Role of Methane in New Oil and Gas Air Pollution Rule Questioned

The State Journal
24 April 2012
By Pam Kasey

The new federal rules limiting air pollution from oil and gas operations are aimed at smog precursors and air toxics — but it's the role of methane in the rules that bothers industry and environmentalists alike.

And as the effective date for the rules approaches, the U.S. Environmental Protection Agency faces possible challenge from both sides.

The April 17 rules mandate the use of "green completion" technology on fractured wells. The technology controls releases of smog-forming volatile organic compounds, or VOCs, and air toxics, as mandated by the Clean Air Act.

The rules address, in large part, the awkward moment in the life of a shale well between fracturing and production: the period of days when what's coming out of the ground is not just wastewater, but isn't yet mostly natural gas.

If the producer pumps this flowback to an open pit, the VOCs and toxics are released to the air as pollution, as is the methane — valuable in the pipeline but a potent greenhouse gas in the atmosphere.

If the producer flares it, much of that pollution is burned off, yet smog-forming nitrogen oxides are released instead.

Green completion seems like a dream solution. It prevents nearly all of the pollution and captures the methane and any liquid hydrocarbons so they can be sold.

The technology costs more than $33,000 per well, in the EPA's estimate. But producers are allowed to flare until 2015 and, at that time, sale of the captured methane and liquid hydrocarbons will more than pay for the practice, the agency says — actually making the industry $11 million to $19 million dollars a year.

Industry concerns

The value and volume of the methane the EPA forecasts industry will recover are the subject of the Independent Petroleum Association of America's concerns.

It's possible that the agency can't use the value of the captured hydrocarbons to justify the cost of controlling VOC and toxics emissions, said Lee Fuller, vice president of government relations for the IPAA.

"When the Clean Air Act was written, and the structure for new source performance standards (one of the foundations for the new rules), there were six pollutants. Methane was not one of those," Fuller said. "So when you're using as the basis for writing this standard the control of VOCs, that's what you need to base your cost-effectiveness demonstration on — not methane."

David Doniger, policy director for the Natural Resources Defense Council's Climate and Clean Air Program, disagrees.

"The Clean Air Act says you take into account costs and benefits and it also says you take into account non-air environmental benefits — so sometimes that would be, say, a water pollution benefit — and energy impacts," Doniger said. "Those two categories require EPA to take into account both the environmental aspects and economic aspects of the things that tag along. In this case what tags along is all these methane reductions."

He said the agency has taken a similar approach to past rules.

But Jeff Holmstead, formerly an EPA assistant administrator for Air and Radiation and now a lawyer with the firm Bracewell & Giuliani, thinks it could be the basis for legal challenge.

"EPA has never tried to justify the cost of a rule before by claiming it will help companies financially by forcing them to capture a product – in this case methane – that they can sell to their customers," Holmstead said.  "I suspect that someone will challenge this reasoning in court, and it's hard to predict how the judges will react.  It really will be a case of first impression."

However, the larger issue, in the IPAA's view,  is about the volume of methane currently leaking.

Many estimates have come out in the past year of how much methane escapes from oil and gas operations — estimates that range broadly, so far, from about 2 percent to about 8 percent of total production.

"There are different ways you can do green completions," Fuller said. "If you overstate emissions and use the value of captured emissions to justify the cost of control, it's going to drive you to the higher-cost options — but producers are never going to achieve those reduction levels and savings."

From what he has read, Fuller said, the agency has overestimated methane leaks by 14 times. He referenced a 2011 report from analysts IHS CERA that says the agency has overestimated methane leaks, although it does not say by how much.

By contrast, a February article in the journal Nature quotes Cornell University professor Robert Howarth saying the EPA's loss estimate comes to about 2.8 percent of production — not among the highest estimates.

Compliance with the new rules will bring new data, IHS CERA pointed out. And although greenhouse gas emissions reporting that all large U.S. sources have to do beginning in September won't answer all of the questions right away, Holmstead said, it will help to narrow in on real numbers.

Will the IPAA sue?

"I don't think anybody knows yet," Fuller said. "There may be some litigation, but it's just way too early to make that judgment."

A side note: methane volumes

All of this raises the obvious question: If green completion really makes producers money, why does the EPA have to mandate it?

The EPA addressed that in its regulatory impact analysis for the rules.

It estimated the return on investment to green completions at 4.6 percent, given a gas price of $4 per thousand cubic feet — the price estimate for 2015, and twice the current price.  

The agency said about half of fractured wells already undergo green completion. For the rest, it provided several possible explanations.

A capital-constrained producer might have higher-return investments to make, the agency wrote among its explanations. An assumption of $4 also doesn't take into account taxes and royalties. And producers may be unaware of how much methane they're losing.

Environmentalist concerns

"The EPA had an obligation not only to update the VOC standards but to address directly the other pollutants that are determined to be dangerous," said Doniger. "That's the way the Clean Air Act works."

Because of the agency's December 2009 endangerment finding determining that greenhouse gases endanger public health and welfare, that includes methane, he said.

NRDC thinks the agency should have regulated methane emissions directly and not as a "co-benefit" to the control of other pollutants.

Green completion is the best methane control for the wells that are covered in the new rules, Doniger said, but he noted other methane losses that could have been covered.

"There are methane leaks at various downstream points in the equipment where they could have imposed emissions reductions but didn't because they said there's not enough VOCs," he said.

"And then there's the oil wells," he said, passing on information outside his area of expertise but under consideration by the organization. "You don't get that much VOCs, so EPA said it's not cost effective to control them. But if you were regulating methane directly, you would take another look at green completions at new oil wells."

Will the organization sue?

"We're considering whether to take them to court over it," Doniger said.

The new rules become effective 60 days after their publication in the Federal Register, which should be soon. That's also the deadline for any direct challenge to them to be filed in federal court, Holmstead said. A broader challenge such as that under consideration by the NRDC could be filed at any time.

The rules and other supporting documents may be found on the EPA's Oil and Natural Gas Air Pollution Standards web page.