Administration Makes Two Regulatory Moves On Oil And Gas Operations

May 2012, Vol. 239 No. 5

The Obama administration took its first two regulatory steps, one final, one tentative, toward guarding against air and ground water pollution from fracking. The final rule on air emissions from the Environmental Protection Agency (EPA) and proposed rule from the Department of Interior (DOI) covered different regulatory terrain. The EPA limits emissions of volatile organic chemicals, chiefly methane, from fracked oil and gas wells while the DOI wants gas companies and their well-digging contractors to disclose more information about the fracking chemicals they use and about their well-digging and construction practices.

Lost in the headlines over the controversial fracking implications was the EPA’s decision, in its final rule, to step back from what interstate pipelines worried would be onerous new, emission reduction requirements on transmission and storage operations. The EPA proposed rule issued previously would have expanded New Source Performance Standards (NSPS) for the oil and gas industry. Those standards regulate emissions of volatile organic chemicals, the chief one being, with regard to pipelines, methane. The EPA had proposed to broaden the reach of the NSPS to cover, for the first time, transmission and storage operations and fracking.

In the final rule published in April, the EPA stayed with the first-time fracking requirements, but softened them considerably. The transmission and storage enhancements were, for the most part, ditched. Compressor and pneumatic controller reductions were omitted…for the moment. The final rule exempted from regulation low-bleed controllers (with bleed rates below six standard cubic feet per hour) located between the wellhead and the point where the gas enters the transmission line, to encourage a quicker transition from high-bleed controllers.

The requirements for high-bleed controllers were also phased in over one year to give manufacturers of these devices the time needed to test and document the gas bleed rate. A different metric was also identified to simplify the determination of which storage tanks are covered by the standards. Instead of the proposed throughput measurement, the final rule identified a regulatory cutoff of six tons of VOC emissions.

With regard to fracked wells going forward, operators will have to either flare their emissions or use emissions-reduction technology called “green completions,” technologies that are already widely deployed at wells. In 2015, all new fractured wells will be required to use green completions. The final rule does not require new federal permits.

“We are very pleased that EPA was convinced by our arguments that there are very few VOC emissions from the transmission sector and thus they chose not to regulate that segment in this rule,” says Lisa S. Beal, vice president, Environment & Construction Policy, Interstate Natural Gas Association of America (INGAA). “However, we are still perplexed by some of the language in the rule that suggests this might just be temporary. We do not believe that further analysis will result in a different conclusion. Simply put, EPA would be chasing something that just isn’t there.”

The EPA also softened proposed changes to the Maximum Achievable Control Technology (MACT) standards which apply to emissions of air toxics. Richard N. Wheatley, Manager, Media Relations/Emergency Response Communications, El Paso Corporation, says the NSPS and MACT changes in the final rule “are a significant improvement.”

The DOI- proposed rule on fracking was issued by the Bureau of Land Management (BLM), and will apply, once finalized to state, federal and Indian lands. The rule would (1) provide disclosure to the public of chemicals used in hydraulic fracturing on public land and Indian land, (2) strengthen regulations related to well-bore integrity, and (3) address issues related to flowback water.

The proposed rule would require that disclosure of the chemicals used in the fracturing process be provided to the BLM after the fracturing operation is completed. This information is intended to be posted on a public web site. The BLM is working with the Ground Water Protection Council on whether the disclosure can be integrated into the FracFocus.org.

Prior approval would be required for well-stimulation activities, generally in connection with the prior approval process that already is in place for general well-drilling activities through the Application for Permit to Drill (APD) process. Operators also will be required to submit cement bond logs before fracturing operations begin. The running of cement bond logs on surface casing, which is now an optional practice, would be required for new wells. Existing wells would require mechanical integrity testing prior to hydraulic fracturing.

In a teleconference with reporters May 9, Jack Gerard, president and CEO of the American Petroleum Institute, didn’t mince words in criticizing the BLM proposed rule. He said states are fully able to handle regulation of hydraulic fracturing. “It is simply not necessary to add a new federal regulatory regime for fracking on top of an already highly competent state regime.”

Gerard noted that EPA Administrator Lisa Jackson said the week before there was no evidence of groundwater contamination from fracking, and allegations of contamination in specific places have been found to be hollow. Rather than concerning itself with a new layer of federal fracking rules, He emphasized that the government ought to be modifying oil and gas permitting rules.

FERC Approves First Liquefaction Facilities For LNG Export

Fracking also reared its head in the debate over LNG exports. The Sierra Club filed a protest with the Department of Energy April 18, two days after the Federal Energy Regulatory Commission, acting in the DOE’s wake, approved the first construction permit at an existing LNG facility for modifications needed to export U.S. natural gas in the form of LNG. The FERC approved the first such application April 16 on a Sabine Pass Liquefaction, LLC and Sabine Pass LNG, L.P (La.) application to build a project in two stages, each consisting of two LNG process trains with a liquefaction capacity of an estimated 4 Mtpa. The DOE had separately approved exports from Sabine Pass in 2011.
The Sierra Club also opposes an application from Maryland’s Cove Point LNG terminal to build a liquefaction facility. Construction is expected to begin in 2014 with an in-service date in 2017.

The DOE has already given Dominion approval to export LNG from Cove Point to countries with whom the U.S. has free trade agreements. Another Dominion application to export to non-free trade countries is pending. Dan Donovan, a spokesman for Dominion, says it plans to file an application with FERC shortly, asking approval to build the export facilities at Cove Point.

The Sierra Club has an agreement with Dominion Resources, owner of Cove Point, restricting what Dominion can do at Cove Point. But Thomas F. Farrell II, Dominion chairman, president and CEO, says the prior agreement with Sierra would not prevent construction of the export facility. “We have reviewed the regulations and agreements governing the site and are confident we can locate, construct and operate a liquefaction plant at Cove Point,” he states. Dominion has signed binding precedent agreements with two companies who have fully subscribed the prospective LNG capacity.

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