Uh OOOO! More Regulation for Oil and Gas Production

The EPA has published a proposed rule to regulate methane and other emissions from new and existing oil and gas production sites and other portions of the oil and gas industry. The proposed rules are to be revisions and additions to the rules in Subparts OOOO and OOOOa and are the Biden Administration’s first entry into the back-and-forth regulation of this sector during the Obama and Trump Administrations. The proposed rules, however, go farther and are more expansive than even the Obama-era regulations.

The Biden Administration has famously imposed an “all of government” approach to addressing climate change. The effort began on President Biden’s first day when, among other things, he revoked the permit for the Keystone XL pipeline, paused new oil and gas leasing on federal lands, and re-entered the Paris Agreement. These, and other actions, contrasted sharply with the Trump Administration’s full-throated support of oil and gas production. 

According to the U.S. Energy Information Agency, the United States produced more petroleum in 2020 than it consumed and exported more petroleum than it imported, making the United States a net annual petroleum exporter for the first time since at least 1949. As to natural gas, total annual exports generally increased each year from 2000 through 2019 as increases in natural gas production contributed to lower natural gas prices and the competitiveness of natural gas in international markets. In 2019, the United States exported natural gas to about 38 countries and total annual natural gas exports were 4.66 trillion cubic feet, the highest on record, and the United States was a net exporter of natural gas for the third year in a row.  For more information about Trump-era oil and gas production, click here.

Now, instead of seeking additional increases in domestic production, the Biden Administration is requesting that OPEC boost its oil production. When Energy Secretary Granholm was asked about her plan to increase oil production in the United States, she laughed and said “that is hilarious.” Further, the Biden Administration’s recent climate initiatives, which impose burdens on the U.S. economy, are taken at a time when China and India are significantly increasing coal production and use.  

The oil and gas industry in the United States, specifically the Crude Oil and Natural Gas source category, has been a focus of EPA regulatory actions since 2012. In that year, EPA promulgated new source performance standards (NSPS), under Subpart OOOO, which addressed the emission of volatile organic compounds (VOCs) from certain operations (completions of hydraulically fractured wells) and various types of equipment within segments of the source category (well sites, natural gas gathering stations, natural gas processing segment, and the transmission and storage segment). In 2016, EPA added Subpart OOOOa, which addressed methane emissions from those segments and added controls on fugitive emissions and other equipment in those segments.   

The Trump administration sought to reduce the impact of these rules, ultimately issuing two rules in 2020. The first, the so-called Policy Rule, addressed both the 2012 and 2016 NSPS rules and removed the transmission and storage segment, rescinded VOC and methane emission standards for that segment, and rescinded methane emissions standards for the production and processing segment. The Policy Rule was rescinded under the Congressional Review Act and, as a result, is deemed to never have been in effect.  The second, the so-called Technical Rule, addressed the 2016 NSPS and made a number of changes to simplify compliance. For more information about the Trump-era rulemaking, click here.

Against this backdrop, President Biden, on his first day in office, issued Executive Order 13990 which required federal agencies to review “all existing regulations, orders, guidance documents, policies, and any other similar agency actions (agency actions) promulgated, issued, or adopted between January 20, 2017, and January 20, 2021.” He specifically ordered the EPA to consider publishing a “proposed rule suspending, revising, or rescinding” the Technical Rule. 

EPA has now published a 577-page comprehensive and detailed proposal on which it is seeking comments. There is no specific regulatory text on which to comment, which EPA indicates will be provided in a supplemental proposal. Nevertheless, EPA has explained the actions it plans to take. 

In general, EPA is proposing to strengthen and expand current requirements for methane and VOC emissions from new, modified, and reconstructed facilities, establish new limits for methane and VOC emissions from new, modified, and reconstructed facilities that are not currently regulated, and establish the first nationwide emission guidelines (EGs) for States to limit methane pollution from existing facilities in the source category. To do so, EPA will revise Subparts OOOO and OOOOa and add Subparts OOOOb and OOOOc.

Under the proposal, Subpart OOOO will apply to new, modified, or reconstructed sources between August 23, 2011, and September 18, 2015. Subpart OOOOa will apply to new, modified, or reconstructed sources between September 18, 2015, and the date of publication. Subpart OOOOb will apply to new, modified, or reconstructed sources after the date of publication. Subpart OOOOc will apply to existing sources. 

The proposal has several key components. Fugitive emissions at new and existing well sites and compressor stations will be subject to a comprehensive monitoring program. Well sites with estimated emissions greater than three tons per year must monitor for leaks using optical gas imaging or Method 21 on a quarterly basis and promptly repair any leaks found. All new and existing compressor stations must monitor and repair leaks at least once every three months. All new and existing pneumatic controllers at production, processing, and transmission and storage facilities must have zero methane and VOC emissions. Venting of associated gas from oil wells will be eliminated and owners and operators must route the gas to a sales line where available. Tank batteries will also be required to reduce methane and VOC emission. EPA is also proposing to establish nationwide requirements to minimize methane and VOC emissions from liquids unloading for the first time.

EPA estimates that the annual compliance costs will be $1.2 billion. However, product recovery is estimated to offset that amount by $520 million per year for a net annual compliance cost of $680 million. EPA also calculated the climate benefits of the rule using the social cost of methane, estimating an annual benefit of $5.2 billion. Thus, through the use of the social cost of carbon, EPA concludes that the benefits of the rule outweigh the compliance costs by $4.5 billion per year.

EPA established a comment period of sixty days from the date of publication. Oil and gas producers, especially owners and operators of existing sites, should evaluate this proposed rule to determine if the proposed provisions are in their best interests and to determine if comments should be submitted.

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