As part of President Obama's Clean Power Plan, the EPA recently released rule proposal directed at the oil & gas industry. On August 27, 2015, U.S. EPA published its proposed rule for "single source permitting" for the oil & gas industry. The comment period will close October 26, 2015.
The proposed rule will have a major implications for the oil & gas industry. The rule will make it much more likely for oil & gas operations to trigger federal air permitting requirements. The purpose of the rule is to establish standards for when air emissions from oil & gas equipment, which may not be at the same location, should be aggregated. By aggregating emissions from the equipment total emissions will be more likely to exceed federal permitting thresholds (i.e. New Source Review or NSR).
The proposed rule has two options for determining adjacency for purposes of evaluating when oil & gas equipment should be aggregated (i.e. considered part of the same stationary source). The proposed rule targets oil & natural gas production (which includes natural gas compressor stations) and natural gas processing facilities.
Option 1- Adjacency will be determined based solely on physical proximity of the facility. The proposed rule states that emitting activities at the same surface site would be aggregated. The rule specifically states “surface site” includes “any combination of one or more graded pad sites, gravel pad sites, foundations, platforms, or immediate physical location upon which equipment is physically affixed.” Furthermore, any emitting equipment separated by less than ¼ mile will be aggregated.
Option 2- Adjacency will be based on whether the activities are “functionally interrelated.” While the rule is not specific on how this will be determined, it is likely that groups of equipment will be aggregated if they are dependent on one another.
Litigation Regarding Aggregation
In 2012, EPA lost a case on aggregation in the Sixth Circuit in the energy sector when it attempted to apply the functionally interrelated test. The Sixth Circuit Court of Appeals struck down EPA’s consideration of “functional interrelatedness” to determine adjacency. See, Summit Petroleum Corp. v. EPA, 690 F.3d 733 (6th Cir. 2012).
The Sixth Circuit reversed an EPA determination that a natural gas plant and associated wells were one “source” for purposes of Clean Air Act permitting. Specifically, the court held that “EPA’s determination that the physical requirement of adjacency can be established through mere functional relatedness is unreasonable and contrary to the plain meaning of the term ‘adjacent.” Id. at 735. EPA has issued an internal memorandum that it intends to continue to apply the functional relatedness test everywhere except the Sixth Circuit.
More recently, in the case of Citizens for Pennsylvania's Future v. Ultra Resources, Inc., (No. 4:11-CV-1360 Feb. 23, 2015), an environmental group challenged the State's (Pennsylvania DEP) issuance of eight separate air permits to oil & gas compressor stations. The compressor stations operate to compress gas from wells at nearby locations. The compressor stations were not interconnected, but designed to work together (i.e. boosting pressure at a specific well and pushing gas to a common meter). Perhaps most importantly to the Court, the compressor stations were about 1 mile apart within a five square mile area.
The District Court did not believe the compressor units emissions should be aggregated because the units were physically too far apart. However, in dicta the Court disagreed with the Sixth Circuit by stating that functional interrelatedness could lead to or be a factor in deciding adjacency. It also held that emission sources could be aggregated, even if physically distant from one another, if each source is part of a "physically connected process."
EPA's clear intent to look more closely at emissions from oil & gas operations. Regardless of which option EPA selects following the public comment period, it will be more likely that such operations will trigger NSR permitting requirements.