The Impact of the Noble Settlement on EPA s Energy Extraction and Storage Tank Enforcement Initiatives

Transcription

1 The Impact of the Noble Settlement on EPA s Energy Extraction and Storage Tank Enforcement Initiatives Justin A. Savage Hogan Lovells US LLP 3/7/16 Page 1

2 Topics Energy Extraction Initiative Overview Noble Settlement Next Generation Features of the Noble Settlement Where is the Government Headed? Storage Tanks and Beyond Potential Responses to Enforcement Initiatives 3/7/16 Page 2

3 Energy Extraction Initiative Overview 3/7/16 Page 3

4 National Enforcement Initiative Background 3-year cycle Opportunity for public comment Frequently extend into later cycles 3/7/16 Page 4

5 National Enforcement Initiative: Six FY NEIs (Extended from FY ): 1. Reducing air pollution from the largest sources 2. Cutting toxic air pollution 3. Assuring energy extraction and production activities comply with environmental laws 4. Reducing pollution from mineral processing operations 5. Keeping raw sewage and contaminated stormwater out of our Nation s waters 6. Preventing animal waste from contaminating surface and groundwater 3/7/16 Page 5

6 National Enforcement Initiative: EPA Recently sought comment on FY NEIs (80 Fed. Reg. 55,352) Seeks comment on extending all six current NEIs Acknowledges challenges of agency resource constraints For all FY NEIs selected, EPA intends to incorporate Next Generation Compliance approaches 3/7/16 Page 6

7 Energy Extraction Enforcement Initiative 3/7/16 Page 7

8 Energy Extraction Sector Goal/Strategy Initiative Goal: Address incidences of non-compliance from Natural gas extraction and production activities that May cause or contribute to significant harm to Public health and/or the environment. EPA will utilize Next Generation technologies and techniques as appropriate to address non-compliance. Enforcement Strategy: Develop cases to demonstrate link between gas extraction activities and air pollution, drinking water contamination and surface waters. Develop multi-facility cases to require system-wide compliance, good practices. 3/7/16 Page 8

9 Energy Extraction Sector Goal/Strategy Initiative Since: FY NEI cycle Why EEI per EPA? Technological advances (e.g., hydraulic fracturing) Unprecedented development Ambient air quality concerns arising from natural gas development in the West EPA is concerned about similar concerns arising elsewhere Citizens concerns about risk from development 3/7/16 Page 9

10 FY Energy Extraction Enforcement Activities Map of basins and shale plays and EPA energy extraction inspections/evaluations and enforcement actions Source: U.S. EPA 3/7/16 Page 10

11 FY Energy Extraction Enforcement Activities Denver Basin Source: U.S. EPA 3/7/16 Page 11

12 FY Enforcement Actions Source: U.S. EPA 3/7/16 Page 12

13 Settlement in United States and Colorado v. Noble 3/7/16 Page 13

14 Noble Energy, Inc. Settlement April 22, 2015 settlement Total cost: ~$73 million Scope: Colorado s Denver-Julesburg Basin 2382 Tank Systems Allegations arising from: Colorado SIP and State only claims for condensate tank related programs 3/7/16 Page 14

15 Noble Settlement, Cont d Injunctive Relief ($60 million) Sampling and modeling of tank systems vapor control systems Field survey and engineering evaluation of vapor flow rate of each tank system Modify tank systems not meeting design standards Implement a directed inspection and preventative maintenance program Independent third-party auditor to review engineering evaluations Evaluate pressure relief valves, thief hatches, and mountings and gaskets on each condensate storage tank and address any evidence of VOC emissions from those devices Install pressure monitors with continuous data reporting on a cross-section of the tank systems Prepare and publicly post reports on vapor control system engineering evaluations and modifications 3/7/16 Page 15

16 Noble Settlement, Cont d Mitigation Measures ($4.5 million) Develop alternative standard to sample product without opening condensate tank thief hatch and require truckers to implement standard; Drill rig diesel and fracturing equipment diesel engine retrofits to reduce emissions of NOx and/or other ozone precursors; and Gas lawn mower change-out to reduce VOC emissions during the summer ozone season. Supplemental Environmental Projects (SEPs) ($4 million) Wood stove change-out Improve reliability of hydrocarbon liquids sampling and analysis procedures Additional state-approved SEPs Emissions Reductions: ~3720 tons per year Civil Penalty: $4.95 million à $3.475 million to U.S. and $1.475 million to CO 3/7/16 Page 16

17 Noble Settlement, Cont d Covenant Not to Sue Consent Decree resolves the SIP civil and administrative claims that the United States or the State may have against Noble related to: Alleged SIP violations Failure to achieve system-wide emissions reductions. Control requirements (e.g., failure to achieve control efficiency of 95% from any vapor recovery unit) Recordkeeping and reporting requirements (e.g., violations related to unreported air pollution control equipment downtime) Monitoring requirements (e.g., failure to comply with monitoring requirements in the SIP) Tank System issues (e.g., failure to property design, operate or maintain a Tank System) 3/7/16 Page 17

18 Next Generation Features and Implications of the Noble Settlement 3/7/16 Page 18

19 Noble Settlement Next Generation Features and Implications Shifts burden to regulated entities Information-gathering Modeling Protocol development Remote monitoring Independent third-party verification Centralized continuous controls Posting of data and information for public viewing 3/7/16 Page 19

20 Information gathering burden shifted to regulated entity Regions and OECA are aggressively using information requests Single and multiple facility requests Directed to array of owners: Vertically integrated companies Focus on largest owners or operators Midstream companies Small operators 3/7/16 Page 20

21 3/7/16 Page 21

22 Remote monitoring technology will be used to determine performance 3/7/16 Page 22

23 Remote Monitoring Equipment FLIR cameras can detect a flare stack that might not be visible to the naked eye. Regions are equipped with remote emission monitoring technology: FLIR cameras Handhelds Dark plume venting from piping is leakage detected by infrared camera 3/7/16 Page 23

24 Where is the Government Headed? Storage Tanks and Beyond 3/7/16 Page 24

25 The Compliance Alert on NG and Oil Tank Emissions 9/25/15 3/7/16 Page 25

26 Oil & Gas Investigations Increasing The Bakken Blizzard Numerous 114s Information requested Multiple Criminal Investigations Targeting alleged worker endangerment NIOSH FOG 3/7/16 Page 26

27 Examples of types of claims investigated NSPS, especially QuadO NESHAP/MACT NSR/PSD SIP FIP Permit Requirements Section 303 Air Pollution Emergencies Section 112(r) General Duty Clause 3/7/16 Page 27

28 EPA s Emerging Enforcement Issues Tank Battery PTE Other QuadO regulatory history OECA challenging QuadO PTE method of dividing throughput by # of tanks Technical/engineering design analysis of each tank? Methane 3/7/16 Page 28

29 Beyond E&P: Storage Tank Initiative EPA focused on organic liquid storage tanks for the last few years Proposed for formal listing as the National Enforcement Initiative for Organic Liquid Storage Tanks (80 Fed. Reg. 55,352, 9/15/15) 3/7/16 Page 29

30 Storage Tank Initiative: Affected Industries E&P Midstream Petchem Refining Bulk distribution/ terminals 3/7/16 Page 30

31 EPA s Goals for these Initiatives Address Perceived Non- Compliance Drive air quality improvements Set industry standards using consent decrees Targeting sectors Primary pollutant of concern: VOCs Settlement paradigms Focus on ozone non-attainment areas Best Management Practices Promote corporate-wide assessments and corrective actions 3/7/16 Page 31

32 Lessons from Past National Enforcement Initiatives 3/7/16 Page 32

33 Initiatives: Refining vs. Power Plants Refining Coal-fired Power Plants No cases litigated Many cases litigated 32 consent decrees Decrees covered 90%+ of U.S. refining capacity Roughly same number of settlements but many more companies in the sector Some settlements followed 10+ years of litigation Several cases never filed 3/7/16 Page 33

34 Key Difference from Prior Initiatives Visuals first, legal theory later 3/7/16 Page 34

35 3/7/16 Page 35

36 Potential Responses to Enforcement Initiatives 3/7/16 Page 36

37 Potential Responses to the Enforcement Initiatives Proactive Training Equipment Review of settlement precedents in the industry Internal audit Reactive Inspection/evaluation/search 114 information request or subpoena Notice of Violation Case filed 3/7/16 Page 37

38 Example of Litigation Issues Do infrared images or other unconventional monitoring demonstrate a violation of an emission standard? SIP-approved compliance techniques/reference methods The Any Credible Evidence Rule (ACE) Any violations of healthbased standards? SILs OSHA NIOSH Other Fair Notice of EPA s position? 3/7/16 Page 38

39 Litigation Issues: Admissibility of infrared images Operator training Lack of concentration measurements Calibration Weather Daubert foundation 3/7/16 Page 39

40 Is an infrared image conclusive proof of a violation or risk to public health? 3/7/16 Page 40

41 Thank you! Justin Savage, Partner Hogan Lovells US LLP Washington, DC 202/ Hogan Lovells has offices in: Alicante Amsterdam Baltimore Beijing Berlin Brussels Budapest* Caracas Colorado Springs Denver Dubai Dusseldorf Frankfurt Hamburg Hanoi Ho Chi Minh City Hong Kong Houston Jakarta* Jeddah* London Los Angeles Madrid Miami Milan Moscow Munich New York Northern Virginia Paris Philadelphia Prague Riyadh* Rome San Francisco Shanghai Silicon Valley Singapore Tokyo Ulaanbaatar Warsaw Washington DC Zagreb* 3/7/16 Page 41