EPA Proposes Emission Standards for New & Modified Oil & Gas Wells

The U.S. Environmental Protection Agency (EPA) is inviting small businesses, governments, and not-for-profit organizations to participate as Small Entity Representatives (SERs) for a Small Business Advocacy Review (SBAR) Panel. The panel is part of a standard federal government process and will focus on the agency’s development of a rule that proposes to reduce emissions of greenhouse gases, including methane, and volatile organic compounds (VOCs) under its New Source Performance Standards for the oil and natural gas industry.

EPA will build on the cost-effective standards, issued in 2012, that are currently in place for several sources in the oil and natural gas industry. The agency intends to add equipment and processes to those sources currently covered by the standards. Equipment and processes the agency is considering adding include hydraulically fractured oil wells, pneumatic pumps, and leaks from new and modified well sites and compressor stations. 

On Jan. 14, 2015, the Obama Administration announced its next steps to cut methane emission under the March 2014 Strategy to Reduce Methane Emissions. That strategy, part of the administration’s Climate Action Plan, identified the oil and gas industry as a key source of methane emissions and set out a series of steps to reduce those emissions while allowing continued responsible growth in U.S. oil and natural gas production. As part of that strategy, in April 15, 2014, EPA released for external peer review and public input five technical white papers on potentially significant sources of emissions in the oil and gas sector.

The white papers set out data and information available to the agency at that time on potentially significant sources of emissions in the oil and gas sector, and options for reducing those emissions. EPA used the papers, along with the input received from the peer reviewers and the public, to identify potential common sense, cost-effective approaches to achieve emission reduction from these sources. Peer reviewers’ comments, and instructions for reading input from the public are available on EPA’s website. 

The panel is being established pursuant to the Regulatory Flexibility Act, and will include federal representatives from the Small Business Administration (SBA), the Office of Management and Budget (OMB), and EPA.  The panel members ask a selected group of SERs to provide advice and recommendations on behalf of their company, community, or organization to inform the panel members about the potential impacts of the proposed rule on small entities.

EPA seeks self-nominations directly from the small entities that may be subject to the rule requirements. Other representatives, such as trade associations that exclusively or at least primarily represent potentially regulated small entities, may also serve as SERs. Self-nominations may be submitted through the link below and must be received by February 11, 2015. More information about EPA’s strategy for reducing air pollution form the oil and gas industry. (EPA)

Obama Plans To Expand Offshore Oil Drilling

President Obama plans to open up parts of the Atlantic and Arctic oceans to new oil and gas exploration.  We support the plan for the Arctic but oppose the plan for the Atlantic.

The Interior Department’s five-year lease plan would allow drilling in three areas off the coast of Alaska and one in a portion of the Atlantic for the first time in nearly four decades.  The five-year plan determines what areas will be on the auction block for oil and gas exploration between 2017 and 2022.  The Interior expects 2021 to be the earliest a lease sale could happen.

The Interior Department believes the proposals would make available nearly 80 percent of the undiscovered, technically recoverable resources, while protecting areas that are simply too special to develop. The plan prohibits drilling in some areas and that the administration could close off additional areas going forward. 

The plan was released days after the administration moved to declare the 1.5 million-acre coastal plain region of the Arctic National Wildlife Refuge (ANWR) off-limits to oil and gas development.

A focus of the plan is development in the Gulf of Mexico, where 10 lease sales are proposed. It includes a new approach to hold two annual sales in the western and central Gulf, as well as a portion of the eastern Gulf.  The move allows for industry for invest more in the Gulf, one of the most productive basins for oil and gas. We support expanded Gulf development.

Only one sale each will be allowed in the Chukchi Sea, Beaufort Sea and Cook Inlet areas of Alaska, according to the proposed plan. New development in the Pacific Ocean is excluded from the plan.

Four of the five areas deemed off-limits by Obama had previously been excluded from the 2012-2017 lease sales. Those include the Barrow and Kaktovik whaling areas in the Beaufort Sea, and 25-mile coastal buffer in the Chukchi Sea.

In the Atlantic, the proposal will open the door to oil and gas development along the coasts of Virginia, North and South Carolina and Georgia.  A 50-mile coastal buffer zone would be required for lease sales in the Atlantic. We oppose this part of the plan.

It’s not the first time Obama has proposed opening up the Atlantic. He floated oil and gas development in the region for the 2012-2017 plan but scrapped the notion after BP’s 2010 Gulf of Mexico oil spill.  (The Hill, 1/27/2015)

Fewer Oil Rigs Needed To Produce More Oil in Lower 48

Lower 48 oil production outlook stable despite expected near-term reduction in rig count

Source: U.S. Energy Information Administration, January Short-Term Energy Outlook
Note: Graph does not include production from Alaska and the Federal Gulf of Mexico.

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The Department of Energy, Energy Information Administration (EIA) projects that the sharp decline in oil prices over the last quarter of 2014, which has continued in January, is already having a significant effect on drilling activity in the United States, as shown by the 16% decline in the number of active onshore drilling rigs in the Lower 48 states between the weeks ending on October 31, 2014 and January 23, 2015, according to data from Baker-Hughes.

Moving from what has happened to forecasting the future is challenging, in part because market expectations of uncertainty in the price outlook have increased as reflected in the current values of futures and options contracts. When the latest edition of EIA's monthly Short-Term Energy Outlook (STEO) was issued on January 13, the 95% confidence interval for market expectations for prices in December 2015 was extremely wide, with upper and lower limits of $28/barrel (bbl) and $112/bbl, respectively. The growing uncertainty surrounding oil prices presents a major challenge to all price forecasts. EIA's January STEO forecasts Brent crude oil prices averaging $58/bbl in 2015 and $75/bbl in 2016, with annual average West Texas Intermediate (WTI) prices expected to be $3/bbl to $4/bbl lower.

Should its price forecast be realized, EIA projects that the number of operating rigs will decrease by approximately 24% from January to October 2015 before beginning to rebound in November 2015. However, the outlook for Lower 48 production reflects more than just the rig count. Other key factors include the efficiency of drilling, which EIA tracks in its Drilling Productivity Report, the rate of decline in production from existing wells, and changes in the amount of time between the start of drilling (called spudding) and the completion of the well.

As discussed in a previous Today in Energy article on the effect of declining crude oil prices on U.S. production, permits and drilling in North Dakota declined during the financial downturn of 2008-09, but production rates did not decline as substantially. At the time of the July 2008 oil price peak, drilling activity in the Bakken-Three Forks formations outpaced well completion activity as increasing numbers of wells were drilled. Averaging about 70 days before the oil price peak, spud-to-completion times almost doubled within two months, reaching more than 130 days. This increase created a backlog of wells that had been drilled but not yet completed. As fewer wells were drilled during the subsequent drop in oil prices, the spud-to-completion times decreased. Increased drilling activity in the Bakken since 2011 has once again increased spud-to-completion times, which have stabilized at more than 120 days per well, almost twice previous minimum levels. (DOE-EIA)

EPA Ozone Public Hearing Set for DC

EPA Headquarters

EPA will hold its ozone rule hearing on Thursday at EPA headquarters.  EPA will hold several public hearings on the proposed updates to the national air quality standards for ground-level ozone, also known as smog. EPA has proposed to strengthen the standards to a level within a range of 65 to 70 parts per billion(ppb) to better protect American’s health and the environment, while taking comment on a level as low as 60 ppb.

While the low end of the range in the proposed rule (65 ppb) is very troubling for industry and states, as low as background levels of ozone in many parts of the country and pushing as much as 94% of the nation out of attainment, 60 ppb would be devastating for manufacturing, oil and gas production and agriculture across the country.  One thing to consider: the Administration only has so much political capital at its disposal and it has made clear that controlling greenhouse gases is its legacy issue.

It is unclear that the Administration has the bandwidth to sustain both rules.  There is no doubt that many in Congress and the states will demand that the proposed ozone NAAQS be placed on a more realistic course.  Look for Strong pushback on Ozone/NAAQS from Oil and gas.  (Frank Maisano)

Domestic Refining Shifting From Imported Heavy to Domestic Light Crude

Regional refinery trends evolve to accommodate increased domestic crude oil production

Source: U.S. Energy Information Administration
Note: As of January 1, 2014, there were 133 operating refineries with atmospheric crude oil distillation units (ACDU) totaling capacity of 18.9 million barrels per stream day. Heavy capacity denotes refineries with coking capacity; light capacity denotes refineries without coking capacity.
Note: Click to enlarge.

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Recent rapid growth in U.S. production of light tight oil has raised interest in understanding how U.S. refineries, many of which are configured to process heavier crude oil, might accommodate increased volumes of domestic light crude. The U.S. refinery fleet, which is distributed across Petroleum Administration for Defense Districts (PADDs), varies both within and across regions in capacity, quality of crude oil inputs, utilization rates, and sources of crude supply.

Changes to crude oil supply patterns are most pronounced in the Gulf Coast. Net imports into the region have fallen by 2.3 million bbl/d, and light sweet crude imports have been largely replaced by domestically produced light, tight oil.  

More than 50% of the country's refinery capacity and most of the country's heavy crude processing capacity is located in the Gulf Coast (PADD 3). The region's 51 operating refineries with atmospheric crude distillation units (ACDU) have capacity totaling 9.7 million barrels per stream day (bbl/sd), 81% of which is located at facilities with coking capacity.

Crude oil production in the Gulf Coast region has increased by 1.9 million barrels per day since 2010. Gulf Coast receipts of crude oil from the Midwest (PADD 2), including both U.S. and Canadian production, also have increased. With more Canadian and domestic barrels moving south from the Midwest to the Gulf Coast region and lower demand for crude shipments from the Gulf Coast to the Midwest, net receipts for the Gulf Coast were positive in October 2014 for the first time since December 1985. This situation, with shipments and receipts of crude oil to and from other PADDs being roughly equal in the Gulf Coast region, is a change from the region's traditional role. The Gulf Coast has long been a source of crude supply for neighboring PADDs, both through the movement of domestic production and from imported crude oil coming into Gulf Coast ports.

With U.S. crude production in 2015 expected to average 9.3 million bbl/d, 700,000 bbl/d above the 2014 level, domestic refiners will continue to face changing supply and demand conditions, even as continued production growth in the first months of the year transitions to a more static production outlook as the effects of the recent sharp decline in oil prices are reflected in drilling decisions. Changes to infrastructure, refinery capacity, crude oil price differentials based on quality, and policy decisions will also affect refinery operations in the coming year. (DOE-EIA)

EPA's Methane & Ozone Reduction Strategy for Oil & Gas Industry

EPA’S STRATEGY FOR REDUCING METHANE AND OZONE-FORMING POLLUTION FROM THE OIL AND NATURAL GAS INDUSTRY

As part of the Obama Administration’s commitment to addressing climate change, the U.S. Environmental Protection Agency (EPA) has outlined a series of steps it plans to take to address methane and smog-forming VOC emissions from the oil and gas industry, in order to ensure continued, safe and responsible growth in U.S. oil and natural gas production. The agency’s commonsense strategy will reduce methane pollution from new sources in this rapidly growing industry, reduce ozone-forming pollutants from existing sources in areas that do not meet federal ozone health standards,  and build on work  that states and industry are doing to address emissions from existing sources elsewhere.

Building on Commonsense Standards for Methane and VOC Emissions

• Methane – the key constituent of natural gas – is a potent greenhouse gas with a global warming potential more than 25 times greater than that of carbon dioxide. Nearly 30 percent of methane emissions in the U.S. in 2012 came from oil production and the production, processing, transmission and distribution of natural gas. While methane emissions from the oil and gas industry have declined 16 percent since 1990, they are projected to increase by about 25 percent over the next decade if additional steps are not taken to reduce emissions from this rapidly growing industry.

• EPA’s strategy will help avoid this anticipated increase in methane emissions from new sources, and will use both regulatory and voluntary approaches to accomplish this goal.

• The agency also will extend requirements for addressing emissions of volatile organic compounds (VOCs) to additional sources, further reducing this key ingredient of ground-level ozone (smog).

• The agency plans to build on its 2012 New Source Performance Standards for the oil and natural gas industry to achieve both methane reductions and additional reductions in VOCs. Those cost-effective standards relied on proven technologies already in use, provided flexibility and incentives for industry to modernize equipment and reduce pollution early, and strengthened accountability, all while supporting continued growth in the sector.

• EPA will follow a similar approach as it develops cost-effective, commonsense requirements for new oil and gas sources that are significant emitters of methane and VOCs. The agency will talk with industry, states and tribes as it evaluates a range of approaches that can reduce methane and VOC emissions from sources such as the equipment and processes discussed in the 2014 White Papers. These could include completions of hydraulically fractured oil wells, pneumatic pumps, and leaks from new and modified well sites and compressor stations.

• In developing the proposal EPA anticipates a process for engaging directly with states on approaches the agency should consider in setting standards. This engagement will help ensure that the standards the agency issues are effective in protecting public health and the environment while supporting continued growth in this sector.

• A number of states regulate, or are considering regulating, air pollution from the oil and gas industry, and EPA’s strategy anticipates that they will continue to do so. Under the Clean Air Act, states have the authority to regulate air emissions from sources within their boundaries, provided their requirements are not weaker than federal rules. EPA plans to issue a proposed rule later this summer and a final rule in 2016.

• In addition, EPA will continue and expand its work to promote voluntary adoption of cost-effective methane reduction technologies by the oil and natural gas sector.

Reducing Additional Pollution in Areas with Ozone Problems

• EPA also plans to extend VOC reduction requirements to existing oil and gas sources in areas that could particularly benefit from VOC reductions: ozone nonattainment areas and states in the Ozone Transport Region. Reducing VOCs can help reduce smog, which is linked to a number of serious effects on public health.

• The agency will do this by issuing Control Techniques Guidelines (CTGs) that provide an analysis of the available, cost-effective technologies for controlling VOC emissions from covered oil and gas sources. States would have to address these sources as part of state plans for meeting EPA’s ozone health standards.

• CTGs give states critical information on cost-effective control technologies.  States have some discretion in applying these guidelines to individual sources.

• Many controls to reduce VOCs also reduce methane as a co-benefit.  The CTGs that EPA issues also will also provide states and any tribes that choose to do so with a model they can put in place to address emissions from sources in other areas where oil and gas activities are concentrated.

• EPA plans to propose CTGs in the summer of 2015, and issue final guidelines in 2016.

Industry Action to Reduce Methane Emissions

• In addition to regulatory activities, several voluntary efforts to address these sources are underway, including EPA’s plans to expand the successful Natural Gas STAR Program by launching a new partnership in collaboration with key stakeholders later in 2015.

• Under the new program EPA will work with the departments of Energy and Transportation and leading companies, individually or through broader initiatives such as the Downstream Initiative or the One Future Initiative, to develop and verify robust commitments to reduce methane emissions.

• Voluntary efforts to reduce emissions in a comprehensive and transparent manner have the potential to yield significant methane reductions in a quick, flexible and cost-effective way. Achieving significant reductions through these voluntary industry programs and state actions could reduce the need for future regulations. The Administration stands ready to collaborate with participants in these and other voluntary efforts, including in the development of a regime for monitoring, reporting and verification.  (EPA)