://www.energyplan.gov.bc.ca .

While that type of regulation seems unlikely now, one only has to consider how the oil and gas regulatory world in Colorado turned upside down as a result of the actions of the 2006 Legislature and the potential for similar upheaval at the federal level should HR 3221 make it into law. Produced water handling is the key to the continued viability of the CBNG industry and these regulatory developments at EPA and in the states require the thoughtful involvement of the industry.