On July 28, 2011, the US Environmental Protection Agency (“EPA” or “the Agency”) announced the release of a 604-page suite of proposed air regulations for oil and gas production, processing, transmission, and storage. Covered operations and equipment would include completions and recompletions of hydraulically fractured natural gas wells, compressors, pneumatic controllers, various storage tanks, and gas processing plants. The proposals are the result of a court settlement that also requires the Agency to issue final standards by February 28, 2012.

Under the Clean Air Act, EPA sets performance standards for categories of new and modified emissions sources (which are known as new source performance standards or “NSPS”), and for emissions of chemicals defined as hazardous air pollutants (“HAPs”) such as benzene, ethylbenzene, and n-hexane. For natural gas, the current NSPS date to 1985 and apply only to new and modified processing plants. EPA now would substantially expand this coverage. In addition, the Agency would augment HAP controls for both existing and new sources in the oil and natural gas production and natural gas transmission sectors.

Key features of the NSPS proposals include the following:

  • Hydraulic Fracturing. “Green” or “Reduced Emissions Completions,” in which gas and liquid hydrocarbons are separated from flowback, would need to be employed during completions and recompletions of hydraulically fractured gas wells. This requirement might be phased in over time if EPA concludes insufficient equipment is available for emissions control, which could entail use of tanks, gas-liquid-sand separator traps, and gas dehydration. When gases cannot enter a gathering line, pit flaring would be used. EPA estimates the average incremental cost to be $33,237 per completion. Operators would need to give advance notice of fracturing or refracturing, and EPA is contemplating requiring third-party verification. Fracturing of oil wells would not be covered because EPA believes those operations result in lower emissions of volatile organic compounds (“VOCs”).
  • Compressors (used to move natural gas through pipelines). Centrifugal units would need to be equipped with dry seal systems; the rod packing in reciprocating compressors would need to be replaced every 26,000 hours of operation.
  • Pneumatic controllers (used at gas processing plants and compressor stations to maintain liquid levels, pressures, and temperatures). At gas processing plants, use of controllers that are not gas-driven would eliminate VOC emissions. At compressor station and other locations, the controller bleed limit would be 6 cubic feet of gas per hour. The Agency would classify each individual controller as an “affected facility” so that the standards would apply to each newly installed or replaced device.
  • Condensate and crude oil storage tanks. A 95 percent reduction in VOC emissions would be required for tanks with a throughput of at least 1 barrel per day of condensate or 20 barrels per day of crude oil.
  • Natural gas processing plants. Leak detection and repair requirements would be tightened to control VOCs, and sulfur dioxide performance standards would be strengthened for plants with a sulfur feed rate of at least 5 long tons per day or a hydrogen sulfide concentration in the acid gas stream of at least 50 percent.
  • Produced water ponds. EPA is asking for comment on VOC emissions from produced water ponds and associated control technologies.

For oil and natural gas production sites and storage/transmission sites that qualify as “major” emitters of HAPs (those emitting 10 tons or more of any single HAP or at least 25 tons in combination), the key features of the HAP proposals include: 

  • Oil and Natural Gas Production. HAP emissions from crude oil and condensate tanks and from large glycol dehydrators would need to be cut by at least 95 percent. The existing 1 ton per year benzene control option would be eliminated for large glycol dehydrators. Smaller dehydrators (natural gas throughput less than 3 million cubic feet per day or actual annual average benzene emissions less than 1 ton per year) would be subject to emissions limits.
  • Natural Gas Transmissions and Storage. The existing 1 ton per year benzene compliance option would no longer be available for large glycol dehydrators. Small glycol dehydrators (less than 10 million cubic feet of natural gas throughput per day, or less than 1 ton average annual benzene emissions) would be subject to emissions limits.
  • Startup, Shutdown, and Malfunction (“SSM”). For both the production and transmission/storage sectors, the existing SSM exemption would be eliminated.

The estimated aggregate cost of the proposals through 2015 for all regulated sectors is $754 million; however, EPA is forecasting the value of the resulting natural gas and condensate available for sale to be $783 million. To reduce any associated compliance burden, the Agency is proposing to create an exemption so that the proposals by themselves would not necessarily trigger the obligation to obtain a “Title V” air emissions operating permit. The proposals make no change in EPA’s current approach to “source aggregation.” Permitting authorities still will make case-by-case decisions about whether two or more pollutant-emitting activities should be regulated in the aggregate as a single source (which currently is the subject of a citizen suit in Pennsylvania against a drilling company).

Air emissions from natural gas production have been stirring up controversy, particularly in the Barnett Shale around Fort Worth, Texas. While the proposals give EPA another hook for regulating the shale gas boom, and the more than 20,000 gas well completions and re-completions each year, initial industry reaction has been quiet. Written comments will be due 60 days after the proposals appear in the Federal Register. EPA also is planning public hearings for Dallas, Denver, and Pittsburgh.

For more information about the proposed regulations, or any other matter raised in this Legal Update, please contact Roger W. Patrick at +1 202 263 3343, or your regular Mayer Brown lawyer.

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