CHAPTER 8 THE UPSTREAM OIL AND GAS STORAGE TANK ENFORCEMENT INITIATIVE: NEW DESIGN, MAINTENANCE, AND OPERATIONAL ISSUES

• Jurisdiction: United States

Air Quality Issues Affecting Oil, Gas, and Mining Development and Operations (Feb 2018)
CHAPTER 8
THE UPSTREAM OIL AND GAS STORAGE TANK ENFORCEMENT INITIATIVE: NEW DESIGN, MAINTENANCE, AND OPERATIONAL ISSUES
Chelsea Grossi
Associate Attorney
Davis Graham & Stubbs LLP
Denver, CO ¹
Sarah Bartlett
Sr. EHS Manager
PDC Energy, Inc.
Denver, CO ²
Adam Meyer
Senior Engineer
ZAP Engineering & Construction Services, Inc.
Lakewood, CO ³

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CHELSEA GROSSI is an associate in the environmental group at Davis Graham & Stubbs LLP in Denver, Colorado. She works with oil and gas, mining, aerospace, and manufacturing clients. Chelsea's experience includes representing clients in environmental administrative and civil litigation matters, negotiating settlements with enforcement agencies, and leading clients through privileged environmental audits. Chelsea has experience counseling clients to compliance under the CAA, CERCLA, CWA, among other environmental and safety statutes, including corresponding state statutory counterparts. Chelsea received her J.D. from the University of Denver Sturm College of Law and received a B.A. in Political Science from The Ohio State University, where she graduated with distinction. Chelsea is passionate about serving the Colorado community, and serves on the Young Professionals Council for the Rose Andom Center; an organization that co-locates services for domestic violence survivors.

SARAH BARTLETT is a Sr. EHS Manager at PDC Energy, in Denver. Sarah has spent her career working in various aspects of air quality and environmental compliance in the oil and gas industry, first in a consultant role and then for oil and natural gas exploration and production operators. At PDC, Sarah has been charged with developing and managing air quality compliance and environmental data management programs. She graduated from the Colorado School of Mines with a BS in Chemical Engineering and an MS in Engineering Technology Management. Sarah is currently a co-chair for the Air Quality Subcommittee for the Colorado Oil and Gas Association and serves on the advisory committee for COGA's Energy Generation Leadership Program (EnGen). Sarah was named one of the Denver Business Journal's 2016 Top Women in Energy.

ADAM MEYER is a senior mechanical engineer and analyst with ZAP Engineering and Construction Services based out of Lakewood, CO. He has over 15 years of experience in the design and analysis of fluid, cryogenic, and heat transfer systems. Adam started his career as an engineer with General Dynamics Electric Boat building submarines for the US Navy before migrating south to work as an engineer at NASA's Kennedy Space Center (KSC) on the space shuttle program. There he performed analysis and design for various Ground Support Equipment (GSE) including liquid hydrogen and liquid oxygen systems, hypergolic systems, and gaseous systems. Adam became the Subject Matter Expert in Pressure Vessel / System Certifications - an effort to ensure pressure vessel and pressure system compliance with federal, NASA, state, and industry codes and standards. Adam went to work for Siemens as a mechanical engineer after the end of the shuttle program to design auxiliary systems and equipment supporting gas turbines, before being called back to KSC to join NASA in designing the GSE for the next generation of space flight - the Space Launch System (SLS). Exhausted from the Florida heat, Adam and his wife Natalie moved to Denver in 2014 where Adam began work for ZAP Engineering and Construction Services. Since joining ZAP, Adam has engineered equipment and piping systems for LNG plants, processing plants, material handling plants, midstream compression plants, and well pad facilities. Adam became involved with the analysis of storage tank vapor control systems behind the scenes and has developed modeling guidelines and design standards to reduce emissions at existing sites and new facilities. He has inspected and test over +200 well production facilities and analyzed and re-engineered over +1000 sites in Colorado, Ohio, North Dakota, Utah, and Texas. Adam received his Bachelors of Science in Mechanical Engineering from Pennsylvania State University in 2002 and his Masters of Science in Mechanical Engineering Thermal Fluids Transport from University of Florida in 2010.

I. Introduction

On April 22, 2015, the United States Environmental Protection Agency ("EPA") and the State of Colorado ("Colorado") announced a "first-of-its-kind settlement" with Noble Energy, Inc. for fieldwide violations of Colorado crude oil and condensate storage tank regulations in the Denver-Julesburg Basin and the Denver Front Range Nonattainment Area ("DFR/NAA").⁴ Specifically, EPA and Colorado cited to investigations that "found VOC emissions coming from storage tanks, primarily due to undersized vapor control systems."⁵ Covering more than 3,400 tank batteries (Noble's entire field of controlled condensate storage tanks), the settlement resulted in notable penalty numbers: $4.95M in civil penalties, plus $4.00M in supplemental environmental projects, and $4.50M to fund environmental mitigation projects.⁶ Injunctive relief included an engineering review of the capacity of the tank systems, as well as significant operational, maintenance, and other monitoring requirements.

Later that day, former Assistant Administrator of the Office of Enforcement and Compliance Assurance ("OECA") Cynthia Giles told Law 360 that "[w]e think some of the innovative ideas that are included in this agreement are things that other companies will be interested in. And it's certainly the case that Noble is not the only company, and this basin is not the only basin, that has this issue."⁷ As foreshadowed, following the Noble Consent Decree,⁸ EPA spearheaded additional, similar enforcement in Colorado and North Dakota. Since the Noble Consent Decree, EPA has executed settlements with PDC Energy, Inc. ("PDC Consent Decree") in Colorado and with Slawson Exploration Company, Inc. ("Slawson Consent Decree") in North Dakota. In parallel, both Colorado and North Dakota have pursued state-only enforcement, but with very different strategies (described in further detail).

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This article will discuss:

1. The regulatory requirements at issue in these settlement agreements.

2. The content of settlement agreements addressing storage tanks in the last three years, including the various enforcement approaches taken by the EPA, Colorado, and North Dakota.

3. The engineering design, operational, and maintenance issues associated with storage tanks.

4. The legal and policy issues arising from these enforcement initiatives.

This ongoing enforcement initiative is in constant flux. While this paper is accurate and updated as of the date of the authors' submission, there could be changes to any portion of this document by the time of presentation and beyond.

II. Regulatory Requirements for Operating Condensate Storage Tanks in Colorado and North Dakota

a. The Clean Air Act, State Implementation Plans, and Federal Enforceability

The Clean Air Act ("CAA") imposes a mandatory duty on EPA to identify and list air pollutants found to be emitted by "numerous and diverse" mobile or stationary sources and that "cause or contribute to air pollution which may reasonably be anticipated to endanger public health or welfare."⁹ EPA is required to promulgate a primary and secondary National Ambient Air Quality Standard ("NAAQS") for each air pollutant for which air quality criteria have been issued (i.e., "criteria pollutants").¹⁰ The states are charged with "primary responsibility for assuring" that air quality within the state meets the NAAQS.¹¹

The CAA requires states to adopt and submit to EPA a State Implementation Plan ("SIP") designed to meet this state responsibility.¹² A SIP is required to meet certain statutory criteria, but the states have "wide discretion in formulating [their] plan[s]."¹³ Some basic elements that must be included in a SIP include, for example, enforceable emission limitations and other control techniques, enforcement measures, and a stationary source permitting program. The EPA may disapprove a SIP revision only if "the revision would interfere with any applicable requirement concerning attainment" of the NAAQS "or any other applicable requirement" of the Act.¹⁴ EPA may issue a Federal Implementation Plan ("FIP") if a state fails to submit a SIP, or if

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EPA finds the SIP submittal to be inadequate.¹⁵ If EPA approves the SIP, it is added to the Code of Federal Regulations and becomes federal law.¹⁶ EPA has the power to "overfile" and bring its own civil action to enforce state air quality regulations that are included within the State Implementation Plan.¹⁷ Courts have interpreted EPA's authority to overfile very broadly, and have upheld EPA's right to seek enforcement even where a state has previously, or is simultaneously, enforcing its own regulations.¹⁸

b. Applicable Colorado Regulatory Requirements

i. AQCC Regulation No. 7, § XII (SIP-Approved)

EPA and the State of Colorado have leaned on AQCC Regulation No. 7, § XII.C.1.b. ("'Maximum Extent Practicable' or 'MEP' Standard") for their combined or respective storage tank enforcement actions. The MEP Standard states: "All condensate collection, storage, processing and handling operations, regardless of size, shall be designed, operated and maintained so as to minimize leakage of volatile organic compounds to the atmosphere to the maximum extent practicable."¹⁹ The MEP Standard is part of Colorado's approved SIP,²⁰ meaning EPA has concurrent jurisdiction with the State of Colorado to enforce state, SIP-approved requirements (as discussed immediately above).

Regulation No. 7 does not explicitly define what "designed, operated, and maintained" means in this context; rather, the MEP Standard is a general duty standard, obligating operators to comply, but...