Final Rule Addresses Oil & Gas Source Aggregation



On June 3, 2016, EPA published a final rule updating federal permitting regulations for stationary sources in the oil and natural gas industry.  Specifically, the final rule clarifies the meaning of the term adjacent for the Prevention of Significant Deterioration (PSD) and Nonattainment New Source Review (NNSR) permitting programs and the definition of major source under the Title V operating permit program.  EPA noted that the final rules were intended to "provide clearer guidance to permitting authorities as well as industry and increase consistency in determinations during the permitting process."

In the proposed rule, EPA considered two options:  one based exclusively on distance and one based on both distance and relationship.  The final rule incorporates certain aspects of each option.  In the final rule, separate sources will be aggregated as a single source for permitting considerations if they:

  1. Are located within 1/4 mile of one another; and
  2. Share equipment.

It is important to note that these revised definitions are limited to activities classified under Standard Industrial Classification (SIC) Major Group 13 and that the activities must also be under control of the same person (or persons under common control).

Clarifications on the Definitions

EPA has stated that the 1/4 mile distance is measured from the center of the equipment of the surface site.  For the definition of surface site, EPA referenced the definition in 40 CFR 63 Subpart HH.  Examples provided by EPA of shared equipment include, but are not limited to, produced fluids storage tanks, phase separators, natural gas dehydrators, and emission control devices.  EPA stated in the preamble to the rule that two well sites that feed to a common pipeline would not be considered to be part of the same stationary source, provided they do not share equipment (e.g., control devices and tanks).

In the response to comments published in the preamble, EPA highlighted the fact that other factors (e.g., location of underground assets, restrictions on well spacing, lease agreements, etc.) are more likely to affect siting decisions compared to a desire to avoid major source permitting.  Furthermore, EPA clarified that the intent of the rule was to avoid "daisy chaining" multiple sources together over a large distance, which can introduce unintended complications.  Similarly, EPA avoided finalizing a "functional interrelatedness" aspect to the final rule outside the distance criteria to reduce the burden on permitting authorities.

Implementation Questions

In the final rule, EPA noted that state and local agencies are not required to implement the revised definitions.  For delegated states, the rule becomes effective upon publication.  For those states with EPA-approved State Implementation Plans (SIPs), the state can choose whether to incorporate the new definition in its next SIP revision.  This allows states to maintain existing stationary source determination criteria they have used historically or to adopt provisions more stringent than EPA's final definition.  Finally, EPA clarified that the revised definition applies prospectively and revisiting historical source determinations is not required as part of this rulemaking.

In conclusion, the impact of this change on operators will vary from state to state, depending on each state's SIP.  Stay tuned, as this will be an evolving issue for many months and years to come.