EPA Adopts New Methane Emissions Regulations for the Oil and Gas Industry | Practical Law

EPA Adopts New Methane Emissions Regulations for the Oil and Gas Industry | Practical Law

The Environmental Protection Agency (EPA) adopted a final rule limiting US methane emissions from the oil and natural gas industry.

EPA Adopts New Methane Emissions Regulations for the Oil and Gas Industry

Practical Law Legal Update w-041-6074 (Approx. 9 pages)

EPA Adopts New Methane Emissions Regulations for the Oil and Gas Industry

by Practical Law Oil & Gas
Published on 05 Dec 2023USA (National/Federal)
The Environmental Protection Agency (EPA) adopted a final rule limiting US methane emissions from the oil and natural gas industry.
  • Strengthens EPA methane emission regulations for new, modified, and reconstructed oil and gas operations, including:
    • adding control requirements for certain oil and gas emissions sources;
    • setting new fugitive emissions monitoring requirements for well sites and other emissions sources; and
    • eliminating routine flaring of natural gas.
  • For the first time, regulates methane emissions from existing oil and gas infrastructure that pre-dates EPA's oil and gas methane regulations.
  • Includes a super-emitter program under which EPA-certified third parties may report large leaks and emission events to the EPA.
The rule is effective May 7, 2024.

Background

Clean Air Act Sections 111(b) and 111(d)

Section 111(b) of the Clean Air Act (CAA) requires the EPA to establish New Source Performance Standards (NSPS) for new, modified, and reconstructed sources of air pollutants that cause or significantly contribute to air pollution which may reasonably be anticipated to endanger public health or welfare (42 U.S.C. § 7411(b)). NSPS require affected sources to comply with emissions limits based on the best system of emission reduction (BSER) adequately demonstrated for that type of source.
CAA § 111(d) requires the EPA to adopt regulations under which states will enforce performance standards for existing sources of air pollution that both:
  • Would be subject to NSPS if they were new, modified, or reconstructed sources.
  • Are not already regulated under other sections of the CAA.

Existing Oil and Gas Methane Regulations

Methane is a potent greenhouse gas (GHG) and significantly contributes to climate change, with much greater short-term warming effects than carbon dioxide (CO2). The oil and gas industry is the largest industrial emitter of methane in the US, causing approximately 30 percent of US methane emissions.
Many upstream and midstream oil and gas operations emit methane, including oil and gas wells, well sites, and associated equipment, natural gas processing plants, storage facilities, and compressor stations. For example, methane emissions result from leaks of gas from tanks, valves, compressors, and other equipment and venting of natural gas during well completion, workovers, and maintenance activities.
In recent years, the EPA has adopted various oil and gas NSPS, including NSPS for methane emissions in 2016. EPA regulations currently include NSPS for methane and volatile organic compound (VOC) emissions from many categories of new, modified, and reconstructed oil and gas sources. The current EPA methane and VOC NSPS for oil and gas sources are contained in 40 C.F.R. Part 60 subparts:
  • OOOO (Quad O), which applies to sources constructed, modified, or reconstructed after August 23, 2011, and on or before September 18, 2015.
  • OOOOa (Quad Oa) which applies to sources constructed, modified, or reconstructed after September 18, 2015.
However, much existing US oil and gas infrastructure pre-dates these NSPS and is not subject to them. Methane leaks and emissions are widespread in US oil and gas operations, with certain large emission sources called super-emitters being responsible for a large portion of the emissions.

The 2021 and 2022 Proposed Methane Rules

In response to President Biden's Executive Order 13990, "Protecting Public Health and the Environment and Restoring Science to Tackle the Climate Crisis" and to carry out international commitments by the US to cut methane emissions, in 2021 the EPA issued a proposed methane rule (the 2021 Proposed Rule) to:
The 2021 Proposed Rule did not include the text of the proposed NSPS and EG regulations. Instead, the EPA sought public comment on the proposed rules and stated that it intended to issue a supplemental rule proposal including text for the new NSPS and EGs.
In 2022, the EPA published a supplemental proposed methane rule (the 2022 Supplemental Proposal), which made changes to the 2021 Proposed Rule and included the proposed text of the new oil and gas NSPS and EGs (see Standards of Performance for New, Reconstructed, and Modified Sources and Emissions Guidelines for Existing Sources: Oil and Natural Gas Sector Climate Review, 87 Fed. Reg. 74702 (Dec. 6, 2022)).
For more information on the 2021 Proposed Rule and the 2022 Supplemental Proposal, see:

The New Regulations

The EPA received more than one million comments on the proposed rules. The 2023 Methane Rule includes most of the major elements in the proposed rules with some changes in response to public comments. The adopted regulations include:

Quad Ob: New Source Performance Standards

New subpart Quad Ob applies to sources that commenced construction, modification, or reconstruction after December 6, 2022. Quad Ob expands the list of emissions sources subject to methane and VOC NSPS and adopts more stringent NSPS for certain sources.
As adopted, Quad Ob applies to sources including:
  • Fugitive emissions from well sites, centralized tank batteries and production facilities, and compressor stations (see Fugitive Emissions Monitoring).
  • Storage tanks and vessels.
  • Process controllers.
  • Well liquids unloading.
  • Compressors.
  • Pumps.
  • Well completions.
  • Equipment leaks at natural gas processing plants.
  • Oil wells that produce natural gas (see Limits on Flaring).
The EPA has posted a summary of these NSPS on its website. The EPA has also posted a comparison table depicting the categories of oil and gas sources covered by Quad O, Quad Oa, Quad Ob, and Quad Oc.

Fugitive Emissions Monitoring

The new NSPS require operators of affected facilities to monitor fugitive emissions and repair leaks that are detected during monitoring within specified time frames. Monitoring requirements include:
  • Audio, visual, and olfactory (AVO) leak detection surveys.
  • For most types of facilities, periodic optical gas imaging (OGI) monitoring in addition to AVO surveys.
The required AVO and OGI monitoring frequency and the timing of repair depend on the type of facility. In general, Quad Ob requires more frequent monitoring for well sites than Quad Oa, which requires semiannual OGI monitoring. Monitoring must be conducted at each well site until the site has been closed and all wells are plugged.
The same fugitive emissions monitoring requirements are included within the EGs in Quad Oc and therefore will also apply to existing well sites upon implementation of CAA § 111(d) requirements (see Quad Oc: Emissions Guidelines for Existing Sources).
The new rule also allows owners and operators to use advanced methane detection technologies as alternatives to ground-based OGI and AVO surveys subject to certain conditions.

Limits on Flaring

Oil and gas operators sometimes flare natural gas produced from oil wells (associated gas). For example, flaring may occur because the operator lacks a pipeline outlet for the gas or it is not economic to sell the gas. Flaring wastes natural gas, causes CO2 emissions, and can result in significant methane emissions if flares malfunction or are not operated properly. The new NSPS phase out routine flaring of associated gas, requiring all wells with associated gas that commence construction after May 7, 2026 to do one of the following:
  • Route associated gas to a sales pipeline.
  • Use the gas for another useful purpose that a purchased fuel, chemical feedstock, or raw material would serve.
  • Recover and re-inject the gas into a well.
Wells commenced between December 6, 2022 and May 7, 2024 may use flaring if the operator demonstrates and annually documents that routing to a sales line or other alternatives are not technically feasible and the gas can be routed to a flare or other control device that achieves at least 95 percent reduction in methane and VOC emissions. Wells that commence drilling after May 7, 2024 may flare subject to similar conditions, but must cease routine flaring by May 7, 2026.
Wells drilled before December 6, 2022 are subject to different requirements (see Quad OC EGs and Requirements).

Quad Oc: Emissions Guidelines for Existing Sources

CAA § 111(d) Process

Rather than allowing the EPA to set emissions standards for existing sources, CAA §111(d) requires the EPA to promulgate regulations under which states make implementation plans to adopt and enforce emissions standards. If a state fails to submit a satisfactory plan, the EPA must promulgate and enforce a federal plan. The EGs include requirements for state implementation plans along with presumptive emissions standards for regulated sources.
In preparing state plans, states may either:
  • Adopt the presumptive standards.
  • Use state standards of performance, if the state demonstrates they are equivalent to the federal standards based on criteria in the EG regulations.

Quad OC EGs and Requirements

In Quad Oc, the EPA adopted EGs and compliance schedules for existing sources. Under these provisions:
  • State plans are due 24 months after the publication of the 2023 Methane Rule in the Federal Register. This is six months longer than contemplated in the 2022 Supplemental Proposal, which would have made state plans due 18 months after publication.
  • Existing sources would be required to comply with the new CAA § 111(d) performance standards 36 months after the plan submission deadline.
Therefore, the requirements for existing sources are slated to become effective five years after the publication date of the final rules.
Many of the presumptive standards in Quad Oc are the same or similar to the proposed NSPS for new sources in Quad Ob. One notable exception applies to flaring:
  • For existing wells with associated gas production of 40 tons per year (tpy) or less, the EGs allow flaring if the operator can route gas to a flare or other control device that achieves at least a 95 % reduction in methane emissions.
  • For existing wells with associated gas production over 40 tpy, the gas must be either sent to a sales line, beneficially used, or re-injected.
The EPA' s summary of standards contains a comparison chart of Quad Ob NSPS and Quad Oc presumptive standards for existing sources.

The Super-Emitter Program

The rule includes provisions for EPA certification of third-party notifiers from whom the EPA will accept data regarding super-emitter events. A super-emitter event is one that:
  • Is located at an oil and gas facility.
  • Has a quantified methane emission rate of 100 kilograms per hour or more.
  • Is detected using remote detection methods. Third parties are limited to using remote sensing technologies such as satellites or aerial surveys and would not be authorized to enter oilfield sites.
Upon receipt of a super-emitter notification, the EPA will review the report and, assuming the report meets applicable requirements, notify the owner or operator of the oil and gas facility at the location specified in the report. The owner or operator then must investigate the source of the event, perform any necessary repairs, and submit the results of the investigation to the EPA.

Expected Benefits and Costs of the New Rule

In a fact sheet, the EPA stated the new final rule will deliver major climate and health benefits for all Americans by building on innovative technologies and solutions that leading oil and gas-producing states and companies are using, and have committed to use, to minimize or eliminate this harmful pollution.
The EPA estimates that the 2023 Methane Rule will:
  • Reduce methane emissions by nearly 80% compared to existing requirements.
  • Avoid 58 million tons of methane emissions from 2024 to 2038.
  • Avoid 16 million tons of VOC emissions from 2024 to 2038 and 590,000 tons of toxic air pollutant emissions including benzene and toluene.
  • Result in $97 to $98 billion in net climate and ozone health benefits from 2024 to 2038 ($7.3 to $7.6 billion annually).
  • Recover enough natural gas to heat nearly eight million homes for the winter.
The EPA estimates compliance costs of the proposed regulations over the period from 2024 to 2038 to be $19 billion using a two percent discount rate, $18 billion using a three percent discount rate, and $14 billion using a seven percent discount rate.

Practical Implications

The new rule, which was announced by the Biden administration in conjunction with the United Nations COP 28 international climate change conference, is expected to substantially reduce methane emissions from the US oil and gas industry. The rule is intended to advance the Biden administration's Long-Term Strategy to address climate change including a plan to achieve net zero GHG emissions in the US by mid-century (see Practice Note, Biden Administration Energy and Climate Change Policies and Regulations: 2022 Tracker).
Although the EPA believes the costs of the regulations will be partially offset by increases in recovery and sale of natural gas, the new rule will increase costs and regulatory burdens on the oil and gas industry, especially for operators of older oil and gas wells and infrastructure that are not already subject to NSPS. Older wells tend to be lower-producing and generate less revenue. A January 2022 report by the Energy Information Administration (EIA) estimates there were over 930,000 producing oil and gas wells in the US as of 2020, most of which produce less than 15 barrels of oil equivalent per day.
The rule was applauded by environmental groups. Some major oil companies also support increased methane regulation, including BP which stated in response to the new rule that it welcomes the finalization of a strong methane rule. However, some industry groups and states have been critical of the rule. The Texas Railroad Commission and Texas Commission on Environmental Quality previously filed comments criticizing many aspects of the proposed rule. The regulations are likely to be challenged, including potentially under the major questions doctrine (see Legal Update, West Virginia v EPA: Supreme Court Limits the EPA's Authority to Regulate Emissions from Existing Power Plants, with Implications for the Administrative State). However, because the rule builds upon existing methane regulations under the CAA, many aspects of the rule are viewed by commentators as being less susceptible to legal challenge than some other recent US GHG regulations.
The anticipated methane emissions reductions from the new rule may ultimately help some US energy exporters including liquefied natural gas (LNG) projects meet new EU methane emissions requirements, including maximum methane intensity requirements for EU energy imports beginning in 2030. For more information on the EU regulations, see Legal Update, EU Reaches Provisional Agreement to Limit Methane Emissions in Energy Imports.
US oil and gas operations are also subject to mandatory EPA GHG emissions reporting and (beginning in 2024) fees on methane emissions exceeding certain thresholds. For more information, see Practice Note, Greenhouse Gas Reporting and Methane Fees for Oil and Gas Operations.