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Source Aggregation Discussion Rocky Mountain EHS Peer Group April 15, 2010.

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Presentation on theme: "Source Aggregation Discussion Rocky Mountain EHS Peer Group April 15, 2010."— Presentation transcript:

1 Source Aggregation Discussion Rocky Mountain EHS Peer Group April 15, 2010

2 2 Source Aggregation Introduction Stationary Source Definition −“Stationary Source” is defined under PSD in the CAA as any building, structure, facility or installation (40 CFR (b)(5)) which is further defined “as all pollutant- emitting activities which: √Belong to the same industrial grouping, √Are located on one or more contiguous or adjacent properties, and √Are under the control of the same person (“3 Factor Test”) (40 CFR (b)(6)) −Under Title V, a major source includes any stationary source or group of stationary sources located within a contiguous area and under common control (42 USC 7661a(a) and 42 USC 7661(2)) Functional Dependency (Interdependency) −EPA guidance documents and permitting decisions starting in the mid-1990s began using “functional dependency” test in place of “contiguous and adjacent” − EPA aggregated facilities located 6-40 miles apart that they claimed were interdependent upon one another −EPA’s functional dependence approach to source aggregation changes the scope of Clean Air Act Title V operating permits and PSD permits by including dispersed well sites with major emission sources (e.g. compressor stations and gas plants).

3 3 Source aggregation for oil and gas Existing Stationary Sources (Wells, compressor station, and gas plant are each separate “stationary sources”) New Stationary Sources Same industrial grouping Under control of the same person Located on one or more contiguous or adjacent properties −Focus on functional dependency of facilities to determine “source” Company A Gas Processing Plant Company A Compressor Station Company A Wells (All sources could be aggregated and considered as one major source) Company C Gas Processing Plant Company B Compressor Station Company A Wells Company C Gas Processing Plant Company B Compressor Station Company A Wells Same industrial grouping Under control of the same person  Located on one or more contiguous or adjacent properties (Sources not aggregated because no common control.)

4 4 Source Aggregation Push for Oil and Gas EPA’s Wehrum Memorandum (1/12/2007) rejected use of “functional dependency” for defining “stationary source” and reinforced the “3 factor test” Environmental NGOs petitioned several PSD, Title V, and minor source permits requesting aggregation of oil and gas production facilities, gas plants, and compressor stations EPA McCarthy Memorandum (9/22/2009) rescinded the Wehrum memorandum thereby resurrecting functional dependency approach EPA Director Lisa Jackson issued an order on the Frederick Compressor Station Title V operating permit application requiring the State of Colorado to further analyze functional dependency (10/8/2009) Wild Earth Guardians sent a letter to all state air quality agencies emphasizing McCarthy memorandum (10/27/2009)

5 5 Florida River Permit Title V Permit Renewal – Submitted 2005 Within the exterior boundary of the SUIT Direct EPA jurisdiction – EPA Region 8 SUIT letter of support Supplement to the permit record submitted Feb 2010 −Previous permit actions −Leasing & spacing −Surface ownership & agreements −Gas well development −Gas flow

6 6 Functional dependence test may exceed EPA’s authority under the CAA and APA 1980 PSD Rulemaking −EPA & federal courts emphasized that the “contiguous or adjacent” requirement is a location-based or proximity requirement. −Common sense notion of a plant −Rejected functional interdependency Only through formal rulemaking, could EPA expand the definition of “contiguous or adjacent” to include a test for interdependency −The interdependence approach is not mentioned or reflected anywhere in the text of the CAA or Title V regulations and was rejected in the PSD regulations. −Instead, the interdependence approach is derived from EPA guidance documents and permitting decisions starting in the mid-1990s that reflect an unauthorized policy shift away from the statutory and regulatory “contiguous or adjacent” requirement. −EPA guidance over the years has gradually read out of the law the requirement that facilities must be “contiguous or adjacent” in order to be aggregated together as one facility EPA’s interdependency approach for source aggregation is arguably a revision of the PSD and Title V regulations without proper rulemaking and opportunity for public comment, and arguably in violation of the federal Administrative Procedures Act and outside the statutory authority of the Clean Air Act

7 7 Source aggregation extends coverage of major source regulations by ~ 9%* However, no additional reductions in emissions are expected that will not already be achieved by the existing and proposed rules Could lead to higher emissions due to uncoupling of midstream ownership from producing properties Creates an unlevel playing field for operators of facilities which provide services to wells they control Aggregation only partially extends PSD/ Title V coverage to operational emissions * Source: BP estimates based on EPA, 2009 / WRAP Phase III study

8 8 Regulation of oil and gas emissions sources Separator Produced Water Tank Sales Meter Condensate (“Oil”) Tank Compressor Dehydration Unit NSPS K, Ka, Kb NESHAP HH NSPS JJJJ, NSPS IIII, NESHAP ZZZZ −State minor source permitting programs −State Implementation Plans for nonattainment of various National Ambient Air Quality Standards (NAAQS) −NEPA Environmental Impact Statement (EIS) for O&G emissions sources on federal lands −New Source Performance Standards (NSPS) (40 CFR 60) for various pieces of equipment (EPA is currently reviewing under consent order) −National Emissions Standards for Hazardous Air Pollutants (NESHAP) (40 CFR 63) for various pieces of equipment (EPA is currently reviewing under consent order) What about Greenhouse Gas emissions? −Federal legislation – i.e., Waxman-Markey (cap-and-trade for large sources and NSPS for minor sources) −PSD/Title V Tailoring Rule

9 9 Proposed Ozone NAAQS Nonattainment (0.060 – ppm) Counties that violate proposed ozone NAAQS ( ): ppm ppm ppm Monitors: 3 years ( ) 2 years ( ) 1 year (2008 only) CASTNET Site (federal reference method after 2007) Jefferson Sublette Teton Campbell Sweetwater LarimerWeld Boulder Adams Arapahoe Douglas El Paso La Plata Montezuma Denver San Juan Sandoval Bernalillo Dona Ana Eddy Lea Grant Fremont Uinta Crook Carbon Mesa Garfield Park Albany Each county with a monitor and 3 years of data will violate the proposed ozone NAAQS range Monitors with less than 3 years data will violate the proposed ozone NAAQS range in a year or two. EPA is proposing more monitors be installed in rural areas −More monitors = potentially more counties in violation of the ozone NAAQS Proposed lower ozone NAAQS will result in more areas under SIPs to include further emission controls

10 10 Potential impacts Source aggregation does not create a level playing field. Companies owning more infrastructure are competitively disadvantaged. Potential divestment of midstream assets by major operating companies −Decreased optimization leading to higher emissions  Smaller compressor engines at each well site; requires more engines that are harder to control  Large tanks at a central facility with electricity can be controlled by a vapor recovery unit (VRU) – more efficient, easier to control Slow down of responsible development −Administrative impacts – regulatory agency resources to process increase in permitting volume −Projected delays from source aggregation = years Additional permitting & compliance costs −Each permit represents a significant cost increase per new well drilled −New Title V Permits...$46,350/permit * −New PSD Permits...$84,530/permit * −Risk: Application to assets newly covered by requirements and potential requirement to reopen permit for every well work and new well drill −Additional costs to track compliance Potential litigation to enforce compliance with Clean Air Act PSD requirements and to seek retroactive application of new source aggregation interpretation −Increases compliance risk * Source: EPA’s PSD Tailoring Rule preamble, Section IX

11 11 Natural gas production Ongoing drilling, well work, and infrastructure investment are required to maintain a steady state of U.S. natural gas production. Projected gas production from Colorado, New Mexico and Wyoming Colorado, New Mexico and Wyoming account for nearly 20 % of US domestic production Because of decline in reservoir pressure, drilling is required to maintain production Source: Wood MacKenzie Upstream database, 2009

12 12 Potential impacts from increased natural gas demand Sources: Wood McKenzie, 2009 / BP BP has modeled the impact of an additional 1TCF/yr of natural gas demand (5% increase) Henry hub rises by an incremental $1.40/mcf by 2020 Colorado revenues (royalty, severance and State income taxes) would increase by nearly $500 million per annum by 2020

13 13 Advocacy Efforts NMED – Mary Uhl WY DEQ – John Corra CDPHE – Paul Tourangeau EPA Region 8 EPA Headquarters – Feb. 25 Colorado Congressional Delegation – Feb. 25/26 USOGA – Mar 23 −Oklahoma DEQ – April −Utah DEQ – April −TCEQ – Still under discussion

14 14 Summary Source aggregation resulting from the “functional dependence” test arguably exceeds the statutory authority of the EPA under the CAA In general, source aggregation only extends coverage of major stationary source regulations from 45% of total operational emissions to around 55% Emissions from minor sources that could potentially be aggregated with other sources are already covered under existing NSPS and NESHAP requirements and EPA is currently reviewing these requirements under a consent order. Also, with proposed lowering of the ozone NAAQS, more areas will be designated nonattainment and put under EPA-approved SIPs. Additionally, State regulation of minor source air quality is administratively efficient and the most practical way to manage air emissions from wells and smaller operations facilities in oil and natural gas fields Source aggregation threatens to significantly curtail natural gas development due to permitting delays and compliance risks resulting from administrative burden Aggregation could create an unlevel playing field for operators of facilities which provide services to wells they control BP is interested in continuing to work cooperatively with EPA and the states to better understand the science, apply best practices, and identify ways we can meet air quality objectives without threatening natural gas development in the U.S. Source aggregation, resulting from the “functional dependence” test, is arguably outside the remit of the CAA, provides little to no environmental improvement of air emissions, yet threatens gas development

15 Backup Slides

16 PSD Rulemaking – Definition of “Source” Stated boundaries of “source” set by Alabama Power include: −Reasonably carry out purpose of PSD −Must approximate the common sense notion of a plant −Limited to statutory terms building, structure, facility or installation Rejected “functional interdependence” as a criteria due to: −Assessment would be highly subjective −Increase agency’s administrative burden substantially −Reduced the predictability of aggregated facilities dramatically These statements are still relevant today for using functionality as a part of the case-by-case determination of “contiguous or adjacent”

17 17 Pending Permit Determinations Colorado - Kerr McGee/Anadarko Fredrick Compressor Station Title V Renewal Southern Ute - BP’s Florida Compressor Station Title V Renewal Wyoming – EnCana Pavillion Title V Permit New Mexico – Williams Four Corners Plant Title V Renewal?? Utah – Title V Permit Arkansas – Title V Permit Michigan/Tribal Land – Summit Petroleum Sweetening Plant Title V

18 18 Impact of permitting delays 138,000 jobs (31,000 direct and 107,000 “indirect”) – 6% of State total* Value added of $18bn/yr (7% of State total)* Labor costs of $ 8bn/yr* Projected capital investment of around $50bn over next 15 years** Colorado accounts for approximately 5% of US domestic natural gas production Projected to grow over next decade Because of decline in reservoir pressure, drilling is required to maintain production Permitting delays in the natural gas industry would result in: –Lower natural gas production –Less investment –Less jobs –Higher natural gas prices for consumers Sources: * IHS, 2009; ** Wood MacKenzie, 2009 Projected gas production from Colorado

19 19 Summary Source aggregation resulting from the “functional dependence” test arguably exceeds the statutory authority of the EPA under the CAA Colorado is disproportionately impacted due to a high degree of common control (“integration”) of well production sites and gathering and compression facilities In general, source aggregation only extends coverage of major stationary source regulations from 1-5% of total gas operational emissions to around 10-15% Emissions from minor sources that could potentially be aggregated with other sources are already covered under existing NSPS and NESHAP requirements and EPA is currently reviewing these requirements under a consent order. Also, with proposed lowering of the ozone NAAQS, more areas will be designated nonattainment and put under EPA-approved SIPs. Additionally, State regulation of minor source air quality is administratively efficient and the most practical way to manage air emissions from wells and smaller operations facilities in oil and natural gas fields Source aggregation threatens to significantly curtail gas development due to permitting delays resulting from administrative burden BP is interested in continuing to work cooperatively with EPA and the states to better understand the science, apply best practices, and identify ways we can meet air quality objectives without threat to natural gas development in the U.S. Source aggregation, resulting from the “functional dependence” test, is arguably outside the remit of the CAA, provides little to no environmental improvement of air emissions, yet threatens gas development


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