The regulation of "upstream" onshore oil and gas activities has traditionally been the province of state authorities. The major oil and gas producing states have well-developed regulatory frameworks based on decades of experience with the day-to-day operations of the oil and gas industry. The federal government has, for the most part, been content to let those states control the drilling and production activities within their borders. This may be changing.
Shale gas production has taken the industry far beyond the boundaries of the traditional oil and gas producing states. The federal government, principally through the EPA, is now showing considerable interest in activities that once were the exclusive province of state regulators. If history is any guide, federal interest will lead to federal regulation and new challenges for compliance departments.
Natural gas is good for the environment, right?
Domestic production of natural gas has increased markedly over the last few years as hundreds of thousands of hydraulically fractured shale gas wells have been brought on line. The industry has touted this "clean burning natural gas" as good for the environment and good for the nation.
Highlighting the environmental impact of natural gas production may be good business, but it also seems to have garnered the attention of federal regulators and advocacy groups. The EPA is now focusing considerable attention on the environmental impact of hydraulic fracturing operations.
Proposed air regulations
In August of last year, the EPA issued proposed regulations to deal with VOC and methane releases during hydraulic fracturing operations. The regulations were proposed by the EPA as part of its sector-based rule making for the oil and gas industry. The EPA proposes to require that companies use so-called "green completion" techniques to reduce VOC and natural gas emissions from well flow-back during completion. The rules will apply to both new completions and re-completions on hydraulically fractured natural gas wells.
The impetus behind the regulations is not entirely clear. Although the EPA frames the regulations within its authority to regulate VOC emissions, it notes that the corollary reduction of methane emissions will also benefit the environment. Natural gas consists primarily of methane, and the EPA considers methane to be a greenhouse gas that is 20 times more potent than carbon dioxide.
Water studies
At about the same time that the EPA was publishing its proposed air regulations, EPA officials were testifying before Congress on the water-related impacts of hydraulic fracturing that the EPA intends to study. These issues include:
- Stress on surface water and groundwater supplies from the high volumes of water that is needed to support hydraulic fracturing operations;
- Potential contamination of drinking water aquifers resulting from "faulty" well construction and completion; and
- Disposal of flow-back and produced water that could contain contaminants.
Perhaps the most significant aspect of the public statements emanating from the EPA is the description of the various regulatory authorities that the EPA believes give it jurisdiction over oil and gas drilling operations.
For example, the Environmental Policy Act of 2005 exempts hydraulic fracturing of oil and gas wells from the Underground Injection Control program of the Safe Drinking Water Act. However, EPA's position is that the injection of diesel is not exempt.
Many hydraulic fracturing fluid recipes include diesel, so the EPA believes that it can regulate fracking operations that use diesel. The SDWA also regulates the underground injection of flow-back and produced water. In addition, the Clean Water Act may cover wastewater from oil and gas wells if they are discharged into publicly owned treatment works (POTW) or surface waters.
The EPA's position is that it has ample statutory authority to study and, if needed, regulate oil and gas drilling operations.
Do you have a FLIR"?
Forward looking infrared (FLIR") cameras have been used for decades on military fighter planes to target opposing aircraft through the infrared emissions generated by the heat of their engines. Now, environmental activists and the EPA are using hand-held infrared cameras to detect methane and VOC emissions from oil and gas facilities.
Just a few weeks ago, the Chesapeake Bay Foundation released infrared video that it took in the Spring of 2011 while monitoring 15 drilling rigs engaged in hydraulic fracking operations. It claims that the videos show methane leaking from 11 of the 15 sites. Obviously, it is never good to discover potential compliance issues by reading the news.
Are you ready?
Federal regulation of upstream oil and gas operations will dramatically change the regulatory landscape in several respects. Operational details previously hammered out at the state level as part of the well permitting process may soon require concurrence, or even permitting, from federal regulators.
A major incident in one state could result in a nationwide drilling or production moratorium similar to the deepwater drilling moratorium imposed after the Macondo blowout. And the threat of criminal investigation and prosecution is generally higher when federal regulators are involved.
Although it is difficult to assess compliance risks before the studies and new regulations are final, one thing is clear. If federal regulators are involved, then the effectiveness of your compliance program will become an issue at some point.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
