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    Locke Lord QuickStudy: EPA’s Stakeholder Report on Produced Water Management: Is Further Regulation on the Horizon and Should Industry Encourage It?

    Locke Lord Publications

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    Background

    On May 15, 2020 the U.S. Environmental Protection Agency (“EPA”) released its “Summary of Input on Oil and Gas Extraction Wastewater Management Practices Under the Clean Water Act” (“Summary”). The Summary is EPA’s next step in its Study of Oil and Gas Extraction Wastewater Management, that was initiated in May 2018. Just about a year ago, in May 2019, EPA released a Draft Study of Oil and Gas Extraction Wastewater Management (“Draft Study”). The Draft Study’s goal was to “evaluate approaches” to manage produced waters and to capture a greater understanding of the need for and risks attendant to additional discharge options. The Summary builds on the Draft Study and is a kind of white paper discussing input from various stakeholders, including state regulatory agencies, tribes, industry, academia, and NGOs.  It may represent another step along the road to further regulating the E&P industry.

    EPA initiated its overall study of produced water management, in part, because the significant volumes of wastewater generated by the industry are forecast to significantly increase over time. Remarkably, there are few disposal options. For example, it is estimated that in 2017 the industry generated 357 billion gallons of produced water, which is expected to rise to 630 billion gallons by 2023. Clearly, that’s a lot of wastewater. At this time, volumes of wastewater generated by the E&P industry are primarily managed through underground injection. The underground injection or salt water disposal (“SWD”) permitting process allows for large volumes of produced water to be injected deep into geologic formations, intended to contain the wastes. Other disposal options are limited and include (i) reuse for fracking and/or enhanced oil recovery; (ii) disposal in evaporation pits/seepage ponds; (iii) limited crop irrigation; (iv) road spreading for dust control; (v) limited disposal at centralized waste treatment facilities; and (vi) limited discharge to surface water through permitted outfalls. While certain pretreatment standards and effluent limitations guidelines exist, permitted surface water discharge is very limited and is prohibited in areas other than west of the 98th Meridian. Recent inquiries by both states and stakeholders regarding the treatment and discharge of this wastewater have given rise to expanded efforts by the EPA to seek alternative approaches to wastewater management, particularly in water scarce regions.

    EPA’s key goals in reaching out to stakeholders include evaluating additional methods for produced water management, along with gaining a better understanding of the needs and concerns of stakeholders regarding wastewater discharge options under the Clean Water Act (“CWA”). While an examination of stakeholder perspectives should lead to a greater understanding of the composition and treatability of produced water, a distinct possibility exists of heightened regulation. Having said that, long term further regulatory options for management of produced water may ultimately benefit industry and mitigate potential long-tail liability associated with certain current disposal methods.

    Feedback

    State Agencies - State agencies expressed both general support for and objections to alternative discharge options for treated produced water.

    Some state agencies opined that if produced water was treated at a sufficient level to facilitate discharge, it could be employed as an additional source of surface and groundwater. As such, water scarcity could be addressed to some extent in affected states. State agencies further suggested that through treatment and reuse, E&P companies could benefit from an alternative to using fresh water for drilling and fracturing, thereby mitigating the necessity for reliance on withdrawal of existent surface water for E&P activities, allowing the preservation and augmentation of fresh water supplies, and leading to a reduction in the need for water transportation. Reducing transportation would benefit industry by mitigating costs and also the risk of accidental release in transit. Financial impacts to states were also raised. That is, if disposal options become more limited, the risk of well abandonment by financially limited producers could shift plugging burdens to the state. Finally, state agencies advised that additional discharge options could potentially mitigate underground injection capacity concerns to keep up with future demand that projected increases in E&P activity will bring.

    Objections focused on the potential risk to human health and ecological impacts attributable to surface water discharge. Some state agencies posited that because little is known about the actual chemical makeup of produced water, its potential impact on humans and aquatic life is difficult to evaluate meaningfully. Toward that end, EPA noted that it has identified 692 unique ingredients as additives, and that over time the characterization of produced water from a given well can change. The challenge of having a general characterization of produced water arises from, among other factors, (i) the great number of diverse constituents in chemicals used in fracking, stimulation, and well maintenance; (ii) certain of the chemicals being proprietary and not subject to general disclosure; and (iii) differing formations have differing characteristics resulting in different constituents being present in the produced water streams. Hence, evaluating both treatment options and environmental/health risk could be a moving target. Moreover, as to known constituents, in many instances standards have not been developed that would allow for development of discharge limitations.

    In addition, some states asserted that the risks and detriments associated with additional discharge options could simply outweigh the possible benefits. For example, extensive treatment of produced water to remove chemical constituents, along with residuals management could result in the cost of alternative treatment and discharge methods materially exceeding current disposal costs. Some states also admitted that they simply lacked the expertise associated with these new treatment methods and would be forced to look to EPA for guidance. 

    Tribes – Input from tribal authorities was consistent with that of state agencies. Some tribes supported the expansion of discharge options to the extent discharges could meet water quality standards. Other tribal authorities asserted that they would be interested in searching for alternative uses for treated produced water on their lands outside of purely agricultural purposes. Opposition to additional discharge options was due to concerns regarding the potential impacts on surface waters used for fishing and ceremonial practices, as well as human health and environmental risk.

    Industry – Industry stakeholders were supportive of additional discharge options. Industry groups asserted that advancements in technology have allowed treatment and discharge to be more cost-competitive with existing management methods, but also could give rise to revenue streams associated with residuals filtering, management, and resale. For example, some produced waters contain valuable co-products like lithium or rare earth metals. Industry believed that discharge options for produced water should become consistent with options available to other industries, namely allowing for greater permitted discharge options. The idea of a general permit was suggested to allow for greater flexibility and to mitigate the time associated with individual facility permitting that often will not be available. Industry noted that not all producing states have experience writing NPDES permits for oil and gas extraction facilities, thus a federal general permit could prove advantageous. Industry also noted that at this time, technology exists to treat produced water to meet water quality standards. Industry generally expected market forces to determine the degree to which disposal costs outweighed costs for treatment. Industry representatives also noted that treatment for discharge can address water scarcity in arid or semi-arid regions of the country.

    Some industry members were concerned that increased costs of produced water management and disposal/discharge could prove detrimental to the industry. The thought was that if the costs and regulatory burdens of management become too high, some areas for oil and gas resource extraction may not be able to be developed. Some industry representatives suggested that certain current producing resources could be prematurely halted if costs significantly increase. Reservations were also expressed about potential long-term liability if reuse was authorized outside of the oil patch.

    NGOs - NGOs raised concerns about authorizing surface water discharge, raising the issue of potential toxicity of treated produced water and its implications for human health and ecology. NGOs asserted that because the chemical makeup of discharges is complex and remains partially unknown, the risks of effective treatment and hence safe discharge remain high. NGOs suggested that because the chemical compounds used in hydraulic fracturing appear to change constantly, treatment and discharge limitations are inherently difficult to establish. NGOs further asserted that analytical methods do not yet exist for many of the chemical compounds found in produced water, and water quality criteria for certain constituents has yet to be established.

    Academia - The academic community emphasized concerns similar to those expressed by NGOs, including knowledge gaps regarding produced water characteristics that would further complicate the implications of treatment and discharge. Academics asserted that determining proper treatment approaches without knowing the full range of constituents within produced water would make difficult an evaluation of appropriate treatment and environmental impacts.

    Other Entities – Certain publicly owned treatment works ("POTWs") also provided input and asserted that they could be challenged to accept produced water at this time because treatment technologies currently utilized may not treat all produced water constituents, such as chlorides and TDS. At least one POTW, however, expressed a desire to build plants specifically for the treatment of produced water and encouraged EPA to draft rules authorizing this type of treatment. Vendors asserted a concern for the substantial cost of treatment that would include desalination.

    Summary

    So where does this leave industry? Certain themes are generally associated with stakeholder comments of which industry should be cognizant, including:

    • A thorough understanding of the composition of produced water and range of additives used in drilling will be important to allow for increased treatment and discharge options.
    • Constituents in produced water may vary over time as well as by region, based upon geologic and hydrogeologic conditions.
    • Because there may be knowledge gaps in the chemical composition of produced water based upon the use of proprietary chemicals and the broad number of additives used in the process, challenges exist to permitting discharges.
    • An individual NPDES permit may be impractical because of time constraints. 

    At this time, EPA has stated it plans to announce additional steps for produced water management. While there are clear challenges to developing a streamlined approach to allow for discharge permitting by either operators or treatment works, industry may ultimately mitigate risk by collaborating with EPA and getting in front of the issue. Heightened coordination to allow for the disclosure of constituents in proprietary additives could allow for the development of a broad based general permit, thereby mitigating time constraints and administrative burdens associated with typical individual NPDES permitting. Toward that end, EPA could consider a targeted and efficient information request directed to providers of the additives (as opposed to the producers) allowing for claims of confidentiality to fully assess the chemical range of additives. Increased treatment and discharge to qualify for a general permit’s use may appear to increase costs in the short term, but potentially could reduce long-term liability and corporate risk – and hence increase corporate sustainability for the benefit of shareholders (whether public or private). For example, at this time, it remains unclear what the future holds for SWD injection facilities. Given the lack of knowledge of constituent makeup of produced water and the lack of sophisticated characterization of waste streams by SWD facilities, it is not out of the realm of consideration that these facilities could represent a future wave of liability arising under clean-up regimes such as CERCLA or state cleanup programs. For example, to what extent do SWD injection facilities truly understand whether a produced water shipment has been co-mingled with non-exempt RCRA wastes? The author notes that jurisprudence exists to the effect that RCRA’s E&P hazardous waste exclusion may not in all cases shield potentially responsible parties from CERCLA hazardous substance liability, and Superfund type programs are not static. For example, river and harbor beds and banks are an increasing focus today, and certain releases from formations associated with SWD injection facilities could be tomorrow’s focus. Moreover, other statutory vehicles exist to assert cleanup liability against waste generators at SWD injection facilities in the event of a release. Finally, laws governing waste status and cleanup regimes could drastically change, particularly should material changes occur in public perception of the fossil fuel industry and/or in the composition of elected representatives. Taking these uncertainties into account, if the risk of clean-up liability associated with ownership and operation of SWD injection facilities increases, so must industry’s disposal costs. Thus, it is an open question to what extent and for how long injection facilities can continue to be cost effective.

    In light of the foregoing, treatment and discharge through a well thought out general permit may represent an elegant solution for both industry and regulators.

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