Shale Law Weekly Review - January 23, 2017

The following information is an update of recent, local, state, national, and international legal developments relevant to shale gas.

Commonwealth Court Limits Pollution Fines for Continuing Violations  

On January 11, 2017, the Commonwealth Court of Pennsylvania held that the Clean Streams Law does not allowed continuing penalties for pollution remaining in waterways (EQT Production Company v. DEP).  Following a spill at one of EQT’s natural gas wells, the Department of Environmental Protection (DEP) issued fines against EQT under the Clean Streams Law. The DEP calculated the fines by interpreting the Clean Streams Law to authorize penalties for each day the pollution lingered in Pennsylvania waters. EQT challenged the penalties, arguing that the Clean Streams Law only authorized penalties for the initial waste violation.

Federal Court Denies Preliminary Injunction Against BLM Venting and Flaring Rule

On January 16, 2017, the United States District Court for the District of Wyoming denied Western Energy Alliance, Wyoming, and Montana’s motion for preliminary injunction (Wyoming v. United States DOI, No. 2:16-CV-0285-SWS). Through the preliminary injunction, the petitioners sought to enjoin the Bureau of Land Management’s final rule regarding the reduction of waste from natural gas venting, flaring, and leaks (Waste Prevention, Production Subject to Royalties, and Resource Conservation). The court held that the petitioners did not establish that “their right to relief is clear and unequivocal.”

BLM Releases Final Rule for Oil Shale Regulations

On January 10, 2017, the Bureau of Land Management released the final rule amending the Federal oil shale management regulations. The 2008 royalty system required increased royalty payments over a period of twelve years. The rule changes the 2008 system by allowing the Secretary of the Interior to decide whether a higher royalty would be appropriate in the first five years of production. In addition, the new rule establishes five and 12.5 percent as the minimum royalty payment for production years one and thirteen. The final rule also allows the Secretary to deny a plan of development based on impacts to the environment or natural resources.  

PHMSA Issues Final Rule to Improve Pipeline Safety

On January 19, 2017, the Pipeline and Hazardous Materials Safety Administration issued a final rule called “Operator Qualification, Cost Recovery, Accident and Incident Notification, and Other Pipeline Safety Changes.” Among several changes, the rule will require a specific time frame for notification of natural gas accidents or emergency events. The changes will also require a report to PHMSA when pipeline operators change a product “from liquid to gas, from crude oil to highly volatile liquids (HVL) or a permanent reversal of flow that lasts more than 30 days.” The rule will become effective March 24, 2017.

BLM Ends Comment Period for Oil and Gas Development in San Rafael Desert

On January 21, 2017, the Bureau of Land Management (BLM) closed the comment period for the preliminary alternatives for the San Rafael Desert Master Leasing Plan (MLP). The MLP for the San Rafael Desert covers 525,000 acres of land in Utah. The plan is intended to “provide a roadmap for the orderly development of oil and gas resources in the planning area, while also protecting important conservation areas...”  All documents relevant to the San Rafael Desert MLP can be found here.

DOT Requests Comment on Use of Fusion Centers to Collect Hazardous Train Data

On January 19, 2017, the Department of Transportation published a notice of proposed rulemaking in the federal register requesting comment for certain provisions of the Fixing America’s Surface Transportation Act (FAST) of 2015. The FAST Act requires railroads transporting hazardous materials to report “accurate, real-time, and electronic train consist information,” in an effort to provide first responders with information they need to deal with emergencies. The request by the Pipeline and Hazardous Materials Safety Administration specifically asks for comments and information on costs and benefits related to use of fusion centers to collect and disseminate train information during an emergency.

PHMSA Will Consider Whether There Should Be A Vapor Pressure Threshold

On January 10, 2017, the Secretary of Transportation signed an Advance Notice of Proposed Rulemaking which invites consideration of whether a vapor pressure threshold should be established for unrefined petroleum products during transportation. The Pipeline and Hazardous Materials Safety Administration (PHMSA) is requesting comment from interested stakeholders in government, industry, and the public to determine potential safety benefits and costs. PHMSA is considering this vapor pressure limit revision to the Hazardous Materials Regulations after receiving a petition for rulemaking from the Attorney General of New York.

University of Chicago Publishes Study on Effects of Hydraulic Fracturing on Communities

On December 22, 2016, the Energy Policy Institute at the University of Chicago published a paper called “The Local Economic and Welfare Consequences of Hydraulic Fracturing.” The purpose of the paper was to study the impact of hydraulic fracturing and to develop a measure of community welfare. The study found that “counties with high fracing potential produce roughly an additional $400 million of oil and natural gas annually three years after the discovery of successful fracing techniques…” These counties generally see an increase in salaries, total income, and employment. However, these counties also experience “significant estimates of higher violent crime rates, despite a 20 percent increase in public safety expenditures.”

Cracker Plant Receives Approval to Discharge Wastewater into Ohio River

On January 5, 2017, the Ohio Environmental Protection Agency (Ohio EPA) issued a news release regarding the issuance of permits for the proposed Belmont County Cracker plant. The Ohio EPA approved two permits and the applicant, PTTGC America LLC will be permitted to select which option to develop. One permit allows for the discharge of wastewater into the Ohio River and Big Run. the other permit allows for the discharge of wastewater into the Ohio River and Lockwood Run.

Lawsuit Challenges Montana Hydraulic Fracturing Chemical Disclosure Rules

On January 13, 2017, several landowners and environmental groups filed suit against the Montana Board of Oil and Gas Conservation (Montana Environmental Information Center, et al. v. Montana Board of Oil and Gas Conservation). The suit challenges a rule that allows energy companies to conceal chemicals used during the hydraulic fracturing process if the company considers the chemical to be a trade secret. The lawsuit states that without full disclosure, landowners cannot “effectively determine the baseline quality of water sources on their land - critically undermining their ability to establish the source of any subsequent contamination…”

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Ohio EPA grants water permit for ethane cracker on Ohio River - ClevelandScene

“Study: Pipelines Needed to Keep Lights On” - TheIntelligencer

District Court of Wyoming denies injunction to BLM flaring and venting rule - NGI

Mass. board rescinds natural gas pipeline approval - TheStream

Energy Transfer Partners asks court to bar environmental impact study for Dakota Access - Reuters

“For Shale Drillers, Rising Oil Prices Also Come with Rising Costs” - WSJ

Ethane Cracker plant approved for Potter Township, PA - PowerSource

Shale oil will continue to grow and OPEC’s oil cuts will provide stability - CNBC

Army to prepare environmental impact statement for Dakota Access; ETP aims to block study - NOLA

“Northeastern Pa. counties align to fight royalty abuses” - StateImpact

PHMSA Issues Rule to Improve Pipeline Operations Safety - UG_Center

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Check out this week’s Shale Law in the Spotlight: President Obama Issues Ban on Oil and Gas Drilling in the Arctic and Atlantic Oceans

Stay informed with our monthly Agricultural Law Brief located here.

Written by Jacqueline Schweichler - Education Programs Coordinator

Shale Law in the Spotlight: BLM Releases Final Rule on Waste Prevention, Production Subject to Royalties, and Resource Conservation

The loss of natural gas through flaring, venting and leaks is an issue that has received increased attention in recent years. On Federal and Indian lands alone, the Bureau of Land Management (BLM) has determined that 375 billion cubic feet of natural gas was lost in this manner in the period 2009-2014. One environmental organization, the Environmental Defense Fund, calculated the value of lost gas to be approximately $330 million annually in a 2015 analysis.

Understanding that it is a matter of particular importance, and as part of the Obama Administration’s Climate Action Plan to further tackle U.S. methane emissions, the Bureau of Land Management released in February 2016 proposed regulations requiring operators to reduce the waste of natural gas lost to flaring, venting or leaks on Federal and Indian lands. BLM stated that “these proposed regulations would replace Notice to Lessees and Operators of Onshore Federal and Indian Oil and Gas Leases (NTL-4A), Royalty or Compensation for Oil and Gas Lost, which addresses venting, flaring, and royalty-free use of gas.”

On November 18, 2016, BLM published in the Federal Register its Final Rule on Waste Prevention, Production subject to Royalties, and Resource Conservation applicable to onshore oil and gas leases. The effective date of the final rule is January 17, 2017. One of the main objectives of the new legislation is to update the current “outdated” regulations codified at 43 CFR Part 3160 to take into account new technologies that could boost the country’s energy efficiency. Furthermore, the rule sets out new royalty rates in order to ensure competitive leasing processes.

First, the BLM rule prohibits oil and gas operators from venting natural gas on Federal and Indian Lands except for technical infeasibility or in cases of emergency. The rule imposes upon operators the obligation to minimize natural gas flaring by using a capture-target approach. For this purpose, BLM requires operators to capture 85 percent of their adjusted total gas volume by 2020, which percentage will keep increasing over time until it reaches 98 percent in 2026. In addition, the final rule establishes new requirements related to certain types of work equipment addressing gas losses from pneumatic controllers and pumps, storage vessels, liquids unloading, and well drilling and completions.

The rule also provides for monthly flaring exemptions for at least 5,400 Mcf of gas per well, which amount should be lowered each year. According to BLM, “once fully implemented, the capture targets will reduce flaring by up to 49 percent relative to 2015 levels.” Moreover, operators will be allowed some flexibility for calculating these targets on a lease-by-lease basis or an average basis over all of their oil production on Federal or Indian lands.  BLM also will permit operators to adjust their targets in cases where they would be disadvantaged in terms of related-costs. Additionally, BLM requires operators to submit a Waste Minimization Plan each time they apply for a permit to drill new oil and gas wells.

Second, BLM stated that “leaks are the second largest source of vented gas from Federal and Indian leases, accounting for about 4 Bcf of the natural gas lost in 2014,” and thus requires operators to use an instrument-based approach for leak detection. In other words, BLM encourages operators to use new technologies for the detection of leakage accidents, such as optical gas imaging equipment. Additionally, the final rule also imposes an obligation upon operators to conduct semi-annual inspections at well sites as well as quarterly inspections at compressor stations, and to keep records of these inspections and their follow-ups.

Third and lastly, BLM determined the existing royalty rates applicable to onshore oil and gas leases to be aligned with the royalty rate of 12.5% allowed under the Mineral Leasing Act, thereby reaffirming BLM’s statutory authority to increase the royalty rate for oil and gas production on onshore Federal and Indian lands. Finally, BLM clarifies the NTL-4A requirements governing the royalty or compensation for oil and gas lost and distinguishes more specifically between “unavoidable” loss, which is royalty-free, and “avoidable” loss, which is subject to royalties.

Interestingly, the BLM states that “this rule will pose costs ranging from $114-$279 million per year (using a 7 percent discount rate to annualize capital costs) or $110-$275 million per year (using a 3 percent discount rate to annualize capital costs) over the next years 10 years.”

On November 15, 2016, the Western Energy Alliance and the Independent Petroleum Association of America filed a lawsuit against the Interior Department before the U.S. District Court for the District of Wyoming challenging the issuance of the BLM’s final rule, a few days before its publication in the Federal Register. The two entities argued that BLM “places arbitrary limits on flaring, relies on flawed scientific, engineering, and economic assumptions and methodologies to estimate regulatory impacts, improperly relies on EPA air quality rules and the administrative record underlying those rules, which themselves are being litigated, and conflicts with or unlawfully usurps the primary jurisdiction of state and tribal governments.”

New legal developments in this lawsuit are to be expected, stay tuned!

Writing by Chloe Marie – Research Fellow

Wyoming Oil and Gas Conservation Commission Approves New Regulations Addressing Flaring and Venting of Natural Gas

On February 9, 2016, the Wyoming Oil and Gas Conservation Commission (WOGCC) approved new regulations pertaining to flaring and venting associated with natural gas production.  These regulations amend the WOGCC Rules and Regulations Chapter 3, Section 39.

As part of the new regulations, natural gas producers are required to limit the rate of flaring and venting at oil wells. Flaring is authorized up to 60 thousand cubic feet per day and venting of casinghead gas is limited to 20 thousand cubic feet per day. Natural gas producers also are required to report the frequency, duration, and circumstances of well flaring and venting on a monthly basis as well as to submit a compositional analysis of the gas.

According to a media report, “the practice [of flaring and venting] was much more common in eastern Wyoming before last year’s oil bust, which has only deepened amid low oil prices.” Another media report declares that flaring and venting volume in 2015 amounted to 5.8 billion cubic feet compared to 5 billion cubic feet in 2014.

Written by Chloe Marie - Research Fellow

02/16/2016

BLM Proposes New Regulations Addressing Flaring, Venting and Leaking on Federal and Tribal Lands

On January 22, 2016, the Bureau of Land Management (BLM) released its proposed new regulations to “reduce waste of natural gas from venting, flaring, and leaking during oil and natural gas production activities on onshore Federal and Indian leases.”

The proposed regulations have been designed to serve energy and climate policy objectives as well as the public interest by purporting to reduce the detrimental effects of methane emissions on federal and tribal lands.

More precisely, BLM would require the oil and gas industry to use the latest available technologies and equipment to reduce the amount of venting and flaring during production operations. It would also require periodic well inspections to prevent potential and future leakage incidents.

In a press release, the U.S. Secretary of the Interior Sally Jewell declared that it has become necessary to “modernize decades-old standards to reflect existing technologies so that we can cut down on harmful methane emissions and use this captured natural gas to generate power and provide a return to taxpayers, tribes and states for this public resources.”

The public will have 60 days to submit comments on the proposed regulations once it is published in the Federal Register.

Written by Chloe Marie - Research Fellow

01/26/2016