On April 18, 2012, the US Environmental Protection Agency (“EPA” or the “Agency”) released its new regulations for air emissions from the oil and natural gas industry, including hydraulic fracturing at onshore wells drilled principally for natural gas. The rules also cover oil and gas production equipment as well as natural gas gathering and boosting stations, processing plants, and compressor stations.

These requirements set performance standards for emissions from new and modified equipment and activities (which are known as new source performance standards or “NSPS”) of volatile organic compounds (VOCs) from crude oil and natural gas production, and natural gas transmission and storage. In addition, EPA has revised its air emission standards for new and existing major sources of hazardous air pollutants (“HAPs,” also known as “air toxics”) within the crude oil and natural gas production, and natural gas transmission and storage sectors. For further background on the rulemaking process, please see our August 8, 2011 Legal Update, “US EPA Proposes to Control Air Emissions from Hydraulic Fracturing and other Oil and Gas Operations.

For natural gas, the key feature of the rules is that new hydraulically fractured wells and refractured wells now will be subject to federal emissions limits. Until January 1, 2015, well owner/operators will need to reduce VOC emissions during the “flowback period” either by flaring with a completion combustion device (unless state or local regulations prohibit combustion, or combustion is a safety hazard) or by capturing gases through a “green completion” (also known as a “reduced emission completion”) equipped with a completion combustion device. Beginning January 1, 2015, owner/operators will have to use green completions with combustion. This major change from the proposal, which would have required green completions immediately, was the result of industry concerns about equipment availability.

Exceptions from the green completion requirements are available for new exploratory wells and certain low-pressure wells. Moreover, gas wells that are refractured and recompleted will not be considered to be “modified” if a green completion is used prior to January 1, 2015 instead of flaring. That may allow refracturing to proceed without triggering state air permitting requirements. No later than two days before completion work begins, the well owner/operator must notify EPA, or the state in some cases, by e-mail.  Annual reporting of well completions also is required. As was the case in the proposed rule, fracturing at wells primarily used to produce oil is not covered.

Other highlights of the rules are as follows:

  • Production Sites

At both natural gas and oil production sites, new and modified continuous-bleed pneumatic controllers are subject to a gas-bleed rate limit of 6 cubic feet per hour as well as testing, reporting, and recordkeeping requirements. New and modified storage vessels with VOC emissions of at least 6 tons per year must reduce VOCs by at least 95 percent. For natural gas well sites that are major sources of air toxics, existing standards for large glycol dehydrators are being retained, while new and existing small dehydrators (annual average natural gas throughput of less than 85,000 standard cubic meters per day or actual annual average benzene emissions of less than 1 ton per year) must meet a unit specific limit for BTEX (benzene, toluene, ethylbenzene, xylene) determined by a prescribed formula.

  • Natural Gas Gathering and Boosting Stations

For new and modified compressors, centrifugal units with wet seals must reduce VOC emissions by 95 percent. In reciprocating compressors, rod packing must be replaced every 26,000 operating hours or every 36 months. Dry seal systems are not covered. Requirements for high-bleed, gas-driven controllers, storage vessels, and glycol dehydrators are similar to those for production sites.

  • Onshore Natural Gas Processing Plants

These facilities now are subject to more rigorous leak detection and repair requirements. Further, the natural gas bleed rate is zero for new and modified continuous-bleed gas-driven pneumatic controllers. Sweetening units (which remove sulfur from natural gas) must reduce sulfur dioxide emissions according to prescribed formulas based on sulfur content of acid gas and the feed rate. Requirements for compressors, storage vessels, and glycol dehydrators parallel those discussed above.

  • Natural Gas Transmission Compressor Stations

Here too, new storage tanks with VOC emissions of at least six tons per year must reduce emissions by at least 95 percent. For compressors and pneumatic controllers, however, EPA decided not to finalize standards for these facilities. For major sources of air toxics, small dehydrators—this time defined as an annual average natural gas flow rate of less than 283,000 standard cubic meters per day or annual average benzene emissions of less than 1 ton—will need to meet a unit-specific emissions limit for BTEX.

The effective date of the rules will be 60 days after their publication in the Federal Register. Some of the above requirements will take effect immediately; others (such as green completions) will be phased in over time. And, in distinguishing between new and existing sources, keep in mind that EPA looks to the date of the proposed rule, August 23, 2011, so that facilities that started construction or modification after that date are “new.”

Industry reaction to the phase-in period for green completions at natural gas wells has been highly positive. But, concerns remain about costs and other burdens to production, especially at wells with low VOC emissions, as well as the quality of EPA’s emissions estimates. Environmentalists, on the other hand, generally are in favor of the rule, but critical of the phase-in and EPA’s decision to regulate methane indirectly through capture of VOCs rather than directly as a greenhouse gas. In this election year, the Administration thus seems to have tried to strike a balance between energy production and environmental protection.

For more information about the new 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.