On April 17, 2012, the U.S. Environmental Protection Agency (EPA) finalized performance and emissions standards for emissions from hydraulically fractured natural gas wells and other source categories in the oil and natural gas sector. Specifically, the rule revises New Source Performance Standards (NSPS) under 40 C.F.R. part 60, subparts KKK, LLL and new OOOO as well as National Emissions Standards for Hazardous Air Pollutants (NESHAP) under 40 C.F.R. part 63, subparts HH and HHH. The new rule is intended to control emissions of volatile organic compounds (VOCs), sulfur dioxide (SO2), and hazardous air pollutants (HAPs) from operations and equipment at natural gas well sites, gathering and boosting stations, gas processing plants and natural gas compressor stations. The rule does not apply to oil wells, but does have the potential to impact certain downstream equipment.

Importantly, the NSPS include first-time regulations on emissions from hydraulically fractured natural gas wells and represent an extension of regulatory requirements to upstream activities that have never before been subject to controls. The final rule will become effective 60 days after publication in the Federal Register, during which time judicial review may be sought by filing a petition for review in the U.S. Court of Appeals for the District of Columbia Circuit.

OVERVIEW

The final NSPS will affect well completions, pneumatic controllers, equipment leaks from natural gas processing plants, sweetening units at natural gas processing plants, reciprocating and centrifugal compressors, and storage vessels constructed, modified or reconstructed after August 23, 2011. The NESHAP apply only to equipment at major sources (10 or more tons of a single hazardous pollutant or 25 tons or more of a combination of hazardous pollutants in a year).

Natural Gas Wells

With respect to new natural gas wells, the NSPS will be applied in two phases, with limited exceptions for wildcat and delineation wells. In particular, green completion requirements will not be applicable until January 1, 2015, to account for what the EPA has termed a "transition period" to allow for the technology to become widely available. Until then, flaring will be allowed as a control method for VOCs at fractured and refractured wells. Notably, existing wells that are refractured and recompleted will not be considered "modified" if done using green completion techniques, reducing the need for additional permit review. The rule also includes notification and reporting requirements for well completions.

Controllers and Storage Vessels

With respect to NSPS for new and modified pneumatic controllers and storage vessels, only high-bleed, gas-driven controllers (gas bleed rate > 6 standard cubic feet per hour) are affected, subject to limited exceptions, and the requirement is phased in over one year to allow time for testing and documentation of bleed rates. Low-bleed controllers used at well sites (< 6 standard cubic feet per hour) are not subject to the rule. Storage vessels must reduce VOC emissions by 95 percent, with a one year phase in. In addition, emissions from storage tanks will be counted toward determining whether a facility is a major source under the Oil and Natural Gas Production NESHAP.

Small Glycol Dehydrators

The final rule sets unit-specific BTEX standards (benzene, ethylbenzene, toluene and xylene) for small glycol dehydrators (with an actual annual average natural gas flow rate less than 283,000 standard cubic meters per day or actual annual average benzene emissions less than 0.90 Mg/yr), while maintaining existing 1-ton-per-year benzene compliance option for large dehydrators. Air toxics requirements are applicable to new small glycol dehydrators on startup or 60 days after publication of final rule, whichever is later. Existing small glycol dehydrators have three years after the effective date of the rule to achieve compliance.

Compressors

Dry seal centrifugal compressors are not affected by the rule, but wet seal systems must reduce VOCs by 95 percent through the use of controls (capturing and routing emissions from the fluid degassing system to a fuel gas, recycling or other processing system). The proposed rule would have required all centrifugal compressors to use dry seals. Reciprocating compressors are subject to rod packing system replacement requirements every three years or 26,000 hours of operation. All requirements are applicable upon the later of startup or 60 days after final rule is published.

KEY CHANGES FROM PROPOSAL

In response to the numerous comments received during the rulemaking, the final rule reflects a number of changes from what the EPA proposed in August 2011.

  • Gas well definition – The definition of a natural gas well was revised to include "an onshore well drilled principally for production of natural gas." The EPA also explains that it expects this definition to capture wells drilled in geologic formations generally accepted as gas-producing: high permeability formations, shale, other tight reservoir rock, and coal seams.
  • Exempted wells – Exempted from green completion requirements are wildcat and delineation wells, as well as certain low pressure wells, which typically occur in coal seam formations. These will be required, with limited exceptions, to capture and direct flowback emissions to a completion combustion device.
  • Notifications – Completion prenotification for a fractured or refractured well can be submitted two days in advance by email (in contrast to the originally proposed 30-day window). Rather than report emissions by source, as had been proposed, the final rule allows emissions to be reported by company.
  • Phased-in requirements – A one-year phase in applies to the requirements applicable to certain storage vessel combustion devices and high-bleed gas-driven pneumatic controllers. Note that low bleed controllers have been exempted altogether.
  • Transmission – NSPS for compressors and pneumatic controllers in the transmission industry, where VOCs in the gas stream are generally low, are not being finalized at this time. The EPA has not, however, taken future regulation of transmission sector equipment off the table.

WHAT'S NEXT?

As noted above, the final rule will become effective 60 days after publication in the Federal Register. While many of the requirements are phased in over the next one to three years, operators in the oil and gas industry will need to take prompt action to determine the potential impacts of the lengthy final rule on their facilities, including whether storage tank emissions will cause their facilities to fall within the major source category. The EPA will continue to consider standards for reciprocating and centrifugal compressors used in natural gas transmission and storage, so operators in these segments of the industry will need to continue to engage the agency on this issue. Should you have any questions about this rulemaking or the implications for your facilities, please contact the attorneys listed above or your Cozen O'Connor relationship attorney.

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