New Aggregation Rule Provides Clarity for Oil and Gas Industry

EPA recently finalized a rule that provides a measure of clarity and certainty for permitting sources in the onshore oil and gas industry. The new rule, published at 81 Fed. Reg. 35622 (June 3, 2016), defines and clarifies the meaning of the term “adjacent” for determining when separate surface sites and the equipment at those sites will be aggregated for permitting purposes. Normally, this applies to oil and gas production or storage facilities.

By way of background, the Clean Air Act regulations define a “stationary source” as a “building, structure, facility or installation” that emits or may emit a pollutant. In turn,  a “building, structure, facility or installation” is defined as the pollutant-emitting activities that belong in the same industrial grouping, are located on one or more contiguous or adjacent properties, and are under the control of the same person (or persons under common control). The new rule addresses only the sources that are considered “adjacent” within the meaning of this definition

Adjacency makes a difference. If the surface sites are not adjacent, the emissions are not aggregated, or combined, to constitute a single stationary source. If the surface sites are adjacent, the emissions are aggregated to constitute a single stationary source. Aggregating two or more surface sites into a single stationary source means total emissions from the source are more likely to be over the major source threshold for permitting purposes.

Prior to this rule, EPA attempted to employ a “functional interrelatedness” test to determine adjacency. In other words, if the two surface sites were functionally interrelated, the emissions would be aggregated. That test was struck down by a federal court of appeal. When EPA attempted to limit the decision only to that appellate circuit, that attempt was also struck down.

In response, EPA proposed two options. Option 1 (which EPA stated was its preferred option) established a bright line such that all emitting equipment located within a quarter mile of each other would be considered adjacent. Option 2 would aggregate all emitting equipment within a quarter mile but would also have allowed permitting authorities to aggregate emitting equipment located beyond a quarter mile based on the relationship between the operations. The EPA described this relationship as “exclusive functional interrelatedness.”

In the final rule, EPA applied a hybrid of the two options. First, EPA established equipment on separate surface sites located more than a quarter mile apart is not “adjacent” and therefore is not part of the same stationary source. Second, surface sites within a quarter mile of each other would only be aggregated as a single stationary source if the emitting equipment also have a relationship that meets what EPA called the “common-sense notion of a plant.” To meet that common-sense notion, separate sites must have “shared equipment.” Examples of shared equipment include produced fluids storage tanks, phase separators, natural gas dehydrators or emissions control devices.

So, for onshore oil and natural gas production, the final rule establishes wherever separate surface sites located within a quarter mile of each other include shared equipment necessary to process or store oil or natural gas, the surface sites will be aggregated. Separate surface sites that do not include shared emitting equipment, even if within a quarter mile, will not be aggregated.

EPA’s clarification should assist the oil and gas industry in siting sources so they are not aggregated for permitting purposes. If they must be located within a quarter mile of each other, EPA will only aggregate the separate sites if they share equipment.

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