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August 30, 2016 Articles

2016 Updates to the Oil and Gas NSPS Finalized, Immediately Challenged

North Dakota filed a petition for review of the EPA's new source performance standards for reducing methane emissions.

By Karen Aldridge Crawford – August 30, 2016

On May 12, 2016, the EPA finalized updates to its new source performance standards (NSPS) for the oil and gas industry, which amended 40 C.F.R. part 60, subpart OOOO and added new requirements (subpart OOOOa) to those established for volatile organic compounds (VOCs) and sulfur dioxide (SO2) established for this industry sector in 2012. Importantly, the new requirements address reductions of greenhouse gas (GHG) emissions, specifically methane. This rule, published in the Federal Register on June 3, 2016, is one of several planned and aimed at reducing methane emissions in accord with the president’s climate change agenda.

In its executive summary for the May 12 rule, the EPA discussed the efforts by the agency to “complement” and “improve” the existing rules issued in 2012, stressing the agency’s efforts to engage states and stakeholders and solicit comments prior to its 2015 proposal of the rule. The EPA also stressed it worked closely with the Bureau of Land Management to avoid conflicts and evaluated existing state and local programs to attempt to limit conflicts, where possible.

After promulgation of both the 2012 rule and 2013 amendments, the agency received petitions for reconsideration raising numerous issues, including the regulation of GHGs. The EPA addressed some of the petitioners’ issues in 2015 amendments pertaining to storage vessels as well as in this rule, adding standards for methane and addressing storage vessel control device monitoring and testing; initial compliance requirements for bypass devices that divert emissions from control devices; recordkeeping requirements for repair logs for control devices that fail a visible emissions test; clarification of the due date for the initial annual report; emergency flare exemptions from routine compliance tests; leak detection and reporting for open-ended valves or lines; compliance period for leak detection and repair (LDAR) for newly affected process units; an exemption to the notification requirement for reconstruction of most types of facilities; and disposal of carbon from control devices. However, in a footnote, the EPA makes clear it intends to complete its reconsideration process in a subsequent notice.

One interesting aspect of the 2016 rule publication is the extensive discussion of how the 1979 source category listing “crude oil and natural gas production” is defined. The agency takes great pains to justify its broad authority over the industry to include not only production but also processing, transmission, and storage equipment. The EPA concludes that its category listing need not be revised to support the additions and amendments of this rule (even though it does clarify some wording), and sets out its justification for including the entire sector, including the production, processing, transmission, and storage equipment, in its 2009 endangerment finding relating to GHGs as well.

The EPA concluded that the best system of emissions reduction (BSER) is the same for GHGs as it is for VOCs, so there are no changes required for equipment that was covered by the 2012 rule. Newly regulated sources covered by the 2016 rule include: heretofore unregulated hydraulically fractured oil well completions; pneumatic pumps and fugitive emissions from well sites and compressor stations; sources regulated under the 2012 regulation for VOCs for which GHGs are now also regulated (hydraulically fractured gas well completions and equipment leaks at natural gas processing plants); and certain equipment that is used across the source category for which subpart OOOO regulates emissions of VOCs from only a subset (pneumatic controllers, centrifugal compressors, and reciprocating compressors), with the exception of compressors located at well sites.

In addition to emission reductions, LDAR utilizing optical gas imaging is required semiannually for well sites and compressor stations. (Method 21 at a repair threshold of 500 ppm may be used.) Initial monitoring surveys must take place by June 3, 2017, or within 60 days of the startup of production, whichever is later. Repairs must be made within 30 days, and a resurvey is required within 30 days of repair. Also, a monitoring plan that covers collection of fugitive emissions components is required to be developed and implemented for well sites and compressor stations. At natural gas processing plants, equipment leaks of methane (GHGs) are subject to the same requirements as those for VOCs. The compliance period begins on November 30, 2016.

The rule also embraces “next generation” electronic reporting via the EPA’s Central Data Exchange (CDX), for enhanced accessibility and transparency to the public, as soon as the forms and systems are available. Professional engineers are required to provide certifications of technical infeasibility of connecting a pneumatic pump to an existing control device and to design closed vent systems.

Finally, there is a complicated discussion of the EPA’s interpretation of UARG v. EPA, 134 S. Ct. 2427 (2014), which merely results in the EPA concluding that the rule should not affect applicability of Title V permit or prevention of significant deterioration (PSD)/new source review (NSR) applicability determinations for “anyway” sources, even though, if not otherwise required to obtain and comply with a Title V permit, emissions of GHGs (methane) alone will not subject a source to Title V permit requirements.

During the public comment period on these changes to the rules updated by the May 12 agency action, the regulated community and several states raised many issues, including (but not limited to): the benefit of these rules are based on overestimations of emissions from the industry sectors addressed in the rule; the industry has already implemented many initiatives to reduce emissions resulting in no need for these rule updates; these emissions are addressed by the National Emissions Standards for Hazardous Air Pollutants (NESHAP) and Maximum Achievable Control Technology (MACT) rules already promulgated; there is disparate impact on smaller producers; the cost-benefit analysis is flawed; and the rules may be inconsistent with existing requirements already imposed by states. It should be noted that the EPA also unveiled a draft information collection request (ICR) that, among a long list of topics, requires oil and gas companies to submit information on emissions controls and costs of implementation of those controls—information that, if collected prior to developing these rules, arguably may have allowed the EPA to avoid or properly respond to some of the criticisms from the regulated industry and the states in which they operate.

Not surprisingly, with only 60 days to compare these complex new final rules with existing, state-only rules and programs, North Dakota became the first state to file a petition for review [login required] of the EPA’s rules with the D.C. Circuit. North Dakota v. EPA, No. 16-1242 (D.C. Cir. July 15, 2016). The petition sets out the state’s position that the new rule “exceeds EPA’s statutory authority, goes beyond the bounds established by the United States Constitution and is arbitrary, capricious, an abuse of discretion and not in accordance with the law.”

Keywords: environmental litigation, oil and gas, new source performance standards, NSPS, volatile organic compounds, greenhouse gas emissions, methane, best system of emissions reduction

Karen Aldridge Crawford is a partner with Nelson Mullins in its Columbia, South Carolina, and Washington, D.C., offices.

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