The U.S. Environmental Protection Agency (EPA) issued three final rules governing emissions from new oil and gas wells on Thursday. It also began the process for regulating emissions from existing oil and gas sources.
The three rules, collectively updates to the New Source Performance Standards (NSPS), are designed to reduce methane, volatile organic compounds (VOC) and toxic air pollutants. EPA said its actions will help the Obama administration meet its goal of slashing methane emissions from the oil and gas sector by 40-45% from 2012 levels by the year 2025.
"Today, we are underscoring the administration's commitment to finding common sense ways to cut methane -- a potent greenhouse gas fueling climate change -- and other harmful pollution from the oil and gas sector," said EPA Administrator Gina McCarthy. "Together, these new actions will protect public health and reduce pollution linked to cancer and other serious health effects while allowing industry to continue to grow and provide a vital source of energy for Americans across the country."
The EPA also unveiled its first draft of an information collection request (ICR) that will legally require oil and gas companies to provide information on a broad range of topics, including the potential and actual configuration of emissions controls, and the details and costs associated with their deployment.
According to the EPA, the NSPS will build upon VOC emission reduction requirements, for new oil and gas wells, that the agency first unveiled back in April 2012 (see Daily GPI, April 19, 2012). Those requirements called for a two-phase process to reduce VOCs: requiring flaring followed by "green completions," a term that means deploying equipment to capture and sell natural gas emissions that are otherwise lost.
The agency said it expects the NSPS will reduce 510,000 short tons of methane in 2025, which is the equivalent of reducing 11 million metric tons of carbon dioxide (CO2). The rules are also expected to reduce other pollutants, including 210,000 tons of VOCs and 3,900 tons of air toxics, in the year 2025.
Changes since first proposal
The EPA announced its proposal to regulate methane from the oil and gas industry last August (see Daily GPI, Aug. 18, 2015). But the agency said that since that time, it has made several changes to the final rule, based on information from the more than 900,000 comments it received during the public comment period.
Among the changes, EPA will now require that leak monitoring be conducted on a fixed schedule: twice a year at well sites, and on a quarterly basis at compressor stations. Operators at all sites will have one year to conduct an initial leaks monitoring survey. The agency was previously considering a leak monitoring schedule based on performance.
In addition to using optical gas imaging technology, the EPA will now allow operators to deploy a portable VOC monitoring instrument -- such as an organic vapor analyzer, or methane "sniffer" -- as an alternative for finding and repairing leaks with a repair threshold of 500 parts per million (ppm), a process the EPA calls "Method 21." The agency said it will also allow operators "to use emerging, innovative technologies" to monitor leaks.
Another change will require operators to meet green completion requirements for hydraulically fractured oil wells within six months of the final rule being published in the Federal Register. The change calls for operators to use combustion controls to capture and reduce methane emissions from fractured oil wells until the green completion requirement takes effect.
Sandra Snyder, an attorney with Washington, DC-based law firm Bracewell LLP, said she believes the industry may like some of the changes to the final rule but will be quite disappointed with others.
"EPA has taken away the incentive for companies to have better performance on leaks. The fixed schedule is now applicable to everyone, regardless of performance," Snyder told NGI on Thursday. But she added that allowing operators to use Method 21 "is definitely a positive, and that the move is reacting to things that industry did want.
"The requirement to use optical gas imaging at all sites to conduct surveys would be a little bit more difficult. So the availability to use other methods, or to ask for approval for emerging technologies, I think is going to be helpful to the industry, and allow them to make sure that they can get these surveys done in a cost-effective manner."
EPA: We need more data on existing sources
EPA said the ICR was necessary because over the past year, it discovered that methane emissions from existing sources are higher than previously thought. The agency cited several sources, including its own Greenhouse Gas Reporting program, plus reports by industry organizations, other government studies and academic and industry researchers.
"While this recent information has substantially improved [our] understanding of the magnitude of emissions from existing oil and gas sources, [we need] information that is not currently available to develop standards for existing sources under Section 111(d) of the Clean Air Act for existing sources and to evaluate the impact of those standards," the EPA said.
Operators will have 30 days to respond to an operator survey, and 120 days to respond to a more detailed facility survey. The agency said its goal is to receive data from the operator survey later this year.
Snyder said it appeared that the EPA is "definitely moving forward very quickly" to address emissions from existing sources.
"There are hundreds of thousands of existing sources out there," Snyder told NGI. "EPA really needs to gather this information to get its hands around how many sources we're talking about, what type of emissions controls are currently being utilized, and how much it would cost to retrofit a lot of those sources.
"This is going be to a very important effort for EPA to undertake because it will need to get a good grasp of what this rule might cost to install controls for existing sources, and whether the economics are different for existing sources that may have lower production rates or lower remaining lifespan."
But Lee Fuller, executive vice president for the Independent Petroleum Association of America (IPAA) said the final rule, at first blush, appears inflexible for producers and could undermine the progress the industry has made in reducing emissions.
"The fugitive emissions program largely locks in costly, handpicked monitoring technologies and suppresses the development of other approaches that could be more cost-effective and efficient," Fuller said. "Significantly, the new monitoring program will now force this costly, ineffective fugitive emissions requirement to be perpetual -- even when the wells become marginal producers."
Despite the need for additional data, the EPA's expectations for the NSPS are higher than those it held last August. At that time, the agency believed it could reduce up to 180,000 tons of VOCs in 2025, plus 1,900-2,500 tons of air toxics. The EPA also said the proposed rules would yield estimated net climate benefits of $120-150 million in 2025.
Costs to industry unclear
On Thursday, the EPA revised its estimate for climate benefits to $690 million (in 2012 dollars) in 2025, with the benefits outweighing an estimated $530 million in costs. The agency estimates net climate benefits will total $170 million in 2025.
"The cost burden on a new well producing 1 MMcf/d is vastly different than it would be on a marginal gas well that averages 22 Mcf/d," Fuller said. "Consequently, these regulations will make these dependable wells uneconomic to produce far sooner, eliminating this important component of U.S. production.
Snyder added that although she hasn't crunched the numbers herself, "in the past, the EPA has often misunderstood what practices companies are currently undertaking to reduce these emissions. The companies don't want to lose the products that they're trying to sell, and they're making their own business decisions about ways in which to capture more of their own product. But there are going to be [additional] costs associated with reporting, monitoring and all of the other obligations that come with a regulatory compliance requirement."
Not surprisingly, reaction from the industry was swift and negative.
Kyle Isakower, vice president for regulatory and economic policy at the American Petroleum Institute, said the EPA's final rule could put the brakes on the nation's shale energy revolution.
"It doesn't make sense that the administration would add unreasonable and overly burdensome regulations when the industry is already leading the way in reducing emissions," Isakower said. "Imposing a one-size-fits-all scheme on the industry could actually stifle innovation and discourage investments in new technologies that could serve to further reduce emissions.
"Natural gas is a proven source of clean, affordable, and reliable energy. The development and use of natural gas from shale has helped the U.S. lead the world in cutting power sector carbon emissions, which are near 20-year lows. The last thing we need is more duplicative and costly regulation that could discourage natural gas production, disrupts our progress reducing emissions, and increases the cost of energy for American consumers."
In a separate statement, the Natural Gas Supply Association said Thursday that while it believes "EPA is taking a misguided approach to reducing methane emissions from natural gas systems, our companies take all compliance obligations seriously. Our industry is wholeheartedly committed to continued reductions of methane emissions, as our record has demonstrated continuously for the past 25 years.
"According to the government's own statistics, the natural gas industry has successfully reduced methane emissions by 15% since 1990, even as production has gone up by more than 35%. Natural gas companies accomplished these methane reductions through market-driven improvements in equipment, technology, infrastructure and best practices. Unfortunately, these improvements and innovations could be stifled by regulations that force a cookie-cutter, inefficient and costly approach.
"EPA's rule risks undercutting natural gas, the most cost-effective source of carbon reductions, when voluntary methane emission reduction programs have proven effective."
Todd Staples, president of the Texas Oil & Gas Association agreed, saying the rules "ignore the EPA's own data that demonstrates oil and natural gas production has skyrocketed without a corresponding crisis in methane emissions. While the oil and natural gas industry continues to make historic gains in improving our environment, unjustified political regulations only set back the cause by freezing private sector investment and innovations that are working."
Ed Longanecker, president of Texas Independent Producers and Royalty Owners, also pointed to the EPA data, adding that "onerous and unnecessary regulations only cause more strain on our economy, increased expense to consumers and the companies that employ American workers, with little or no true environmental benefit."
Ross Eisenberg, vice president for energy and resources policy with the National Association of Manufacturers, said the rules showed the Obama administration was continuing "down an ill-advised path that threatens to prevent manufacturers' access to substantial supplies of oil and natural gas. The rules finalized today, coupled with a suite of recently issued and announced regulations, only reiterate manufacturers' wariness about the future of U.S. energy policy and our ability to continue powering our facilities with affordable and reliable energy."
The American Gas Association (AGA) took a more pragmatic approach to the final rule, saying the EPA "recognized the ongoing work by natural gas utilities to reduce emissions." But AGA also pointed out that the rule does not affect distribution infrastructure or assets operated by local distribution companies.
"A concerted effort by natural gas utilities to upgrade and modernize our nation's pipeline network to enhance safety has contributed significantly to a declining trend in emissions from the natural gas system," AGA said, adding that utility systems today only account for 6% of total methane emissions from the natural gas value chain.
According to the AGA, 39 states and the District of Columbia currently have specific rate mechanisms that foster accelerated replacement of pipelines. "In the case of the states without such programs, several no longer have pipelines made of legacy materials and others recover their costs through annual rate cases," AGA said.