Recent Air Regulatory Changes in Colorado Affecting the

Oil & Gas IndustryBy

John R. Jacus, Esq.Davis Graham & Stubbs LLP

Presented to the Natural Resources & Energy Section of the Colorado Bar Association

June 11, 2004

Scope of Presentation

• Ozone Controls in the Denver Deferred Non-Attainment Area

• Colorado and Region 8 Information Gathering Regarding Oil & Gas Facilities

• Region 8 Energy Strategy• Brief “Heads Up,” Regarding:

– Coming BART requirements under Regional Haze Rule

– Final Non-Road Diesel Rule– Environmental Defense, et al. V. Norton

Ozone Controls in Colorado• Denver area made progress under old 1-hour

ozone standard (NAAQS), moving from non-attainment to attainment

• In 1997, EPA changed how it measures ground-level ozone, and promulgated the current 8-hour standard of .080 ppm

• Biogenic and upwind sources of ozone contribute 55-65 ppb of the ozone measured by regional monitors

Early Action Compact

• Colorado and air agencies signed compact with EPA in 2002

• Defers the negative consequences of possible non-attainment designation by EPA, provided specific controls are implemented according to a fixed timetable to reach attainment in 2007

Ozone Controls in Colorado• Basic Regulation No. 3 Permit Framework

changed December 30, 2002• Previously APEN-exempt condensate storage

tanks below 40,000 gal. capacity became regulated, to control flash emissions of VOCs - an ozone precursor

• Only tanks with less than 730 BBL/year throughout remain APEN-exempt

Ozone Control Plan Developed• Based on EPA-required air modeling, prepared

for CDPHE and the RAQC by Environ• Confirmed a number of things about ozone

formation in Denver:– Area is NOx limited, i.e., NOx reductions will

contribute to O3 formation in urban core

– Key to meeting standard is improvement at the Rocky Flats monitor

Ozone Control Plan

• Modeling very rushed, results delayed even during rulemaking

• APCD proposed plan relies heavily on VOC controls on gas industry in the ozone control area for its:– engines– condensate tanks and– gas processing plants

Expanded Ozone Control Area• In light of 8-hour ozone monitoring data, EPA

and Colorado both proposed an expanded ozone control area, beyond boundaries of prior Denver air quality control region and former 1-hour ozone non-attainment area

• Control area includes parts of Rocky Mountain National Park, Weld and Larimer counties to the North

Ozone Control/Deferred Non-Attainment Area

Specific Ozone Controls Adopted in Regulation Number 7• Engine controls• Condensate tank controls• Dehydrator controls• Gas processing plant controls

Engine Controls

• Natural gas fired reciprocating internal combustion engines (RICE units)

• Over 500 hp• Required to implement catalytic controls for VOCs• Lean-burn RICE units subject to exemption if

control costs exceed $5000/ton of VOCs• Related requirement: EPA’s Federal RICE MACT• Only existing 4SRB engines required to add

catalytic controls - new rich and lean burn engines will have to control for formaldehyde

Condensate Tank Controls

• Controls atmospheric pressure condensate tanks upstream of gas processing plants for which APENs are required under Regulation No. 3 (> 730 BBL/year production)

Condensate Tank Controls

• Requires an enclosed, smokeless flare with 95% destruction efficiency, or comparable device, on some, not all, tanks to achieve 37.5% VOC reductions in 2005, and 47.5% reductions in 2006

Condensate Tank Controls

• Reductions are reported by April 30, 2006, and April 30, 2007, and are measured against “uncontrolled actual emissions”

• Pollution prevention to achieve reductions is allowed, encouraged

Gas Plant Controls

• Requires compliance with New Source Performance Standard at 40 CFR Part 63, Subpart KKK in ozone control area

• Leak detection and repair (LDAR) provisions applicable to both existing and new gas plants in control area

Dehydrator Controls

• 90% efficient control on any still vent or vent from any GCG separator at E&P sites, compressor stations, drip stations or processing plants in control area

• Allows for various combustion devices or more efficient condenser controls on dehys in control area

Some Practical Pointers on Ozone Controls• When to file an APEN?• How to track reductions?• Site specific testing vs. Colorado’s emissions

factor for E&P condensate storage tanks• H.B. 1435 - Local government notice of control

installation• Lean-burn engine costs of control - get started

now

Colorado & Region 8 Information Gathering re: Oil & Gas Facilities• Letters sent in January by CDPHE, EPA, Utah,

Wyoming and Montana to larger operators• Very broad request, seeking much information

in regulatory files already, and in specific electronic formats

• Appears aimed at source aggregation of oil & gas facilities separately permitted to date

Source Aggregation Counter-Arguments• Only possible when sources are in same

industrial grouping, are contagious and adjacent, and under common control

• EPA’s “support facility” analysis ignores one or more of these conjunctive requirements

Source Aggregation Counter-Arguments (cont.)• “Adjacent” and “contiguous” are common

sense terms• States with primacy under CAA to decide issue• Distances between separate lease and tract

facilities renders them non-adjacent

Business Confidentiality of Responses to Statutory Information Requests• C.R.S. § 25-11-7-111(4) says APCD “shall

assure” the confidentiality of trade secret information gathered, just as under federal and state law

• Potential problems, burdens on respondents highlighted in CF&I Steel v. APCD, case,

EPA Region 8’s Energy Strategy

Goal 2: Meet Federal Requirements, Maintain or Improve Environment for Energy Projects– Activity 2: Air– Activity 5: Enforcement

BART Requirements of the Regional Haze Rule• Best available retrofit technology• For sources with > 250 tpy of visibility -

impairing pollution and in one of 26 categories - not including E&P facilities

• Built between ’62 and ’77• States to conduct BART determinations• Rule to go final April 15, 2005• GCYTC annex approved by EPA

PM Standards Reveiw

• CASAC review of EPA staff paper• Denver and all of Colorado well below existing

standards• Denver barely below possible lowered

standard• Not just an urban issue• Final staff paper due out in September• Proposed rule changes due out by March 31,

2005

Non-Road Diesel Rule

• Reduces sulfur in fuel to allow for better engine controls

• Will affect new and existing diesel engines in service over period of years out to 2030

• Convergence of Ozone, PM and Regional Haze rules could be greatly complicated by regional litigation

Regional Litigation – Environmental Defense v. Norton (D. Mt.)• Based on air impacts of CBM development in

Wyoming and Montana• Has very broad implications for energy

industry

Conclusion – Questions and Answers

• To obtain PowerPoint slides via email: Contact John Jacus at john.jacus@dgslaw.com