Locke Lord QuickStudy: Obama Administration Targets Oil and Gas Industry — Announces Plan to Cut Methane Emissions

Programmatic Goals
On January 14, 2015, The Obama Administration announced plans to regulate the oil and gas industry sector’s methane emissions. The Administration’s goal is to cut methane emissions by 40 to 45 percent from 2012 levels by 2025. The Administration indicated that the Environmental Protection Agency (EPA) will initiate rulemaking to set methane emissions standards from “new and modified oil and gas production sources and natural gas processing and transmission sources.” Current thinking is that EPA’s rules package will be released in summer 2015. Because regulations have yet to even be proposed, the breadth of their application is somewhat speculative. It appears, however, that EPA’s rules will be broadly designed to reduce methane emissions across the industry by regulating drilling, production, and transmission.

 
Industry Touchstones for Potential Regulatory Features
To date, the Administration has indicated that the rules will likely target a broad group of methane sources, including oil well completions and pneumatic pumps, as well as leaks from well sites, gathering and boosting stations, and compressor stations. EPA is believed to also be considering the application of remote sensing technologies to enhance leak detection and improve emissions reporting. In its announcement, the Administration referred to EPA’s 2012 standards regulating the release of volatile organic compounds at natural gas wells as “a foundation for further action.” These 2012 standards require drillers on most natural gas wells to perform “green completions” to capture the gases that reach the surface during well completion. It is possible that EPA may seek to regulate oil wells in a similar manner by requiring oil well drillers to capture methane released immediately after a well is fracked.

Likely Facilities Affected
Although it is expected that the rules will not directly target existing facilities, concerned parties should be aware that in similar contexts, rules only applicable to “new and modified” sources have at times incorporated some form of limited retroactive application to a specific near term date. Furthermore, under the Clean Air Act, once EPA promulgates rules regulating methane emissions at new facilities, it may become legally obligated to develop standards for existing facilities at some point in the future. Thus, it is reasonable to assume that methane emissions might eventually be regulated at existing facilities.

Impact of Rule Making
At this time, it is difficult to predict the impact of the impending methane regulations on the oil and gas sector. Notably, the Administration’s announcement was silent on the potential costs of complying with the diverse set of regulations under consideration by EPA. It is also difficult to predict when the regulations will be effective. After the rules are promulgated, there will be a public comment period. The final rule package is expected to be issued sometime in 2016. If the yet to be proposed rules become final, they will also likely be judicially challenged.

We will continue monitoring the development of these methane regulations.

For more information on the matters discussed in this Locke Lord QuickStudy, please contact the authors:

Gerry Pels | 713-226-1402 | gpels@lockelord.com