As the oil and gas industry continues to attract national attention for well ‘fracking’ and infrastructure and pipeline construction, a highly contested new federal air quality rule governing midstream and upstream activity is poised to take effect.
The so-called ‘Oil and Gas’ rule was published in the Federal Register on August 16, 2012. Sixty days following publication (October 15, 2012) the rule becomes final and the clock starts on the requirements it contains. The, rule, also known by its more formal citation 40 CFR Part 60 Subpart OOOO, or ‘New Source Performance Standards (NSPS) Subpart Quad O’ contains new regulations and revisions to existing statutes.
Impacts will be felt across the industry by both the upstream exploration and production segment as well as the midstream gathering and processing segment.
Stakeholders operating in the industry should take careful notice. The increased recordkeeping/reporting and testing requirements will likely require additional staff or contract workers. The possibility of short-term regional equipment shortages may also exist due to the highly regional nature of the work and rapid implementation requirements.
Perhaps the most publicized portion of the rule deals with Hydraulic Fracturing (or fracking). As written, a phase-in period would be implemented immediately following the publishing of the rule in the Federal Register.
Prior to January 1, 2015: At a minimum a completion combustion device (e.g. a flare) must be used to reduce VOC emissions at any new or recompleted well. Alternatively a Reduced Emissions Completions (REC) process may be used. A REC process allows for the capture, re-injection or sale of captured VOC from the flow back phase of a fracking operation. Some states such as Colorado already require this process. A processor will be required to meet the more stringent of the standards.
On or after January 1, 2015: All new or recompleted gas well will be required to use a REC process to capture VOC emissions. Some exemptions will be allowed for low-pressure, exploration or ‘infeasible’ wells. Operators will be required to provide email notification to the agency at least two days prior to the commencement of completion work.
New, modified or reconstructed ‘storage tanks’ that have the potential to emit over six tons per year of VOCs are required to reduce those emissions by at least 95%. Following a one year phase in period, a new site with no existing wells will have 30 days to determine potential emissions and another 30 days to install the tank and controls. New wells at existing sites are required to install tank controls at the time of startup.
Compressors in the natural gas transmission and storage segments are not impacted, however all other segments of the oil and gas industry are subject to the rule. Centrifugal compressors with wet seal systems will be required to reduce VOC emissions. An initial test to demonstrate emission reductions is required. Reciprocating compressors must replace rod packing every 36 months or every 26,000 hours.
SO2 emission must be reduced at natural gas processing plants by at least 99%; this applies only to plants that have sulfur production rates of five long tons per day or more.
The rule also outlines strict new standards for glycol dehydrators, pneumatic controllers and lead detection and repair.
Subpart Quad O will affect the industry in a very real way. Short-term impacts include:
Longer-term impacts include:
It will come as no surprise that aspects of these new regulations/revisions will be challenged and will likely lead to court battles and prolonged periods of regulatory uncertainty.
What is relatively certain is the fact that the regulatory environment surrounding the development and production of oil and gas in the US will continue to become more complex and arduous.
Industry players should begin preparing to comply with this regulation as soon as possible. Prior preparation and a strategic plan will help a company integrate these regulations as smoothly as possible.