28 January 2016

Sidley Shale and Hydraulic Fracturing Report

Vol. 5, No. 4

Topics discussed in this week’s Report include:

  • U.S. Bureau of Land Management (BLM) proposes new rules for oil and gas development on federal and tribal land.
  • The U.S. Environmental Protection Agency (EPA) urges the Federal Energy Regulatory Commission (FERC) to consider climate impacts, greenhouse gas (GHG) reductions in liquefied natural gas (LNG) export reviews.
  • Industry and environmental groups file comments on proposed pipeline safety regulations.
  • Pennsylvania to issue methane regulations.
  • Lawsuit filed challenging county ordinance in West Virginia banning oil and gas wastewater disposal wells.
  • Oklahoma Geological Survey (OGS) reports increase in quakes in 2015, while state legislature considers new measures in response.
  • Draft Wyoming report: Hydraulic fracturing did not contaminate wells.

Federal

U.S. Bureau of Land Management (BLM) proposes new rules for oil and gas development on federal and tribal land. BLM proposed new rules to reduce emissions from oil and gas fields on federal and tribal lands. The proposed rules would reduce venting and flaring of natural gas from well sites by capping and reducing those amounts over three years. According to BLM estimates, the proposal will reduce volatile organic compound and methane emissions by 50 percent within three years. The reductions would largely be achieved by replacing older equipment, implementing best practices to minimize venting, preparing a “waste minimization plan” and requiring periodic infrared camera inspections to detect leaks. Most operators would also have to pay royalties on gas they flare. BLM contends that, as a result of the proposal, the federal government could receive between $9 million and $16 million in additional royalties, and industry would receive more revenue through collection and sale of additional gas. Industry groups responded that the proposal would largely duplicate existing requirements and impose additional costs at a time when both methane emissions and natural gas prices are falling.

The U.S. Environmental Protection Agency (EPA) urges the Federal Energy Regulatory Commission (FERC) to consider climate impacts, greenhouse gas (GHG) reductions in liquefied natural gas (LNG) export reviews. EPA is urging FERC to incorporate requirements for evaluating climate change impacts from liquefied natural gas (LNG) exports in FERC’s revised guidance for environmental reviews under the National Environmental Policy Act (NEPA). EPA and environmental groups had previously pressed FERC to consider climate change in its NEPA evaluations by assuming that LNG export terminals would encourage increased shale gas development, but FERC rejected those contentions finding that predicting whether and where new gas development could occur as a result of any particular LNG export facility was infeasible and speculative. In its letter to FERC, EPA pointed to a 2012 Department of Energy study on the potential impacts of LNG export terminals on domestic gas production as well as a 2014 EPA report on life-cycle greenhouse gas (GHG) emissions from export terminals. According to EPA, FERC should require terminal developers to use these reports to analyze the indirect impacts of the project and propose ways for both reducing GHG emissions from the terminals themselves and to prepare for climate change impacts.

Industry and environmental groups file comments on proposed pipeline safety regulations. Industry comments were uniformly critical of new regulations proposed by the Pipeline and Hazardous Materials Safety Administration (PHMSA) in October 2015, warning that their high cost could force the shut down of many existing pipelines. The proposed rules would require all liquid pipelines in “high-consequence areas” to implement in-line inspection tools within 20 years, apply integrity management and repair requirements to non-high consequence area pipelines, require inspections after extreme weather incidents and natural disasters, require all liquid pipelines to have leak detection systems, and impose more reporting requirements for hazardous liquid pipelines that are currently exempt from many safety regulations, such as gathering and gravity lines. PHMSA estimated that the proposed rules would apply to almost 200,000 miles of pipelines carrying crude oil and other materials classified as hazardous liquids when finalized. According to industry comments, the regulations could exceed $100 million in costs with little environmental or safety benefits while actually impeding overall safety, as many companies could abandon pipelines in favor of less costly truck transportation. In contrast, environmental groups criticized the 20-year timetable for implementing in-line inspection tools, and argued that the requirement should be expanded to other pipeline categories. They proposed a tiered compliance deadline that would prioritize older pipelines with a history of leaking as well as a series of additional safety requirements aimed at valves and leak detection systems.

States

Pennsylvania to issue methane regulations. Governor Tom Wolf announced that Pennsylvania will impose new controls on fugitive methane emissions from new and existing gas production, transmission and distribution facilities. The new measures would mandate the use of industry best practices that are either required under federal regulations or prescribed by other states. Most significantly, the proposal would end exemptions from air quality permitting for well pads and impose the use of devices to detect fugitive emissions. According to Governor Wolf, the measures are needed to address climate change and help industry recover lost product. Although the Pennsylvania Department of Environmental Protection (PADEP) has not yet issued draft rules, PADEP released a framework for the regulations and announced in a subsequent webinar that the new regulations are part of a goal to reduce methane emissions by 40 percent, which is above and beyond the reductions EPA anticipates from its recent proposals regulating methane emissions. The actual regulatory language is expected to be released at the Commonwealth’s Air Quality Technical Advisory Committee meeting on February 11, with a new general permit for well pads planned for August.

Lawsuit filed challenging county ordinance in West Virginia banning oil and gas wastewater disposal wells. EQT Production Company filed suit in federal court to overturn Fayette County, West Virginia’s prohibition on oil and gas wastewater disposal wells. If read broadly enough, EQT argued, the ordinance could include a ban on production wells. According to the company, the ban violates state law and constitutes a regulatory taking of EQT’s property and rights. EQT requested a temporary restraining order to block the ordinance while its challenge is litigated.

Oklahoma Geological Survey (OGS) reports increase in quakes in 2015, while state legislature considers new measures in response. According to the OGS, the state’s 905 earthquakes of magnitude 3.0 or higher in 2015 represented a 55 percent increase over 2014. State officials have attributed the increase to wastewater from oil and gas development that is disposed of in deep injection wells that interact with fault lines, noting that increases in disposal volumes have coincided with increases in quake events. The state legislature is considering various bills that would provide the state’s oil and gas regulator, the Oklahoma Corporation Commission (OCC), more power to fine companies and shut down wells suspected of causing quakes. Other legislation under review would give homeowners tax credits for obtaining earthquake insurance, require oil and gas operations to recycle wastewater, and establish a fund to offset quake-related damages to homes.

Studies

Draft Wyoming report: Hydraulic fracturing did not contaminate wells. The Wyoming Department of Environmental Quality (DEQ) released a draft report on its investigation into drinking water supply wells in Pavillion. The town became an early focal point in the public debate over hydraulic fracturing after a December 2011 draft EPA report linked groundwater contamination to drilling activities. EPA withdrew the report after heavy criticism of its own drilling practices in testing the groundwater, while DEQ continued to study the town’s water supply. DEQ’s resulting draft report concluded that methane released from hydraulic fracturing did not migrate upward to the town’s drinking water aquifer. Instead, DEQ found that naturally occurring gas deposits migrated upward into the aquifer, a problem that began before shale gas development near the town. This is the third state report on Pavillion; with the Wyoming Oil and Gas Conservation Commission previously studying well bore integrity and abandoned pits in the area. DEQ is soliciting public comments on the draft report until March 13.

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