Barclay Damon
Barclay Damon

Legal Alert

USEPA GHG Reporting Rule for Petroleum and Natural Gas Industry

Starting on January 1, 2011, petroleum and natural gas operators will face new federal reporting requirements concerning emissions of greenhouse gases (“GHGs”) from their facilities. On November 9, 2010, the U.S. Environmental Protection Agency (“USEPA”) expanded its GHG reporting rule, published at 75 Fed. Reg. 74458, to include reporting requirements for large oil and natural gas producers, processors, and distributors. The new rule specifically targets methane, a GHG with a warming potential four times that of carbon dioxide and associated with petroleum and natural gas operations. The original GHG reporting rule in 40 CFR Part 98, which became effective in December 2009, requires large sources of GHGs to monitor emissions and provide USEPA with an annual GHG emission report.

Applicability. Facilities in numerous sectors of the petroleum and natural gas industry are covered by the expanded rule, including onshore and offshore production and natural gas processing facilities, storage, transmission compression, and distribution. Beginning January 1, 2011, facilities that annually emit 25,000 metric tons or more of carbon dioxide equivalent must monitor and report GHG emissions associated with their operations. The first annual report of emissions must be submitted to USEPA by March 31, 2012.

For onshore petroleum and natural gas production, all wells owned or operated by a person or entity within a “geologic basin” are considered a single facility for reporting purposes. A “facility” is defined broadly as “all equipment on a well pad or associated with a well pad . . . used in the production, extraction, recovery, lifting, stabilization, separation, or treating of petroleum and/or natural gas.” This definition of “facility” encompasses compressors, generators, storage facilities, well drilling equipment, workover equipment, gravity separation equipment, auxiliary non-transportation-related equipment, and rented or contracted equipment.

For natural gas distribution, “facility” is also broadly defined. A “facility” is defined as the “collection of all distribution pipelines, metering stations, and regulating stations that are operated by a local distribution company that is regulated as a separate operating company by a public utility commission.” All other industry segments fall under the old definition of facility, which refers to structures or equipment located on one or more adjacent or contiguous properties under common ownership.

Reporting Requirements. The new rule requires covered facilities to monitor and report GHG emissions for the GHGs now regulated by the USEPA under the Clean Air Act, which include carbon dioxide, methane, and nitrous oxide. Depending on the type of facility, different types of activities must be monitored and included in the final annual report. For example, the rule requires onshore producers to report emissions from equipment leaks, venting, storage tanks, and flaring, while distributors must report emissions from equipment leaks and combustion emissions. The final annual report must list a company’s emissions for each industry segment separately, and in general, the emissions for each activity should be reported in the aggregate.

Monitoring Emissions. Owners and operators are directed to use monitoring techniques prescribed in the rule for calculating GHG emissions, but may apply to USEPA to use other best available monitoring methods (“BAMM”). BAMM includes: methods currently used at the facility that do not meet the specifications in the rule, supplier data, engineering calculations, and other company records. No application is necessary for the use of BAMM, from January 1, 2011 until June 30, 2011, for some well-related emissions and activity data associated with well completions, hydraulic fracturing, testing, and component counts. Subsequent use of BAMM for measuring emissions associated with these activities requires an application to USEPA prior to June 30, 2011. An application to USEPA must also be made prior to April 30, 2011 to use BAMM for leak detection and measurement for certain activities and equipment through December 31, 2011. In addition, a monitoring plan for each covered facility must be completed by April 1, 2011 and made available upon request to USEPA. Regardless of the method chosen to measure emissions, facilities must use the equations and methods set forth in the rule.

The expansion of USEPA’s GHG reporting requirement represents the next step towards federal GHG controls. The data acquired by USEPA through the annual emission reports will likely guide the development and implementation of programs to reduce GHG emissions under the Clean Air Act or future climate change legislation. While the USEPA estimates that the new rule will cost the industry $62 million for the first year and $19 million in following years, many in the industry project that the costs will be as much as $123 million to $1 billion, due to the additional expense for companies collecting and compiling data over an entire geologic basin. The reporting requirement, however, may reveal areas where GHG emissions can be reduced in the future and assist companies in understanding their potential regulatory exposure.

If you have any questions or require our assistance in reviewing your policies or conducting management training, please contact the Hiscock & Barclay lawyer with whom you normally work or any attorney in our Environmental practice area.