BOARD MEETING DATE: March 5, 2004
AGENDA NO. 34
(Continued from January 9, 2004 Board Meeting)

Adopt Rule 1148.1 – Oil and Gas Production Wells; and Amend Rule 222 – Filing Requirements for Specific Emission Sources Not Requiring a Written Permit Pursuant to Regulation II

SYNOPSIS:

Proposed Rule 1148.1 will implement Control Measure FUG-05 of the 2003 AQMP by reducing VOC emissions from well cellars and wellheads at oil and gas production operations through increased inspection and maintenance, and control of produced gas emissions. Proposed Amended Rule 222 will include well cellars and wellheads at oil and gas production facilities subject to Proposed Rule 1148.1 in the filing program in lieu of conventional permitting. Currently, this equipment is exempt from written permit.

COMMITTEE:

Stationary Source, October 24, 2003, and November 21, 2003, Reviewed

RECOMMENDED ACTION:

Adopt the attached resolution:

1. Certifying the Final Environmental Assessment (EA) for Proposed Rule 1148.1 – Oil and Gas Production Wells, and Proposed Amended Rule 222 – Filing Requirements for Specific Emission Sources Not Requiring a Written Permit Pursuant to Regulation II; and
    
2. Adopting Rule 1148.1 - Oil and Gas Production Wells, and Amending Rule 222 – Filing Requirements for Specific Emission Sources Not Requiring a Written Permit Pursuant to Regulation II.

Barry R. Wallerstein, D.Env.
Executive Officer

Background

Proposed Rule (PR) 1148.1 – Oil and Gas Production Wells, has been developed to reduce VOC emissions from wellheads and well cellars at oil and gas production facilities through an enhanced self-inspection and maintenance program and by controlling produced gas that would have otherwise been vented to the atmosphere. Enhanced self-inspection and maintenance programs have proven successful for reducing emissions in other AQMD rules. The success of self-inspection is that it supplements the existing AQMD compliance program. It is not a substitute for AQMD compliance nor is it intended to replace resources dedicated to the compliance program.

PR 1148.1 will implement Control Measure FUG-05 – Emission Reductions from Fugitive Sources of the 2003 AQMP, which has an emissions reduction target of 2.0 tons per day by the end of 2008. In addition, three other air pollution control districts in California have adopted rules that regulate emissions from well cellars and produced gas operations.

Staff worked closely with representatives from the oil and gas production industry, the California Division of Oil, Gas and Geothermal Resources (DOGGR), and the public. Staff has evaluated reported emissions and planning inventories and evaluated fugitive emissions control equipment and techniques for oil well operations. Based on this evaluation, staff has determined that further VOC emissions reductions are technically feasible and cost effective.

Oil and gas production operations may be located near sensitive receptors. To further minimize exposure of sensitive receptors to emissions, PR 1148.1 includes additional inspection and maintenance requirements for wells located near sensitive receptors.

Currently, oil and gas production wells are not permitted by the AQMD. To establish better emission inventories and compile other pertinent information necessary to implement and enforce the rule, staff is proposing that the oil and gas production well facilities file with the AQMD under Rule 222. Rule 222 is an alternative to permitting for equipment that emits small amounts of air contaminants. The rule establishes a filing program wherein operators of such equipment are required to submit to AQMD a description of the equipment and data for estimating emissions and determining compliance. The filing program under Rule 222 reduces permit and renewal fees for the operator, is less burdensome than the conventional permit process, and also decreases the permitting workload at AQMD.

PR1148.1 was heard by the Board on January 9, 2004. At the hearing representatives from DOGGR and industry expressed concerns about the staff proposal. Based upon this testimony the Board continued the hearing until March 5, 2004 and directed staff to meet with DOGGR and industry to address their concerns. Since the January hearing staff has met with personnel from DOGGR, the oil and gas production industry and the Los Angeles Fire Department and discussed the implementation of the rules in other districts with their staff. Staff has also conducted an additional public consultation meeting to specifically address the issues.

As a result, staff is proposing amendments to PR 1148.1. These amendments are not substantial and do not significantly affect the meaning of the rule noticed for hearing. The amendments focus on minimizing the cost impact of the rule on low producing wells, provide compliance flexibility and clarify staff’s intent. They specifically include a clarification of staff’s intent that drilling and abandonment operations are conducted in a safe manner that minimizes emissions, a clarification that the intent of the rule does not encourage the dismantling of well cellars and that operators may have the option to use an alternate test method that has been approved for use in other districts to determine when fluid must be removed from the well cellar. In addition, an exemption from the produced gas control requirements was added for low production wells that are not located near sensitive receptors. The emission impact is less than AQMD’s CEQA significance threshold. After adoption of the rule staff will continue to work with DOGGR and industry to coordinate implementation of the rule requirements.

PR 1148.1 affects approximately 220 onshore oil and gas facilities that operate 3,588 oil wells. These facilities are primarily located in Los Angeles and Orange counties. Staff has determined the VOC emissions inventory to be 1.21 tons per day from the well cellars and another 0.83 tons per day from produced gas vented to the atmosphere.

During the rulemaking process, staff met eight times with industry representatives. These meetings consisted of a scoping session with industry on April 4, 2003, a Public Workshop on August 26, 2003, two Public Consultation Meetings on September 18, 2003, and December 4, 2003, and an industry working group meeting on October 2, 2003, two meetings with DOGGR and industry after the January hearing and an additional public consultation meeting on February 26, 2004.

• Upon adoption, the operator shall not allow the concentration of the total organic compound (TOC) in the well cellar to exceed 500 ppm.
   

• Effective July 1, 2004, the operator must conduct daily, weekly or monthly audio-visual and TOC measurement inspections depending on the type and location of the oil well; and use a portable container to collect organic liquid anytime a valve is opened at the wellhead; pump out or remove organic liquid accumulated in a well cellar when TOC concentration in the well cellar is greater than 250 ppm, and after maintenance on the oil well, or if the operator chooses not to measure TOC, when the depth of the accumulated organic liquid is more than two inches thick.
   

• Effective July 1, 2006, the operator must collect and control or treat any produced gas that is produced at an oil and gas production facility.
   

• For well oil cellars located within 100 meters of a sensitive receptor, the operator must pump out organic liquid accumulated in a well cellar within 24 hours when the TOC concentration in the well cellar is greater than 250 ppm, or the depth of accumulated organic liquid exceeds two (2) inches. In addition, the operator must repair or take action to prevent liquid leaks and gaseous leaks (from components not subject to Rule 1173) within 24 hours of discovery for TOC concentrations of 250 ppm or greater.
   

• The operator must maintain records of inspection, maintenance, repair and pump outs.
   

• Disallows the removal of well cellars from existing wells and requires all new wells be drilled with a well cellar for the containment of fluids.

PAR 222

The primary objective of PAR 222 is to provide an alternative to permits. The proposed amended rule would require the operator of oil production wells to file with the AQMD and submit information regarding the source. PAR 222 has a compliance date of January 1, 2004, and the operator must comply with the requirements of the proposed amended rule within one year of the compliance date.

Exemptions

Several exemptions are allowed in PR 1148.1. The most important exemptions are: 1) the operator is not required to comply with the pump-out or produced gas requirements during maintenance and repair, drilling and abandonment operations, and 2) well cellars can be used for emergency containment for a limited time provided they comply with the requirements of SCAQMD Rule 1176, and 3) total wells at a facility that produce no more than 200 cubic feet of produced gas or one barrel of oil per day are exempt from the gas control requirements, provided the well is not located near a sensitive receptor. (The cost-effectiveness of controlling such wells ranges from $10,568 per ton to $17,230 per ton.)

Key Issues

Staff has worked diligently with the impacted industry and resolved most of the issues raised during the rule development process. However, there are two remaining issues that industry continues to express concerns about: depth that triggers well cellar pump-out if a facility is located within 100 meters of a sensitive receptor, 1) the measurement of TOC at a distance within three inches above the organic liquid surface in the well cellar, and 2) the fee structure used in PAR 222, which charges a well operator an initial filing and an annual facility filing fee for each group of four wells located at a facility.

In addition, DOGGR expressed a number of concerns in their testimony on January 9. These included that the proposed rule did not adequately address drilling and abandonment operations, that since there was no exemption for low throughput wells that many marginal operators would desert their wells, that to avoid regulatory costs some operators would fill in their well cellars and that emissions from oil production is overstated and that the matter should be further studied before adopting a rule.

Measurement of TOC in the Well Cellar

The industry is requesting that the measurement of the TOC in the well cellar be conducted along the perimeter of the cover over the well cellar instead of within three inches above the organic liquid. Staff has determined that the concentration can vary significantly at different heights above the liquid and that the wind will significantly dilute the TOC concentration at the well cellar cover. In discussions with a major manufacturer of portable organic vapor analyzers, staff was informed that additional probe extensions could be added without compromising the accuracy of the TOC/VOC measurement, which will enable the operator to take measurements just above the oil in the well cellar.

PAR 222 Fees for Oil Wells

Staff has explored other options to determine a fee structure that would be equitable to industry, and at the same time address the cost associated with AQMD staff conducting periodic inspections and quarterly TOC well cellar measurements. Our analysis has determined that a filing fee for a group of up to four oil wells is the best approach that would be equitable and revenue-neutral. The proposed fee per oil well is consistent with the fees assessed by the other air pollution control districts that have specific rules that regulate oil wells.

Drilling and Abandonment Operations

Staff is recommending clarification that drilling and abandonment operations should be handled in the same manner as routine maintenance and well workover. The requirements section of the rule has been modified to ensure that any accumulated material in the well cellar is removed promptly upon completion of the operation and these operations have been added to the routine maintenance that allows their completion in a safe manner that minimizes emissions to the atmosphere.

Low Production Wells

Staff is recommending an exemption from the process gas control requirements for wells at a facility that collectively have demonstrated to produce no more than 200 cubic feet per day of process gas, or one barrel of oil, provided the well is not located near a sensitive receptor. At this level the, control cost-effectiveness ranges from $10,568 to $17,230 per ton of VOC reduced and the foregone emission VOC reductions are estimated to be less than the CEQA significance threshold. Other districts that have rules similar to PR 1148.1 do not have low production well exemptions and did not experience well desertion by marginal operators when their rules went into effect. However, this proposed exemption will allow relief to the most marginal of operators without a significant impact on air quality.

Fill-In of Well Cellars

PR 1148.1 imposes additional inspection requirements for wells not within well cellars. In addition to further minimizing the increased risk of environmental damage from these wells, staff believes the additional inspection requirements would remove any perceived economic incentive to fill in a well cellar. Nevertheless, to more directly clarify staff’s intention, language has been added to prohibit the filling in of any existing well cellar and require well cellars for all new wells.

Further Study

PR 1148.1 implements Control Measure FUG-05 that seeks to reduce fugitive VOC emissions from a variety of different sources including oil and gas production wells, and was included in the 1997/99 AQMP, 2003 AQMP, and was also included in the SIP Settlement Agreement. This measure was due to be adopted by December 31, 2003. Further, other districts have adopted rules for well cellars and produced gas and under the all-feasible measures provision of California Health and Safety Code the AQMD, as an extreme ozone non-attainment area, is required to expeditiously adopt rules for this source category at least as stringent as those of the other districts.

In spite of the regulatory requirements of other agencies, the staff field experience has been that there are instances of accumulation of material in the well cellars and venting of produced gas to the atmosphere. Although it has been argued that the CARB approved emission factor used for estimating the emissions from well cellars is conservative, there has been no emission factor developed that can be approved to supercede it. Staff can commit to continue the effort to update the emission factor. Regardless of the conservatism of the currently approved emission factor, there are emissions from this source category and there are mandates to implement our AQMD control measures, if feasible. Therefore, staff recommends moving forward on the adoption of PR 1148.1.

Emission Reductions and Cost Effectiveness Determination

PR 1148.1 will achieve an overall VOC emission reduction of 1.76 tons per day. Of this amount, 0.97 tons per day of VOC emission reductions will come from the improved maintenance of wellheads and well cellars. Another 0.79 tons per day of VOC emission reductions will be obtained by controlling produced gas that would have otherwise been vented to the atmosphere.

Based on the reduction of emissions from both well cellars and produced gas sources, the overall cost effectiveness of PR 1148.1 is $2,483 per ton of VOC reduced.

AQMP and Legal Mandates

PR 1148.1 will implement Control Measure FUG-05 of the 2003 AQMP. This control measure proposes further VOC emissions reduction from fugitive emission sources, such as refineries, oil and gas production facilities, terminals, chemical plants and manufacturing facilities.

The AQMD, as a non-attainment area, is also required to adopt and implement all feasible measures. Similar rules have been adopted by Santa Barbara County APCD, San Luis Obispo County APCD, and Ventura County APCD. The Implementation of PR 1148.1 will result in emission reductions that are needed to meet federal and state ozone standards.

California Environmental Quality Act (CEQA) Analysis

Pursuant to the California Environmental Quality Act (CEQA) and the AQMD’s Certified Regulatory Program (Rule 110), staff has prepared an Environmental Assessment (EA) for proposed Rule 1148.1 – Oil and Gas Production Wells, and proposed amended Rule 222 – Filing Requirements for Specific Emission Sources Not Requiring a Written Permit Pursuant to Regulation II. The Draft EA, which was made available for a 30-day public review period from November 20, 2003, to December 19, 2003, concluded that proposed Rule 1148.1 and proposed amendments to Rule 222 would not have any significant adverse effect on the environment. The Final EA, which includes responses to comments made on the draft document, is included as part of the attached package for the public hearing on the proposed amendments.

Socioeconomic Analysis

The socioeconomic analysis was conducted to assess the impact of PR 1148.1 and PAR 222. PR 1148.1 will affect 220 oil and gas production facilities in the four-county area. These facilities belong to the sector of crude petroleum and natural gas (Standard Industrial Classification 1311). The total annualized cost of PR 1148.1 and PAR 222 is estimated at $2.080 million.

Implementation and Resources

To facilitate implementation uniformity, the provisions for self-inspection and recordingkeeping are designed to be consistent with current industry practice and requirements under Rule 1173. However, a small number of wells located within 100 meters of a sensitive receptor will require additional resources.

A temporary minor workload increase is expected due to applications submitted to control produced gas. However, no additional AQMD resources are needed for the engineering evaluation of the control equipment. PR 1148.1 will require additional inspections of oil wells, in particular, those wells located near sensitive receptors. The cost of these inspections will be recovered, in part, through the revenue fees included in PAR 222.

Attachments (2,600 KB)

1. Summary of Proposal
2. Rule Development Process
3. Key Contacts List
4. Resolution
5. Rule Language
6. Final Staff Report
7. Final Socioeconomic Impact Assessment
8. Final Environmental Assessment

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