ANADARKO FREDERICK COMPRESSOR STATION: SOURCE DETERMINATIONS FOR THE OIL AND NATURAL GAS INDUSTRY
| Jurisdiction | United States |
Ryan Whaley Coldiron Shandy, PLLC
Oklahoma City, Oklahoma
Ivan London
Bryan Cave
Denver, Colorado
Shyla Blackketter Dwyer
Chesapeake Energy, Inc.
Oklahoma City, Oklahoma
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I. Introduction
On February 21, 2012, the Tenth Circuit Court of Appeals dismissed an appeal involving Anadarko Petroleum Corporation's (Anadarko) Frederick Natural Gas Compressor Station (the Frederick Compressor Station).1 The appeal challenged a February 2, 2011 ruling by the United States Environmental Protection Agency (EPA) refusing to object to the issuance of a Title V permit renewal issued to Anadarko.2 With the dismissal of the appeal, the Colorado Department of Protection of Health and Environment's (CDPHE) decision to issue the Title V renewal has finally been upheld. The Frederick Compressor Station is located northeast of the Denver metropolitan area. It utilizes three internal combustion
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engines to power units that compress natural gas produced from the Wattenberg natural gas field (the Wattenberg Field) for transmission to sales pipelines.3 EPA's 2011 ruling is the latest in a series of source determinations regarding aggregation of individual oil and natural gas operations, and likely will have a significant impact on the scope and applicability of Prevention of Significant Deterioration (PSD) and Title V review for oil and natural gas activities under the Clean Air Act (the Act).
This paper explores the significance of EPA's Frederick Compressor Station decision in the context of growing discord among regulators and the regulated community regarding whether to aggregate air emissions from individual oil and natural gas emissions units. In the context of permitting emissions from such activities, a strict reading of the statutory and regulatory text mandates that regulators treat individual units which share the same industrial classification and are under common control as a single stationary source only when they are located on properties "contiguous or adjacent" to one another, i.e., touching or immediately nearby. Miles of pipeline often separate oil and natural gas units, and the individual operations often create a patchwork footprint of property interests covering many square miles. Frequently, several different entities own the oil and natural gas units in a single field, but collectively the units work in concert to provide processed hydrocarbons for delivery to market. Out of necessity, companies connect oil and natural gas operations to one another via pipeline; indeed, an intricate network of pipelines ultimately connects the entire country. Regulators seemingly cannot agree whether these "connections" should require them to treat separate and distant compressor stations, wells, and other pollutant-emitting activities as single "plants" for air permitting purposes.
This paper will show how regulators' divergence from the text and spirit of their own regulations has resulted in an ongoing air permitting debate that often defies common sense. While regulators historically permit the various pollutant-emitting oil and natural gas activities separately, regulators have recently strained the text of the regulations implementing the Act to find ways to require aggregation. Indeed, this is often the only mechanism for subjecting these sources to major source review. Specifically, regulators have incorrectly and impermissibly read an "interdependence" criterion into a strictly geographic inquiry to determine that oil and natural gas operations that are separated by many miles are nevertheless located "adjacent" to one another because they depend upon each other. After determining that the separate and distant oil and natural gas units are "adjacent," regulators can permit them as a single stationary source. This paper posits that adherence to the regulatory text which has purportedly guided air permitting for thirty years will result in
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more pragmatic, predictable, and defensible permitting procedures and decisions for the oil and natural gas industry.
Part II of this paper sets out the statutory framework of the Act and traces EPA's inconsistent application of the Act and its regulations when making source determinations for oil and natural gas operations. Part III discusses the facts, issues, and results surrounding Anadarko's attempts to renew its Title V permit for the Frederick Compressor Station and the ensuing challenges, which focused on whether CDPHE should treat the Frederick Compressor Station and the Anadarko-owned wells that feed it collectively as a single stationary source. Part IV analyzes the methodologies used by CDPHE and EPA in their decision to permit the Frederick Compressor Station individually as a single source. This paper concludes with Parts V and VI, which analyze the potential impact of EPA's recent ruling on future source determinations for oil and natural gas operations.
II. The Clean Air Act: Statutory Framework and Source Determinations
A. Statutory Framework
Congress enacted the Clean Air Act in 1963 to "protect and enhance the quality of the Nation's air resources so as to promote the public health and welfare and the productive capacity of its population."4 Congress created in the Act a scheme of "cooperative federalism," whereby state and local governments bear the primary onus of enforcement, but they conduct their regulatory efforts under federal financial assistance and leadership for the development of cooperative federal, state, tribal, regional, and local programs to prevent and control air pollution.5
The Act separates sources into major sources and other, non-major sources for permitting purposes, and certain programs apply only to "major stationary sources" or "major sources." For example, under the Act's PSD requirements, a company cannot construct or significantly modify a "major stationary source" until it obtains a permit prescribing emission limitations.6 Similarly, Title V of the Act requires "major sources" of pollutants to obtain operating permits that have been reviewed by the public and approved by EPA.7 Each Title V permit must include
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enforceable emission limitations, a schedule of compliance, monitoring requirements, and other conditions.
An emission unit's status as a major or non-major source is based upon its potential emissions. For example, in the PSD program, Congress defined "major stationary source" as a "stationary source" that emits or has the potential to emit a certain quantity of pollutants.8 In turn, EPA defined a "stationary source" as any building, structure, facility, or installation that emits or may emit a regulated pollutant.9 Many oil and natural gas operations, such as compressor stations and wells, do not individually emit pollutants at a level sufficient to qualify as "major sources," and regulators historically have not treated these individual units as major sources. This does not mean that regulators ignore oil and natural gas operations. On the contrary, while non-major sources of air emissions are not subject to some of the Act's more rigorous requirements, they are nevertheless subject to federal and state performance standards. If regulators aggregate emissions from individual oil and natural gas operations, however, the separate emissions units might collectively surpass the emission thresholds and become "major sources."
For regulators to treat multiple individual oil and natural gas units as a single source, they must first determine that these operations collectively fall within the regulatory definition of a "building, structure, facility, or installation." Accordingly, regulators can only aggregate individual pollutant-emitting sources if these separate emissions sources: (1) belong to the same industrial grouping, (2) are located on one or more contiguous or adjacent properties, and (3) are under the control of the same person.10 Under these definitions, regulators must conclude that separate oil and natural gas units meet all three factors before they can aggregate the
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emissions from those units to determine whether they collectively surpass the "major source" threshold.
Regulators often face the seemingly difficult question of whether these three regulatory factors require aggregation of noncontiguous oil and natural gas units. When determining whether to aggregate various pollutant-emitting activities for air permitting purposes, EPA requires a case-by-case analysis considering the foundational concepts of the Act and the specific facts presented.11 However, federal case law and EPA's regulations set specific boundaries on this analysis.12
First, regulators must determine that the separate emissions units each fall within the same Standard Industrial Classification (SIC) code.13 In 1980, EPA adopted the use of SIC codes for the aggregation analysis in lieu of a more complicated analysis of the functional interrelationships between different operations.14 According to EPA, "any assessment of functional interrelationships would be highly subjective" and "any attempt to assess those interrelationships would have embroiled the Agency in numerous, fine-grained analysis."15 EPA stated that SIC codes are "narrow enough to separate sets of activities into common sense groupings" yet "broad enough to minimize the likelihood of artificially dividing a set of activities that does constitute a plant."16 Typically, oil and natural gas development activities, including geological and geophysical exploration for petroleum deposits, drilling oil and natural gas wells, and separating natural gas liquids from crude oil, fall into SIC Major Group 13 (e...
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