American Oil and Gas Reporter - June 2016 - 34

Federal Methane Regulations

EPA Deletes Marginal Well Exemption
By Del Torkelson
WASHINGTON-U.S. Environmental
Protection Agency Administrator Gina McCarthy has characterized her agency's latest set of oil and gas regulations as a matter of common sense. Oil and gas industry representatives largely beg to differ.
EPA says the initiatives include finalized standards under the Clean Air Act's
New Source Performance Standards that
are intended to cut emissions of methane,
volatile organic compounds and toxic air
emissions from new, modified and reconstructed oil and gas industry sources, as
well as a proposal in which the agency will
seek to obtain information to develop nationwide regulations on the same emissions
from existing sources.
According to Pittsburgh-based law
firm Babst Calland, the primary components of EPA's May 12 moves are:
* Final revisions to NSPS Subpart
OOOOa regulations for emissions of
methane and VOCs from certain new,
modified and reconstructed sources within the production, processing, transmission
and storage source categories;
* A final rule that defines the term
"adjacent," which Babst Calland notes "is
a component of a multifactor test for determining whether oil and natural gas
equipment and activities are part of a single source that is subject to major source
permitting requirements under the CAA;"
and
* A draft information collection request (ICR) that seeks to require oil and
gas companies to provide EPA with extensive information that the agency deems
necessary for developing a federal methane
rule for existing sources.
However, the final methane rule's approach to marginal wells constitutes the
difference that probably will be most
significant to independent producers, remarks Lee Fuller, Executive Vice President
of the Independent Petroleum Association
of America.
Quantifying Climate
When Fuller considers how the regulations are likely to affect independent oil
and gas operations, he highlights Subpart
OOOOa's leak detection and repair
(LDAR) program to target fugitive emissions. "For a variety of reasons, the estimated benefits are significantly overstated while the costs are understated," Fuller
assesses.
He cites as an example, that EPA's
34 THE AMERICAN OIL & GAS REPORTER

analysis-which estimates $690 million in
benefits against $530 million in costs by
2025-assumes a $4 an Mcf value for the
additional natural gas that producers are
projected to recover, which he points out
is roughly twice what the commodity sold
for in spring 2016.
Meanwhile, EPA says it attributes the
regulations' forecast $690 million upside mainly to climate influence that
helps avert severe weather events. Press accounts cite North Dakota Department of
Mineral Resources Director Lynn Helms
as one of many commenters skeptical of
that formula. "We do have significant
heartburn regarding the fact that climate
change economics are part of the (federal government's) cost/benefit analysis," he
is quoted.
"The so-called benefits of this rule are
nonexistent, because the amount of potential global warming offset by these new
rules is 0.0004 degrees Celsuis, an amount
too small to have any meaningful impact
on global temperatures," agrees Heartland
Institute energy and environment policy
research fellow Isaac Orr.
Even as many question the economic
basis on which OOOOa rests, the speed at
which EPA wants to implement the rule
also is raising eyebrows. Trinity Consultants Director of Oil and Gas Sector Services Georgette Reeves suggests that may
constitute the industry's tallest hurdle. "The
timing is aggressive, especially given the
number of sites that will need to be evaluated, even during this downturn," she
comments. "After the rule is published in
the Federal Register, operators have 12
months to develop their programs and documentation procedures, hire contractors,
get equipment and conduct the surveys.
And everyone else will be trying to do the
same thing under the same deadline."
Marginal Sites, Too
IPAA's comments on the earlier version
of the rule, in which EPA proposed to exclude marginal wells from the LDAR program, focused on clarifying that the
LDAR program would terminate when a
well's production became marginal, Fuller
says. Instead, the final rule drops the exemption altogether.
"The most adverse thing for independent producers is to require the LDAR program regardless of a well's production,"
Fuller declares. "It will perpetually burden
a well and shorten the useful life of that
production. People will not be willing to
pay LDAR costs on marginal wells. That

is a huge mistake on the administration's
part, and a bad decision that we argued
against aggressively in our work with the
Small Business Administration advocates."
National Stripper Well Association
Chairwoman Darlene Wallace also pans
the development. "These new rules will
cripple stripper and marginal well owners
and operators, and on top of historically
low oil prices, we are looking at a total disaster," she warns. "By requiring the addition of new, costly equipment and expensive leak detection, the economics within the oil and gas industry as a whole will
be fundamentally changed, severely and
forever."
According to Fuller, EPA bases its decision on an Environmental Defense Fund
study that claims marginal wells' fugitive
losses are comparable to those of larger
wells. He suggests that such findings
contradict common sense. "Think about an
emission attributable to a loose flange
along pipe designed for 5 million cubic feet
a day on a well that is producing 22 Mcf/d;
the force driving gas out of the pipe is vastly different than 1 MMcf/d," he illustrates.
"If you open a fully inflated balloon at
the neck, the initial pressure is great, but
when it is almost completely deflated, not
much comes out because nothing is driving it. There is a counterintuitiveness to the
argument about significant emissions
from marginal wells that I do not think is
reflected in some of the allegations."
However, Reeves suggests, common
sense does not always trump actual data.
"I think EPA is looking for quantitative
data and has put the onus back on the industry, basically saying, 'If you really think
these sites are not a source of emissions,
gather some data and make your case,'"
she characterizes. "As silly as it sounds,
EPA's theme seems to be 'show us the
money.' Unfortunately, these days, no
one in the industry has much money."
Preferred Technology
Another aspect of the final OOOOa rule
that Fuller deems problematic is the extent
to which it mainly herds operators toward
optical gas imaging (OGI) technologies.
"It essentially compels the use of expensive equipment to estimate fugitive losses," he relates. "EPA has created one different way of testing called Method 21 that
is not as expensive, but it is not necessarily quick and easy. There is no encouragement for some new, simpler, less expensive technology."
American Oil and Gas Reporter - June 2016

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