EPA gives industry breathing room on anti-pollution rule

Giving into energy industry demands, the federal government on Wednesday announced it is giving companies extra time to install new equipment to capture pollution from natural gas drilling and hydraulic fracturing operations nationwide.

Companies now will have until Jan. 1, 2015 to begin using so-called “green completion” equipment that can pare emissions at natural gas wells under a first-of-its-kind air pollution rule the Environmental Protection Agency unveiled Wednesday.

The EPA had originally planned to impose those requirements almost immediately after rolling out the measure, which represents the first federal mandate governing pollution from hydraulic fracturing operations credited with unlocking a 100-year supply of the fossil fuel.

The change comes as the Obama administration seeks to demonstrate its support for domestic natural gas production while still pledging environmental protections from the hydraulic fracturing technology increasingly used to harvest the fossil fuel. President Barack Obama last week established an interagency working group to coordinate federal regulation of natural gas drilling.

Hydraulic fracturing involves pumping a mixture of water, sand and chemicals deep underground to release trapped oil and natural gas. During the 3-day (or longer) time span after a well is fractured and before natural gas production begins, smog-forming volatile organic compounds and other substances can escape at the surface. Companies can capture those emissions with green completion technology or burn much of it off by flaring the gas.

The new EPA mandate is aimed at reining in the emission of those smog-forming compounds from a range of natural gas operations, including the initial drilling of wells, production at the sites and transportation of the product. The EPA has said complying with the mandates would pare methane emissions by about 26 percent and toxic air emissions by 30 percent.

But leading industry trade groups, including the American Petroleum Institute and the Independent Petroleum Association of America, insisted there wasn’t enough of the truck-mounted emission-cutting equipment to go around and satisfy the proposed mandates.

An estimated 25,000 new and existing natural gas wells are fractured or re-fractured each year. But API President Jack Gerard warned last week that just 300 sets of the emissions-reducing equipment are available in the U.S.

“There does need to be a period of time for equipment to be manufactured and distributed and training to be conducted,” said EPA Assistant Administrator Gina McCarthy. “This phased approach will provide time for industry to order and manufacture enough equipment as well as train personnel to conduct green completions.”

Companies that don’t use the emissions-reducing equipment before 2015 will be required to rely on flaring to control emissions in the meantime. Although less effective than green completions, flaring will reduce 90 percent of volatile organic compounds at the sites, McCarthy said.

Several energy companies, including Devon Energy, already use green completions on most of their wells. The emissions-reducing equipment captures natural gas and other compounds that otherwise would be lost, and which the companies can sell.

The EPA estimates that the industry stands to save $11 million to $19 million annually using the green completion technology, instead of allowing natural gas to escape into the atmosphere after a well is fractured.

FBR Capital Markets analyst Benjamin Salisbury said the rule strikes a balance. “Given sufficient ramp-up time, the cost of green completions is expected to be manageable or even positive net of revenue from selling captured methane,” Salisbury said in a research note this afternoon.

The EPA also decided to extend the deadline for other pollution-cutting mandates in its rule, including requirements governing storage tanks and other natural gas infrastructure.

But the agency rebuffed industry’s argument to exempt facilities in which 10 percent or less of their total emissions are from volatile organic compounds. Industry officials had insisted that it wouldn’t be cost effective to require emission-cutting technology when there are few of the smog-forming compounds to control.

Environmentalists countered that allowing the exemption would effectively gut the entire rule because even though pollution from most wells falls below that 10 percent level, in large operations, that can still mean tremendous escaping emissions.

Howard Feldman, API’s director of regulatory and scientific affairs, said the new phase-in time for the green completions equipment is a major improvement.

“EPA has made some improvements in the rules that allow our companies to continue reducing emissions while producing the oil and natural gas our country needs,” Feldman said.

“Clearly, we needed the phase-in period,” Feldman added.

McCarthy pitched the delay as a common-sense approach that ensures energy companies will still be able to produce natural gas from sites around the country while temporarily reducing emissions through flaring.

The move “wasn’t politically motivated,” McCarthy told reporters on a conference call. “It’s just as stringent as we originally proposed, but it’s been adjusted based on data we’ve seen.”

“The key issue here is we really wanted to make sure we understood the value of green completions, but we wanted to make sure we didn’t require them before the technology was broadly enough available,” McCarthy said.

If the mandate were broadly required without enough equipment to keep up, the rule might not have been cost effective for many operations and would be vulnerable to legal challenges.

“We wanted this to be strong legally,” McCarthy said.

Environmental groups say the measure will protect the public from high ozone levels amid a surge in hydraulic fracturing that is being blamed for causing so much smog in some parts of the West that it rivals Los Angeles and Houston.

David McCabe, a senior scientist with the Clean Air Task Force, called the rule “a solid start,” but said more needed to be done to “reduce pollution from the gas industry all the way from the well to the customer.”

“These important rules start to cut down on air pollution that harms people living near wells, creates smog and warms the climate,” McCabe said. “People who live near compressors and equipment already in use need to see their air cleaned up as well. Unfortunately these rules won’t do that.”

David Doniger, director of NRDC’s clean air program, said the group was “disappointed that EPA has allowed industry until 2015 for full compliance.”

“It should not take that long to build more of the truck-mounted rigs that can capture these gases and put them into the pipelines to be sold at a profit instead of leaked into our air,” Doniger said. “We wish there were no delay, but we recognize that the standards contain some incentives to encourage drilling firms to do the right thing before 2015.”

EPA was forced to pursue the rule under a court order following a legal challenge by environmental groups.

Although the EPA’s rule focuses on completions of hydraulically fractured wells, it also would require changes to pneumatic devices throughout the system. When that equipment is added or updated, companies would be required to use low- and no-bleed options. To curb the leakage of volatile organic chemicals, companies also would be required to use a different sealing mechanism in centrifugal compressors and periodically replace packing material surrounding the moving parts in reciprocating compressors.

Oil and gas companies and trade groups have criticized the underlying emissions data that the EPA used in creating its rule.

Independent Petroleum Association of America CEO Barry Russell reiterated that concern today. The EPA’s estimates about emissions reductions “are significantly overstated,” Russell said. “The use of accurate data — readily available to the agency — would likely have yielded a very different rule, and one that’s more in line with the reality of the situation.”