Transcript Source Aggregation

Source Aggregation Discussion
Rocky Mountain EHS Peer Group
April 15, 2010
Source Aggregation Introduction
• Stationary Source Definition
− “Stationary Source” is defined under PSD in the CAA as any building, structure, facility or installation (40 CFR 51.166(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 51.166(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).
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Source aggregation for oil and gas
Existing Stationary Sources
(Wells, compressor station, and gas plant are each separate “stationary sources”)
Company A Wells
•
Same industrial grouping
•
Under control of the same person 
Located on one or more contiguous or adjacent properties
Company B Compressor
•
Station
Company A
Compressor Station
Company A Gas
Processing Plant
Company A
Wells
(Sources not
aggregated because
no common control.)
Company B Compressor
Station
Company C Gas
Processing Plant
Company C Gas
Processing Plant
Company A Wells
New Stationary Sources
•
Same industrial grouping
•
•
Under control of the same person
Located on one or more contiguous or adjacent properties
(All sources could be
aggregated and considered
as one major source)
− Focus on functional dependency of facilities to determine
“source”
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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)
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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
5
Functional dependence test may exceed EPA’s authority under the
CAA and APA
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
• 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
6
Aggregation only partially extends PSD/ Title V coverage to
operational emissions
Existing major sources
45%
9%
45%
Extension of
PSD/ Title V
regulations
Non-major
sources
35%
30%
25%
20%
15%
10%
5%
0%
% of gas production subject to
aggregation
29%
18%
17%
5%
Colorado Wyoming
New
Mexico
Co-WyNM Avg
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
* Source: BP estimates based on EPA, 2009 / WRAP Phase III study
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Regulation of oil and gas emissions sources
−
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)
Sales Meter
NESHAP HH
Dehydration
Unit
NSPS JJJJ, NSPS IIII,
NESHAP ZZZZ
Compressor
Separator
NSPS K, Ka, Kb
Condensate (“Oil”)
Tank
Produced Water
Tank
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
8
Proposed Ozone NAAQS Nonattainment (0.060 – 0.070 ppm)
Park
Crook
Campbell
Teton
Proposed lower ozone NAAQS will result in more areas under SIPs to include further emission
controls
Fremont
Sublette
Carbon
Sweetwater
• Each county with a monitor and 3 years of data will violate the proposed ozone NAAQS
range
Albany
Uinta
Larimer
Boulder
Garfield
Jefferson
Mesa
• Monitors with less than 3 years data will violate the proposed ozone NAAQS range in a
year or two.
Weld
Denver
Denver
Adams
Arapahoe
Douglas
• EPA is proposing more monitors be installed in rural areas
− More monitors = potentially more counties in violation of the ozone NAAQS
El Paso
Montezuma
La Plata
San Juan
Counties that violate proposed ozone
NAAQS (2006-2008):
Sandoval
Bernalillo
Grant
Lea
Dona Ana
Eddy
Monitors:
3 years (2006-2008)
0.070 ppm
2 years (2007-2008)
0.065 ppm
1 year (2008 only)
0.060 ppm
CASTNET Site (federal
reference method after 2007)
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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
−
−
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
Administrative impacts – regulatory agency resources to process increase in permitting volume
Projected delays from source aggregation = 2 - 5 years
Additional permitting & compliance costs
−
−
−
−
−
•

Slow down of responsible development
−
•
Decreased optimization leading to higher emissions
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
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Natural gas production
Projected gas production from Colorado, New Mexico and Wyoming
Source: Wood MacKenzie Upstream database, 2009
Base
Drilling
14
12
Wyoming account for nearly
20 % of US domestic
production
• Because of decline in
reservoir pressure, drilling is
required to maintain
production
10
8
6
4
2
2005
'06
'07
'08
'09
2010
'11
'12
'13
'14
2015
'16
'17
'18
'19
2020
'21
'22
'23
'24
Gas Production (Bcf/ d)
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• Colorado, New Mexico and
Ongoing drilling, well work, and infrastructure investment are required to maintain a steady state of U.S. natural gas
production.
11
1,200
$1. 60
1,000
$1. 40
$1. 20
$1. 00
$0. 80
600
200
$0. 60
$0. 40
$0. 20
-
$-
0
2
02
9
20
1
8
20
2
1
7
01
6
20
1
5
20
1
4
2
01
3
20
1
12
400
20
Inc rem in
ental
D emRevenues,
and (B c f) $m H H U p lif t
Increase
State
500
• 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
400
300
200
100
2020
2019
2018
2017
2016
2015
2014
2013
-
2012
B cf
800
H H U p li ft
Potential impacts from increased natural gas demand
Sources: Wood McKenzie, 2009 / BP
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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
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Summary
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
•
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.
14
Backup Slides
1980 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”
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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
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Impact of permitting delays
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
-
Base
Drilling
• 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
2005
'06
'07
'08
'09
2010
'11
'12
'13
'14
2015
'16
'17
'18
'19
2020
'21
'22
'23
'24
Gas Production (Bcf/ d)
Projected gas production from Colorado
•
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**
– Less jobs
– Higher natural gas prices for consumers
Sources: * IHS, 2009; ** Wood MacKenzie, 2009
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Summary
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
•
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.
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