• U.S. EPA Issues Final Oil and Gas Air Pollution Regulations for Upstream and Midstream Oil and Gas Operations
  • April 24, 2012
  • Law Firm: Holland Hart LLP - Denver Office
  • On April 17, 2012, the Environmental Protection Agency issued the much-anticipated final rule regulating air emissions from upstream oil and gas operations and tightening requirements for midstream operations. EPA received over 156,000 comments on the proposed rule and made significant changes to the final rule. Although some transitional periods are granted, all qualifying operations begun on or after August 23, 2011 will be subject to these regulations.

    Major requirements for upstream operations:

    • Green completions required for hydraulically fractured gas wells after January 1, 2015
    • Storage tanks must reduce VOC emissions by 95% after one year
    • Pneumatic controllers must reduce bleed rate below 6 scfh after one year
    • Glycol dehydrators are subject to NESHAP

    Major requirements for midstream operations:

    • Pipeline VOC emissions are not subject to the rule
    • Two types of compressors are subject to emission reduction requirements
    • Natural gas-driven pneumatic controllers require zero VOC bleed rate
    • Processing plants must institute a leak detection and repair program
    • Glycol dehydrators are subject to NESHAP

    Regulations Affecting Upstream Operations

    The biggest changes in the final rule have to do with reduced emission completions for hydraulically fractured gas wells. These "green completions" are required for the majority of hydraulically fractured gas wells, but the final rule provides a transition period for gas wells that are fractured and re-fractured after August 23, 2011 to comply with the requirements as long as flaring is used in the interim. The transition period ends January 1, 2015. In addition the final rule exempts low-pressure wells from green completion requirements, reducing the overall number of fractured gas wells affected by approximately 10 percent. This exemption will include most coal-bed methane wells. Hydraulically fractured gas wells will require green completions if they have available gas collection infrastructure and are located within one of four formation types: (1) high permeability gas, (2) shale gas, (3) other tight reservoir rock, and (4) coal seam. The green completion NSPS does not apply to hydraulically fractured oil wells.

    Storage vessels, whether used at well sites, natural gas gathering and boosting stations, or processing plants, are required to reduce VOC emissions by 95 percent if the tank emits 6 tons per year of VOCs or more. Pneumatic controllers must reduce the bleed rate to less than 6 scfh. The required completion date for tank combustion devices and pneumatic control bleed reductions has been extended by one year to allow for testing and equipment procurement.

    EPA has changed the general focus of upstream requirements to set performance standards rather than equipment requirements, allowing greater flexibility for operators to determine how they will meet the performance standards. EPA has also changed the definition of "modification" so that re-fractured wells that use green completions will not be considered a modification, which would subject them to the NSPS requirements. Responding to industry concerns, the final rule also simplifies reporting and record keeping requirements.

    Regulations Affecting Midstream Operations

    For midstream operations, the final rule affects pipelines, compressor stations, and gas processing plants. Pipeline VOC emissions are exempted from the rule's emission requirements because EPA determined that VOC content of pipeline gas is too low to make regulation cost-effective. Centrifugal compressors with wet seals must meet a performance standard to reduce VOC emissions by 95 percent, but the final rule does not apply to compressors using dry seals. Reciprocating compressors must comply with standard replacement requirements. Gas processing plants with natural gas-driven pneumatic controllers must meet a VOC bleed rate of zero, a higher standard than upstream controllers. In addition, gas processing plants must institute a leak detection and repair ("LDAR") program for any equipment leaks, and the standard for what constitutes a leak has been lowered to 500 parts per million (ppm). Emissions reduction requirements for sweetening units were also increased slightly to 99.9 percent. Storage tanks at midstream operations are subject to the same requirements as upstream storage vessels.

    NESHAP Standards for Both Upstream and Midstream

    The final rule tightens the 1999 Maximum Achievable Control Technology ("MACT") standards covering major sources in the oil and gas production category (40 C.F.R. Part 63, Subpart HH) and natural gas transmission and storage category (40 C.F.R. Part 63, Subpart HHH). The final rule's new National Emission Standards for Hazardous Air Pollutants ("NESHAP") apply to equipment leaks in both categories. MACT standards are also established for the first time for small glycol dehydration units in both categories. The standards apply to units at production facilities with less than 85,000 standard cubic meters per day ("scmd") or actual average benzene emissions less than 1 ton per year, and units at natural gas transmission and storage facilities with less than 283,000 scmd or actual average benzene emissions less than 0.90 Mg/yr. Unlike the proposed rule, the final NESHAP applies only to storage tanks with the potential for flash emissions. EPA is seeking additional data to determine emissions standards for storage vessels with no flash emission potential. However, the final rule amends the definition of "associated equipment" so that emissions from all storage vessels at a facility will now count towards a major source determination.

    Legal Compliance

    EPA removed the previous exceptions for emissions during startup, shutdown and malfunction. Instead, the final rule provides an affirmative defense to civil penalties for excess emissions that result from an equipment malfunction. To assert this defense, an operator must prove that an incident meets the requirements to qualify as a malfunction. Injunctive relief is not precluded by the malfunction defense.

    EPA estimates that compliance with the new requirements will net $11 million in savings to the regulated industry through the recovery of natural gas that would otherwise be vented or flared. This is a reduction from the $29 million prediction in the proposed rule and applies industry-wide. Companies wishing to challenge the rule in court must do so within 60 days of its publication in the Federal Register.