On April 17, 2012, the United States Environmental Protection Agency (“USEPA”) finalized its long-anticipated updated New Source Performance Standards (“NSPS”) and National Emissions Standards for Hazardous Air Pollutants (“NESHAP”) for the oil and gas sector, which include first-time federal air standards for hydraulically fractured natural gas wells. This suite of regulations, issued under the federal Clean Air Act, was finalized pursuant to a Consent Decree entered by the D.C. District Court in conjunction with a lawsuit filed against USEPA in January 2009 by WildEarth Guardians and the San Juan Citizens Alliance. The rules will be published in the Federal Register in the coming weeks, and will take effect 60 days following publication.

Perhaps most significantly, the new rule package ultimately requires owners and operators of natural gas wells that are hydraulically fractured to reduce emissions of volatile organic compounds (“VOCs”) during well completion operations through the use of reduced emissions completions (“RECs” or “green completions”). For purposes of the new regulations, “reduced emission completion” is defined as “well completion following fracturing or refracturing where gas flowback that is otherwise vented is captured, cleaned, and routed to the flow line or collection system, re-injected to the well or another well, used as an on-site fuel source, or used for other useful purpose that a purchased fuel or raw material would serve, with no direct release to the atmosphere.” Green completions are not required for new exploratory wells or delineation wells, or for hydraulically fractured “low pressure” gas wells, which instead must capture and direct flowback emissions to a completion combustion device.

In response to comments from the industry, USEPA has established a two-phased approach to implementing this requirement to allow sufficient time for the order and manufacture of the necessary REC equipment. During the initial phase, which lasts until January 1, 2015, owners and operators can elect to reduce VOC emissions by flaring using a completion combustion device that burns off the gas that would otherwise escape as an alternative to RECs, unless state or local requirements prohibit such combustion or combustion would be a safety hazard. Owners and operators who pursue this option remain subject to “a general duty to safely maximize resource recovery and minimize releases to the atmosphere during flowback and subsequent recovery.” The second (and final) phase begins on January 1, 2015, at which point owners and operators must achieve VOC emissions reductions through RECs. To encourage the use of green completions earlier than required, the new rules provide that refractured and recompleted natural gas wells will not be considered “modified”—and therefore will not be considered affected facilities—if well owners and operators use RECs rather than flaring to reduce emissions following such refracturing, as long as the advance notification, recordkeeping and annual reporting requirements for new wells are met. In justifying this exemption in the Preamble to the final rule, USEPA reasons that the increase in emissions from natural gas wells that have implemented these controls will be de minimis.

USEPA estimates that the use of green completions as required by the new rules will yield a nearly 95 percent reduction in VOC emissions from more than 11,000 new hydraulically fractured natural gas wells each year. Although the new rules do not regulate methane directly, reductions in methane emissions are anticipated to be an important environmental co-benefit of the new NSPS requirements. Indeed, USEPA asserts that the new rules are cost-effective because, the agency contends, projected revenues from recovered natural gas that otherwise would escape when hydraulically fractured gas wells are prepared for production will offset the costs of compliance with the rules themselves, yielding an estimated cost savings of $11-19M in 2015.

Owners and operators of hydraulically fractured natural gas wells must submit a notification to USEPA no later than two days prior to the commencement of each well completion operation, which must include contact information for the owner or operator, the API well number, latitude and longitude coordinates for each well, and the planned date of the beginning of flowback. If the owner or operator is subject to state regulations that require advance notification of well completions, compliance with the applicable state requirements will constitute requirements with the new federal advance notification requirements. With regard to reporting, the owner or operator must submit an annual report of all well completions that has been certified by a responsible official as to its truth, accuracy and completeness. Owners and operators must comply with these notification and reporting requirements 60 days after the date of publication of the final rules in the Federal Register or upon startup, whichever is later.

In addition to the emissions controls and notification requirements for hydraulically fractured natural gas well completions, the rules also establish requirements for other equipment used at natural gas well sites. Specifically, the rule adopts NSPS requirements for new and modified high-bleed gas-driven pneumatic controllers (i.e., with a gas bleed rate greater than 6 standard cubic feet per hour), NSPS requirements for new storage tanks with annual VOC emissions of six tons or greater, and NESHAP requirements for small glycol dehydrators. The rule also retains existing NESHAP requirements for storage tanks with the potential for flash emissions and large glycol dehydrators at the well site.

Finally, this rule package also establishes emissions control and other requirements for specific equipment at (1) natural gas compressor stations, (2) natural gas gathering and boosting stations, and (3) natural gas processing plants. Similarly, while the rule has no direct effect on oil wells, the new requirements may be applicable to certain equipment used in oil production (e.g., NSPS requirements for new and modified pneumatic controllers, and NSPS and NESHAP requirements for certain storage tanks).

This new suite of regulations represents a significant action by USEPA to regulate air emissions associated with the oil and gas industry, and extends to many sources that have never before been subject to emissions controls under the Clean Air Act. Although the agency has adopted phase-in periods for certain requirements, other requirements will go into effect upon the effective date of the rule. Accordingly, owners and operators should carefully review the regulations to assess their applicability to individual operations.¹ More information, including the full text of the new rules, may be found at USEPA’s website.

¹It should be noted that USEPA has exempted sources subject to the NSPS from Title V permitting unless the source is otherwise required by law to obtain a Title V permit (i.e., unless the source is already a major source subject to regulation).