USEPA Finalizes New Methane Regulations

The USEPA (herein “EPA”) published its methane regulations in the Federal Register on March 8. There is concern that the new oil and gas methane emission regulations will jeopardize the continued existence of marginal wells which have minimum production. A large part of Illinois is comprised of marginal wells.

The new regulations will impose strict new standards on releases of methane by the industry including emissions from existing sources. Once the rule takes effect, the regulations will ban flaring of natural gas that is produced by new wells, require companies to monitor for leaks from well sites and compressor stations, and implement reductions to emissions from high emitting equipment like controllers, pumps, and storage tanks.

It is estimated that the new regulations will lead to the shut down of 300,000 of the nation’s 750,000 low production wells.

The new EPA regulation creates a 40 CFR Part 60, Subparts OOOO(b) and OOOO(c). New Subpart OOOO(b) applies to oil and gas facilities that were constructed, reconstructed, or modified after December 6, 2022, and requirements under this subpart became effective on May 7, 2024. Subpart OOOO(b) is enforced directly by the EPA.

New Subpart OOOO(c) contains “presumptive standards” that states must implement to govern oil and gas facilities constructed on or before December 6, 2022. These subparts impose monitoring requirements and restrictions concerning associated gas from oil and gas wells. In March of 2024, states were to begin a 24-month planning process for the subpart requirements. In 2026, the states are to submit the subpart implementation plans and begin a three-year period for compliance with the plans. In 2029 the oil and gas industry must comply with the subpart requirements.

Subparts OOOO(b) and OOOO(c)mandate fugitive emissions monitoring requirements for different types of well sites. For Single Wellhead Only Well Sites and Small Well Sites, quarterly Audio, Visual and Olfactory (AVO) monitoring requirements are required and for Multi Wellhead Only Well Sites (two or more wellheads), AVO monitoring requirements are required as well as monitoring and repair mandates based on more expensive semi-annual optical gas imaging. Also imposed are bi-monthly AVO monitoring requirements together with monitoring and repair mandates for “Well Sites With Major Production and Processing Equipment and Centralized Production Facilities” subject to OOOO(b) and “Well Sites and Centralized Production Facilities” subject to OOOO(c). The regulations rely on several aspects of the equipment associated with a well site to determine whether or not it is small or major.

The new regulation imposes restrictions concerning associated gas and requires that well owners and operators either (1) route associated gas to a sales line, use it for other useful purposes, or recover and reinject into a well; or (2) route the gas to a flare that achieves at least a 95% reduction in methane and volatile organic compound emissions.

Litigation has been commenced in the United States Court of Appeals for the District of Columbia Circuit in Case No 24-1101. In the case, the Michigan Oil and Gas Association and Miller Energy Company II, LLC, are petitioners and the EPA together with Michael S. Regan, Administrator, and others are respondents. A motion has been filed in the proceedings to stay the enforcement of the regulations.

Other cases have also been commenced challenging the proposed regulation. One case is the Independent Petroleum Association of America together with various state oil and gas associations, including the Illinois Oil and Gas Association, which case is versus the EPA and others. This case is No. 24-1103. The lead case among the cases that have been filed is the State of Texas et al vs EPA Etal being Case No. 24-1054. Case Nos. 24-1101 and 1103 have been consolidated with Case No. 24-1054. All of the cases are pending in the United States Court of Appeals, District of Columbia Circuit. The following comments pertain to the arguments presented in Case Nos. 24-1101 ad 1103.

In support of the stay, the petitioners contend that the EPA regulations are constrained by the Clean Air Act pursuant to the Act’s plain language and by rule making standards. On promulgating standards of performance, the EPA must take into account the cost of achieving any emission reduction and the non-air quality, health and environmental impact, and energy requirements. The EPA must determine that such standards have been adequately demonstrated.

The petitioners contend that the standards of performance provisions prevent the EPA from mandating measures that impose exorbitant, unreasonable, or excessive costs. Furthermore, the EPA cannot cause expense greater than the industry could bear and survive. The methods promulgated must be reasonably reliable, reasonably efficient, and reasonably expected to serve the interests of pollution control without becoming exorbitantly costly in an economic or environmental way. The petitioners contend that these standards are not met and that the regulation requirements will impose exorbitant and unreasonable costs on the oil and gas industry.

The motion for stay contends that courts must consider four factors in deciding whether or not to grant the stay. It is asserted that the factors are met and that the petitioners are likely to succeed because: the EPA failed its statutory duties by not adequately accounting for the methane rules impacts on marginal wells; the Clean Air Act requires the EPA to conduct a cost benefit analysis that balance both sides of the equation in setting new source performance standards; petitioners will suffer irreparable harm without a stay in the form of compliance costs that will be immediately imposed; and the stay will substantially injure other interested parties and that the public interest favors a stay.

The motion to stay requests that the regulations be held in abeyance until the petitioners’ petition for review can be considered and acted upon by the court. Oral arguments will be scheduled on the motions to stay with a court decision to follow.

The regulation will have a considerable effect on the Illinois oil and gas industry. Production in Illinois is primarily comprised of marginal wells. The cost involved for regulatory compliance will be expensive and in all likelihood result in the plugging of a large number of wells.