On August 18, 2015, the U.S. Environmental Protection Agency ("EPA") released and asked for comments on a number of proposed rules affecting the oil and gas industry. While the methane emission regulations have received the bulk of the media attention, another proposed rule may actually have the most direct impact on oil and gas operations. It allows the aggregation of multiple surface sites into a single source for air quality permitting purposes. The EPA has asked for comments on which of two alternatives is better. One alternative could aggregate what are now isolated permit-by-rule sites into massive sites subject to PSD programs and Title V permitting obligations.
Methane Reduction Requirements
[View proposed rules] The proposed rules would allow the EPA, for the first time, to directly regulate the emissions of methane gas from oil and gas operations. The methane rule, which applies only to new and modified sources, is part of part of the Obama Administration's Climate Action Plan, which aims to cut methane emissions from the oil and gas sector by 40 to 45 percent from 2012 levels by 2025. Notably, achieving 40 to 45 percent reductions from 2012 levels is not likely to be achieved by only addressing new and modified sources. Additional regulations of methane emissions from existing sources are very likely to follow if the EPA is serious about reaching the 40 to 45 percent reduction benchmark.
The EPA's proposal would require methane and VOC reductions from hydraulically fractured oil wells. In 2012, the EPA issued another set of standards addressing VOC emissions from hydraulically fractured and refractured natural gas wells, which had the co-benefit of reducing methane emissions. The EPA's rule proposal would also require that operators 1) find and repair leaks, using optical gas imaging to conduct a leak monitoring surveys, 2) reduce emissions of new and modified pneumatic pumps by 95 percent, 3) reduce methane emissions from wet seal centrifugal compressor by 95 percent, and 4) replace rod packing systems on reciprocal compressors every 26,000 hours of operation or every 36 months.
Aggregation
[View proposed rules] As one might expect, the aggregation of multiple small surface sites into a single massive source for air quality permitting purposes can turn what was a collection of easy to deal with permits-by-rule into a cumbersome Title V permit.
EPA's current regulations define a stationary source as "any building, structure, facility or installation which emits or may emit a regulated NSR pollutant."1 EPA's regulations then provide a three-factor test that defines a "building, structure, facility or installation" as "all of the pollutant-emitting activities which 1) belong to the same industrial grouping, 2) are located on one or more contiguous or adjacent properties, and 3) are under the control of the same person..." 2 EPA has never defined the term "adjacent" and has instead relied on agency interpretations and internal policies in determining whether multiple surface sites should be aggregated as a single source for permitting purposes.
In the proposal, EPA has offered two methods of defining the term "adjacent" for source determination purposes. One proposal, which is EPA's "preferred" option, is to aggregate two or more surface sites as a single source if they "share the same SIC code, are under common control, and are contiguous or are located within a short distance of one another." Similar to what has already been adopted in by the Texas Commission on Environmental Quality ("TCEQ"), the EPA is also proposing ¼ mile as the distance within which to consider multiple surface sites as a single source.
By contrast, under the second proposal, the equipment would be presumed to be "adjacent" if it is proximate or functionally interrelated. Functional interrelatedness would be determined on a case-by-case basis, but could be shown by pipeline connection or exclusive delivery from one piece of equipment to another. This type of aggregation criteria could conceivably lead to massive amounts of oil and gas operations spread over numerous acres being treated as single source.
Operators in the oil and gas industry should pay close attention to how these two proposals will affect their day-to-day operations and whether small changes in definitions could have huge impacts in permitting and compliance requirements. The EPA has not yet published the proposal in the Federal Register. The publication of the proposed rules will trigger a 60-day comment period, during which interested parties may submit their comments to the EPA for review and consideration.
1 40 CFR §52.21(b)(5); see also 40 CFR §51.166(b)(5)
2 40 CFR §52.21(b)(6); see also 40 CFR §51.166(b)(6)
