Saturday, April 21, 2012

Federal Government Gets into the Business of Regulating "Fracked" Natural Gas Wells with New Source Performance Standards

As I am sure most people with an interest in the oil and gas industry already know, on April 17, 2012 the United States Environmental Protection Agency (“EPA”) issued the final version of its Oil and Natural Gas Sector: New Source Performance Standards and National Emission Standards for Hazardous Air Pollutants.  The new regulations are the result of a review performed pursuant to Section 111(b) of the Clean Air Act, which requires the EPA to review its new source performance standards every eight years.  The regulations mark the entry of the EPA into the arena of regulating natural gas fracking operations, an industry currently primarily regulated by the states.  The regulations will no doubt increase criticisms from critics in energy-producing states who have already argued that President Obama’s energy policy as implemented by the EPA is killing coal industry jobs by implementing new, tougher regulations on emissions from coal-fired power plants. 

The new regulations have been finalized by the EPA and sent for publication in the Federal Register (the Federal Register can be accessed at  They will become effective sixty (60) days after their publication.  The new regulations apply to fracking operations at nearly all stages of production and transportation.  They will regulate emissions of volatile organic compounds (“VOC”) from gas wells, centrifugal compressors, reciprocating compressors, pneumatic controllers, storage vessels, and leaking components at onshore natural gas processing plants.  They will also regulate sulfur dioxide (S02) emissions from onshore natural gas processing plants.  In addition, the regulations take aim at the emission of so-called greenhouse gases during well completion, such as methane and carbon dioxide.

Perhaps the most high profile portion of the new regulations is the requirement for natural gas producers to capture VOCs, methane, carbon dioxide, and other alleged pollutants released during a three to ten day period during well completion called flowback.  Most of these substances are currently vented into the atmosphere or burned off during a process called flaring.  When the new regulations go into effect, companies will not be permitted to vent the VOCs and gases released during flowback, but rather will have to capture them with “green completion” a/k/a “reduced emission completion” (“REC”) technologies or burn them off by flaring.  Beginning in 2015, companies will also have to abandon flaring and implement only REC technologies to capture the VOCs and gases.  The positive aspect that REC technologies offer to natural gas producers is that the captured methane can be separated from the other components released during flowback and sold on the market.  The EPA has argued that profits from selling the captured methane that ordinarily would have been lost into the atmosphere will save the industry money and reduce the cost of compliance. 

The final version of the new regulations was arrived at after a comment period during which the EPA received thousands of comments on the proposed regulations.  The oil and natural gas industry did gain some important concessions during the comment period.  First, the original version of the proposed regulations would have immediately implemented REC-only capturing of the VOCs and gases released during flowback, whereas the final version of the regulations postpone the full implementation of the regulations and will allow flaring until 2015.  Additionally, the original proposed regulations would have applied to all hydraulically fractured natural gas wells, regardless of whether they were new or old.  The final version of the regulations applies only to wells drilled after the regulations take effect. 

The final rule signed by Lisa Jackson of the EPA can be found at  The rule is not official, however, until it is published in the Federal Register, such that the document contained at the above-referenced hyperlink should not be relied upon to ensure compliance.

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