Events are unfolding rapidly in the regulatory arena for the natural gas and oil industry. Even though hydraulic fracturing has been used for decades, and is but one stage in the drilling process, the controversy over “fracking” has prompted swift and broad regulatory movement—both at the federal and state levels. Federal and state agencies are racing to develop new regulations or bolster existing ones. While industry has generally eschewed these efforts (particularly at the federal level, arguing that a state-based regulatory scheme is appropriate), recent guidance issued by the Pennsylvania Department of Environmental Protection (PADEP) demonstrates that sometimes new regulations (or interpretations) can be a good thing.

One issue that has long perplexed the industry is the regulation of air emissions—or more precisely, how to “aggregate” various aspects of an oil or gas drilling operation for purposes of air permitting.

The germane question is how close do different parts of a drilling operation (well pads, pipelines, processing facilities etc.) need to be in order to be considered one stationary source, subject to stricter Title V or Prevention of Significant Deterioration permitting? By almost any account, the evolution of EPA’s “aggregation” doctrine has been a jumbled mess. Over the years EPA’s various interpretations of “continuous or adjacent,” “interrelatedness,” and “proximity” have led to some absurd conclusions (for example, EPA has aggregated operations with components as far as 44 and 21 miles away, and most recently 100 sour gas wells in three different fields over 43 square miles in Michigan—which is currently subject to litigation [PDF]). Perhaps most perplexing, the “aggregation determination” often turns on semantic word interpretation rather than practical considerations of how best to protect air quality.

As the blog has previously noted, EPA rescinded the Bush-era guidance on aggregation (which focused largely on “proximity” as the key determinant of “continuous or adjacent”) and issued its own guidance (“the McCarthy Memo”) downplaying the importance of proximity. The McCarthy Memo does not bring any further clarity to the subject. And the recently proposed New Source Performance Standards for the oil and gas sector merely reference the McCarthy Memo, and note that aggregation will be made on a case by case basis.

In light of this federal regulatory maze, the PADEP has issued a potentially landmark guidance [PDF] that would set a bright-line boundary for determining aggregation of a quarter mile (i.e., operative units within a quarter mile of each other would be considered one source). The guidance applies a plain meaning of “continuous” and “adjacent”, stating “[t]hese words mean and relate to spatial relationship or spatial distance or proximity.” PADEP has moved away from EPA’s historically confusing concept of “interdependence,” reasoning that the policy should adopt a “common sense notion of a plant.” The guidance also notes that Texas, Oklahoma, and Louisiana have traditionally used a quarter mile rule of thumb for oil and gas operations. And contrary to EPA’s often tortured notion of what constitutes one plant, the quarter mile rule of thumb is more likely to achieve Title V air quality goals by ensuring regulatory decisions are made based on air quality considerations instead of arbitrary, semantic definitions.

Pennsylvania’s move is significant. This region of the Marcellus is undergoing dramatic new natural gas development. With the guidance, this important drilling state may be setting the precedent for how other states go about determining aggregation. While it would not be a rule or regulation, the guidance would nonetheless bring much needed clarity to a very confusing area of the law—at least in one critical state. Comments to the guidance are due November 21, 2011.

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