A Trio of Air Quality Developments Affecting Oil & Gas Facilities

Three recent air quality developments will have a significant impact on regional oil and gas facilities: (1) the Colorado Air Quality Control Commission’s (“AQCC”) December 2019 rulemaking effort; (2) an expanded Environmental Protection Agency (“EPA”) Clean Air Act Audit Program for existing owners of oil and gas facilities; and (3) the EPA’s reclassification of Colorado’s Denver Metro/North Front Range ozone nonattainment area to Serious nonattainment. Each of these developments is addressed more specifically below, with links to relevant documents.

Colorado Air Quality Control Commission’s Rulemaking Effort

On December 19, 2019, the AQCC completed a rulemaking effort that significantly revised AQCC’s Regulation Numbers 3 and 7. The changes to the regulations are primarily aimed at achieving emission reductions from Colorado’s oil and gas industry. The AQCC’s amended regulations follow several months of stakeholder input and the approved changes largely track an initial proposal from the Air Pollution Control Division (“Division”).

Most notably, AQCC reorganized Regulation Number 7 and added several additional air pollution control, operational, and recordkeeping requirements effecting upstream oil and gas sources.

• The statewide storage tank control threshold was lowered to 2 tons per year (“tpy”).
• Air pollution controls are now required at storage tank truck loadout facilities. Specifically, an upstream oil and gas facility that has truck loadout throughput of more than 5,000 barrels per year must control truck loadout emissions.
• Oil and gas facilities now must submit an annual emission inventory of VOC, NOx, CO, methane, and ethane. Although the emissions inventory is subject to additional refinement and clarification in the coming months, recordkeeping requirements begin in July 2020 and the first emissions inventory report is due to the Division in January 2021.
• Leak detection and repair (“LDAR”) inspection frequencies were increased based on proximity to “Occupied Areas” as defined by Regulation 7. The exact implications of this new requirement are not yet entirely clear, but based on the draft regulatory language, well production facilities located within 1,000 feet of an Occupied Area must conduct alternate instrument monitoring method (“AIMM”) inspections on an increased frequency. Specifically, facilities with emissions greater than 12 tpy must conduct monthly LDAR inspections and facilities with emissions greater than 2 tpy andless than 12 tpy must conduct quarterly inspections. This change was proposed by a group of local communities and the AQCC’s adoption of the proposal was unexpected, not only because the Division did not support the alternate proposal, but also because the proposal’s language did not create clear or obvious compliance standards.
• LDAR frequency was increased state-wide for (1) semi-annual AIMM inspections of components at natural gas compressor stations with VOC emissions greater than 0 tpy and less than 12 tpy, and (2) Semi-annual AIMM inspections of components at well production facilities with VOC emissions equal to or less than 2 tpy and greater than 12 tpy.
• The AQCC promulgated a new comprehensive regulatory program for the natural gas transmission and storage segment. The program aims to reduce emissions from the transmission segment through an iterative performance-based program. The program requires operators to reduce methane emissions by meeting annual emissions intensity targets by using company specific best management practices (“BMPs”).
• The Commission adopted a requirement to employ storage tank measurement systems to determine the quantity of the liquid at well production facilities, natural gas compressor stations, and natural gas processing plants constructed on or after May 1, 2020. Accordingly, any facilities that are constructed after January 1, 2021, must have storage tank management systems in place that determine both quality and the quantity of the liquid. This requirement also applies to storage tanks at existing well production facilities, natural gas compressor stations, and natural gas processing plants that are modified by adding storage tanks.

The AQCC also changed several sections of Regulation Number 3 in the recent rulemaking. Of note, in an effort to clarify applicable regulatory deadlines, the AQCC revised the definition of Commencement of Operation for oil and gas well production facilities.

The final regulatory language is expected to be published in Colorado Register in January 2020 and become effective in February 2020.

The AQCC is expected to hold another significant oil and gas rulemaking hearing in late 2020. During the hearing, rule topics are expected to include regulation of preproduction emissions, zero bleed pneumatic controllers, increased LDAR repair time frames for facilities near occupied areas, and continuous methane emissions monitoring.

EPA’s Expanded Clear Air Act Audit Program for Oil & Gas Facilities

On December 19, 2019, EPA temporarily expanded its Clean Air Act audit program for oil and natural gas exploration and production facilities. The program is now available to current owners of upstream oil and natural gas facilities who voluntarily initiate a self-audit to identify, correct, and self-disclose Clean Air Act violations within the next twelve months. Note however, the program is not available if the EPA or a state has already discovered Clean Air Act noncompliance at oil and natural gas production facilities that an owner/operator proposes to audit under this Program, e.g., a notice of violation has been issued or there is an ongoing enforcement action or active investigation for violations at a facility.

Existing owners choosing to participate in the program must enter into the Existing Owner Program Agreement Template with EPA found here. A key component of the Agreement Template is that participating owners must assess storage tank battery vapor control system design. This design assessment is not necessarily otherwise required in all jurisdictions and thus compliance with the design assessment may be expensive for some owners and may require installation of various facility upgrades, in order to ensure the facility is properly designed. The Agreement Template also requires ongoing disclosures and updates to EPA during the course of the self-audit. However, in exchange, pursuant to the terms of the Agreement Template, the EPA will not impose civil penalties for violations that are discovered, corrected, and disclosed through the self-audit and the owner will not be subject to future enforcement action by the EPA as to the disclosed violations.

EPA’s Reclassification of Colorado’s Denver Metro/North Front Range Ozone Nonattainment Area to Serious Nonattainment

On December 26, 2019, the EPA reclassified the Denver Metro/North Front Range ozone nonattainment area (“Denver Area”) from Moderate to Serious nonattainment under the Clean Air Act.[1] In August 2019, based on an evaluation of air quality data collected from 2015 to 2017, EPA determined that the Denver Area did not meet the 2008 ozone national ambient air quality standards (“NAAQS”) within the relevant attainment timeframe and proposed that the Denver Area be reclassified to Serious nonattainment for ozone. After accepting public comment, the EPA issued its final redesignation of the Denver area as Serious nonattainment. The redesignation will become effective on January 27, 2020.

EPA’s action to reclassify the Denver Area requires Colorado to revise its State Implementation Plan, known as a SIP, in order to attain the 2008 ozone NAAQS and adopt new categories of controls, or reasonably available control technologies, on emissions sources. Colorado must submit SIP revisions to EPA by July 20, 2021.

One of the most notable impacts of the reclassification to Serious nonattainment is that within the Denver Area the air quality “major source” threshold lowers from the potential to emit (“PTE”) 100 tpy to 50 tpy of volatile organic compound (“VOC”) or oxides of nitrogen (“NOx”) emissions (precursors to ozone). This means that more oil and gas facilities in the Denver Area may be classified as “major sources” and will be subject to significantly more stringent, costly, and burdensome construction and/or operating permitting requirements. For example, new facilities that have the potential to emit between 50 and 100 tpy of VOCs previously would have been considered true or synthetic minor sources not subject to Non-Attainment New Source Review (“NANSR”) review, now will now be considered major sources and will be required to apply for and obtain a NANSR permit before construction. Additionally, existing sources with a potential to emit above 50 tpy of VOCs are also now required to submit a Title V application within 12 months of the effective date of the redesignation—January 27, 2021.

More sources will also be subject to Lowest Achievable Emission Rate (“LAER”), emission requirements, the most stringent emission limitation under the Clean Air Act which requires evaluation of the lowest achievable emission rate for the source, regardless of cost. Lastly, more sources will also be required to obtain emission offsets for new emissions of criteria pollutants at ratio of 1.2:1. Generally, this means that if a new source is expected to result in 50 tpy of VOC emissions, the applicant must identify 60 tpy in emission offsets elsewhere. Many affected sources were not subject to these requirements under the Moderate classification.

If Colorado continues to fail to attain the NAAQS by the applicable deadline or make reasonable further progress toward attainment, then the Denver Metro/North Front Range ozone nonattainment area may be again reclassified from Serious to Severe. As a Severe nonattainment area, the major source threshold will further drop from 50 tons per year PTE to 25 tons per year PTE. Major sources in a Severe area must obtain emission offsets for new emissions of criteria pollutants at ratio of 1.3:1. Finally, SIPs for severe ozone nonattainment areas must include sanction provisions, such as an emission fee on each major source off VOC emissions, to be collected by the state if the area misses its attainment deadline.

The Environmental Group of Davis Graham & Stubbs LLP handles air quality regulatory, transactional, and litigation matters for its clients in the oil & gas and other industry sectors. Please contact Randy Dann, Will Marshall, Shalyn Kettering, or Kate Sanford if you would like to discuss these three developments further, or other air quality matters of concern to your company.

[1] The nonattainment area includes Boulder, Denver, Jefferson, Douglas, Broomfield, Adams, and Arapahoe Counties and parts of Larimer and Weld Counties.