On August 18, 2015, the United States Environmental Protection Agency (EPA) issued its proposed amendments to the New Source Performance Standards (NSPS) for the oil and natural gas sector.1 The proposal adds methane emissions requirements for all segments in the sector, and it also expands the standards for emissions of volatile organic compounds (VOCs), amending the rules issued in 2012 to include additional sources. The proposed rules are part of the President's Climate Action Plan and Methane Strategy. Specifically, the proposal aims to deliver on the Administration's announcement earlier this year of its goal of reducing oil and gas sector methane emissions by 40 to 45 percent by 2025.2

Key Aspects of the Proposal

EPA proposes to expand the reach of its oil and gas NSPS to sources in additional segments of the oil and gas chain and in doing so layer methane requirements across the sector.3

  • Transmission and Storage – The 2012 rule left this segment largely untouched, citing a lack of information necessary to set standards.4 Accordingly, the proposed rule would have a substantial incremental impact on transmission and storage assets. Methane and VOC requirements are proposed for compressors,5 pneumatic controllers,6 and pneumatic pumps; and leak detection and repair (LDAR) programs would be required at compressor stations.7  
  • Production Segment – The proposed rule supplements the 2012 rules by establishing methane and VOC requirements to cover pneumatic pumps, completions of hydraulically fractured oil wells,8 and fugitive emissions. It also adds methane requirements to sources already regulated for VOCs (wet-seal centrifugal compressors, reciprocating compressors,9 pneumatic controllers, and completions of hydraulically fractured gas wells).   
  • Natural Gas Processing Plants – The 2012 rules regulated most VOC emission points at natural gas processing plants, adding to then-existing rules. The proposed rule adds methane requirements for these same emission points, and sets a zero-emission standard for pneumatic pumps.

The proposal discusses in detail the preferred technologies for each source type. However, EPA also solicits comments on a wide range of issues and alternatives. Many of these invitations are notable:

  • Are there states with rules more stringent than the proposal, such that EPA should consider compliance with state rules as compliant with the proposed rule?  
  • Are there corporate-wide LDAR programs that should be considered alternate compliance methods, and how would EPA incentivize and ensure enforceability of such programs?  
  • Is 30 days enough time after startup to conduct initial LDAR surveys?  
  • Should Method 21 be a permitted alternative to optical gas imaging (OGI), and are there other detection technologies that EPA should consider?  
  • Are one percent and three percent the appropriate thresholds for reducing LDAR survey frequency to semiannually and annually, respectively, and should performance-based frequencies be allowed at all?  
  • What LDAR records should be submitted electronically to EPA for "remote review"?  
  • Does the proposed rule set the well exemption parameters at appropriate levels?  
  • Do the well completion requirements for hydraulically fractured oil wells require a phase-in period (similar to the 2012 rule)?  
  • Are the monitoring frequencies for the LDAR program set at appropriate intervals?  
  • Are there sufficient numbers of qualified OGI contractors and OGI equipment to meet the demand the proposed rule will generate?

If the variety of invitations to comment is any indication of EPA's focus, companies should at the very least provide thorough comments on the LDAR and oil well completion aspects of the proposed rule. Operators for whom a particular requirement is of concern should look to the comment solicitations on that aspect to assess EPA's flexibility.

Not Just for New Sources?

On its face, the proposed rule has limited scope because it applies only to new, modified, or reconstructed sources. However, a well that is fractured or refractured after the proposal date would constitute a modified source. Thus, depending on how assertively EPA applies this definition, many existing sources could be drawn into the new rule's coverage. Moreover, EPA also proposes new control technology guidelines (CTG) for VOCs, against which states must assess (and potentially revise) their state implementation plans. Thus, the CTG proposal provides another potential avenue for drawing in existing sources.

In addition to the CTG, EPA also issued a third proposal concerning the definition of a "source" in the oil and gas sector. Current rules define a "source" to include the aggregated emissions of multiple facilities if they (a) are under common control, (b) share the same standard industrial classification code, and (c) are "contiguous or adjacent" in location. The last condition has been the subject of substantial discussion and dispute, particularly in the oil and gas industry. EPA therefore proposes to define facilities to be "adjacent" if they are within a quarter-mile of each other. However, EPA requests comment on whether to adopt only the quarter-mile interpretation or also use the "functional interrelation" test.10 If EPA were to make this change in the final rule, operators would likely see more sources elevated to "major source" status, triggering additional requirements.

One Good Turn of Foreshadowing Deserves Another

As it did in the 2012 rules, EPA uses its proposal to foreshadow a subsequent round of regulation.

  • Liquids Unloading – The Agency did not impose emissions requirements on liquids unloading, but it seeks comment on whether and how to regulate this source. Many of the sources added in the new proposal were excluded in 2012 for the same reason cited for liquids unloading – lack of information. A later rule to follow after the information gap is closed would be of little surprise.  
  • "Next Gen" Options – Like many other federal agencies, the burden of EPA's enforcement and compliance efforts have fallen on increasingly limited resources. "Next generation" compliance management looks to third-party options to make up the shortfall, and the proposed rule seeks input on independent compliance verification (particularly for LDAR), certification of vent system capability by independent professional engineers, and third-party information submittals. In the proposed rule, EPA specifically seeks input on establishing these programs, and EPA notes where such mechanisms were included in consent decrees generated in past enforcement actions. Companies should pay particular attention in their comments to this aspect of the proposal, as it has the potential for substantial cost implications for operators.

EPA's 2012 oil and gas NSPS focused on the surge in domestic natural gas production, and the new proposal focuses on the current "surge" – oil production and infrastructure (pipelines). EPA appears to be looking ahead, even as it finishes the current proposal. Prudence suggests that comments on the proposal similarly anticipate future regulations.