On April 12, 2013, the United States Environmental Protection Agency (EPA) issued its proposed revisions to the New Source Performance Standards (NSPS) for the oil and natural gas sector (i.e., Quad O). The reconsidered Quad O standards are the result of several petitions for administrative reconsideration of, as well as judicial challenges to, the final rule published on August 16, 2012. EPA has agreed to reconsider portions of the rule in several phases, in exchange for abeyance of the litigation challenges pending in the D.C. Circuit. The April 12th proposal reflects the Agency's first phase of that reconsideration, and focuses largely on new requirements and compliance deadlines applicable to storage tanks. Comments are due May 13, 2013, unless a public hearing is requested, in which case comments will be due May 28, 2013.

The proposal contains several significant revisions to the Quad O performance standards. Perhaps most importantly, EPA has recognized that the Quad O standards will impact vastly more storage tanks than previously estimated (EPA adjusted estimations of affected tanks from 304 storage vessels per year to an estimated 11,600 storage vessels per year). As a result, EPA has concluded that "it is clear that more time will be needed for a sufficient number of control devices to become available for the impacted storage vessels." The proposal would push back the compliance deadline for new and modified sources to April 14, 2014. Nonetheless, the Agency estimates that a sufficient supply of combustion and vapor recovery control devices will not be fully available until 2016.

For existing sources, EPA is proposing to build flexibility into the requirements by treating these tanks differently from new and modified tanks. Specifically, EPA recognizes "the decline in production that all wells experience over time," and has proposed to allow certain existing wells that can demonstrate emissions below 4 tons per year to remove control devices so that the devices may be reused at other locations. For new and modified sources, the control requirements have not changed in any significant respects. EPA also has clarified that it intends the rule to apply only to vessels containing crude oil, condensate, intermediate hydrocarbon liquids, or produced water, and not other storage vessels (e.g., fuel tanks) associated with hydraulically fractured natural gas operations.

On balance, EPA's reconsideration marks some needed relief for the industry. EPA has recognized some of the more burdensome, and unrealistic requirements embedded in the old rule, and attempted to build needed flexibility into the new rules. It also represents a more common-sense approach to regulation of the oil and natural gas industry in terms of the Agency's express recognition that emissions decline over time in association with declining production. However, it remains unclear how the Agency will approach other aspects of the reconsideration in future phases and the current proposal may yet see further changes. For this reason, it is important for the industry to remain engaged in the comment process.

Important Implications for the Colorado Air Pollution Control Division's Suggested Revisions to its Oil and Natural Gas Regulations

The proposal also holds significance for Colorado operators in light of the Air Pollution Control Division's (APCD) recently suggested revisions to its air standards governing the oil and gas industry. It will be critical for Colorado operators to weigh in both on EPA's newly proposed Quad O rule and the APCD's suggested changes to protect against unintended consequences—for example, to guard against additional Colorado standards that exacerbate the already short supply of control equipment. The APCD should also take EPA's lead by crafting requirements that recognize the fact that declining production tends to result in declining emissions, and for this reason, existing sources should be treated differently than new and modified sources. In short, it is critical that the APCD does not approach future regulatory reforms in a vacuum, but rather, recognizes the full impact and effect of EPA's reconsidered standards.

The DGS oil and gas and air quality team is happy to assist you with any needs you may have related to both Quad O and/or the APCD's suggested revisions to its air standards governing the oil and gas industry.