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What’s in a Name: EPA Region VIII’s (Non-)Application of the E&P Exemption to Natural Gas Condensate PowerPoint Presentation
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What’s in a Name: EPA Region VIII’s (Non-)Application of the E&P Exemption to Natural Gas Condensate. John R. Jacus & Dean C. Miller. Davis Graham & Stubbs LLP.

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what s in a name epa region viii s non application of the e p exemption to natural gas condensate
What’s in a Name: EPA Region VIII’s (Non-)Application of the E&P Exemption to Natural Gas Condensate

John R. Jacus &

Dean C. Miller

Davis Graham & Stubbs LLP

slide3
Most gas plant wastes are characterized as E&P wastes, subject to regulation & reclamation under COGCC regulations (900 series regulations)
slide4
EPA Region VIII has maintained that condensate, under certain circumstances, is not an E&P waste, but is a hazardous waste under RCRA
slide5
COGCC is unwilling to challenge EPA’s interpretation
  • Issue avoided where disposal via UIC well is not involved?
what s at stake
What’s At Stake
  • E&P waste is not regulated as a hazardous waste
  • Costs to dispose of hazardous waste are substantially higher than costs to dispose of E&P waste
  • Projects involving condensate are unduly complicated if condensate is not exempt
slide7
Liquid E&P waste (e.g., contaminated groundwater) can be disposed of in a Class II UIC well
  • Liquid hazardous waste must be disposed of in a Class I UIC well at much greater cost
rcra hazardous waste regulation
RCRA Hazardous Waste Regulation
  • RCRA Subtitle C Regulates the Treatment, Storage, and Disposal of Hazardous Waste
solid and hazardous waste under rcra
Solid and Hazardous Waste Under RCRA
  • “Solid Waste” is “any discarded material,” including material released from tank storage
  • “Hazardous Waste” is a solid waste that is either:
    • A Listed Waste
    • A Characteristic Waste
characteristic wastes
Characteristic Wastes
  • Ignitable;
  • Corrosive;
  • Reactive; or
  • Toxic
    • Condensate is ignitable
the e p exemption
The E&P Exemption
  • 1980 - Congress exempted from RCRA Subtitle C regulation “drilling fluids, produced water, and other wastes associated with the exploration, development, or production of crude oil or natural gas.”
epa 1988 regulatory determination
EPA 1988 Regulatory Determination
  • EPA listed approximately 30 wastes that are covered by the E&P Exemption
epa s 1993 clarification
EPA’s 1993 Clarification
  • EPA concluded that E&P wastes are those “intrinsic to and uniquely associated with oil and gas exploration, development or production operations . . . .”
1993 clarification rule of thumb
1993 Clarification-Rule of Thumb
  • “Whether the waste in question has come from down-hole (i.e., brought to the surface during oil and gas E&P operations) or has otherwise been generated by contact with the oil and gas production stream during the removal of produced water or other contaminants from the product. . . .”
1995 e p guidance brochure
1995 E&P Guidance/Brochure
  • EPA issued “Crude Oil and Natural Gas Exploration and Production Wastes: Exemption from RCRA Subtitle C Regulation” (the “1995 Guidance”)
prior epa determinations

Prior EPA Determinations

Gas Plants Are Part Of The E&P Process

1995 guidance
1995 Guidance
  • “[B]ecause natural gas often requires processing to remove water and other impurities prior to entering the sales line, gas plants are considered to be part of production operations regardless of their location with respect to the wellhead.”
oswer directive no 9571 1993 01 july 1993
OSWER Directive No. 9571.1993(01) (July 1993).
  • Natural gas production operations encompass all processing facilities up to and including the gas plant, but not beyond.”
oswer directive no 9571 1993 02 nov 5 1993
OSWER Directive No. 9571.1993(02) (Nov. 5, 1993).
  • “[W]hile natural gas exploration and production (E&P) occurs at the wellhead, up through the gas plant, . . . E&P does not include transportation of gas once it has left the gas plant . . . .”
epa region viii determinations
EPA Region VIII Determinations
  • Region VIII has previously determined that the E&P exemption does not apply to natural gas condensate stored in tanks at a gas plant because the condensate is:
    • A manufactured product being stored for sale
    • In transportation
1993 clarification
1993 Clarification
  • “[N]on-exempt manufacturing activities include operations that go beyond the removal of impurities from the raw gas and the physical separation of the gas into its component fraction.”
1993 clarification25
1993 Clarification
  • “Manufacturing activities” are those that are “similar to petrochemical plant operations, such as the cracking and reforming of the molecular structures of the various gas fractions and the addition of odorants or other substances.”
slide26
The U.S. Tenth Circuit Court of Appeals has also recognized that natural gas condensate is, at most, a “by-product,” and is not “manufactured or formulated for commercial or manufacturing use.” United States v. Self, 2 F.3d 1071, 1081 (10th Cir. 1993).
slide27
Typical gas plant operations do not meet the definition of “manufacturing” because they do not go beyond the removal of impurities
  • What is “storage for sale” and why should it affect the E&P status of condensate?
1993 clarification29
1993 Clarification
  • “For natural gas, ‘transportation’ is defined as beginning after dehydration and purification at a gas plant, but prior to transport to market.”
1993 clarification30
1993 Clarification
  • “The end point of the scope of the exemption for natural gas is in the gas plant once manufacturing begins or, if no manufacturing occurs, at the point at which the natural gas leaves the gas plant for transportation to market.”
1995 guidance31
1995 Guidance
  • “For natural gas, transportation begins at the point where the gas leaves the facility after production separation and dehydration at the gas plant.”
slide33
By definition, under the 1993 Clarification, gas plant operations are “primary operations.”
1995 guidance34
1995 Guidance
  • “Storage of crude oil in stock tanks at production facilities is considered part of the production separation process, not transportation, and is included in the exemption.”
slide35
Crude stored in stock tanks at production sites is as much a raw commodity “product” bound for sale as condensate
  • Once spilled, crude is a “waste”
  • Soil contaminated by crude from production stock tanks is expressly exempted as an E&P waste
crude vs condensate
Crude vs. Condensate
  • Under Region VIII’s view: soil contaminated with crude released from stock tanks at the wellhead or consolidation facility is exempt, yet soil contaminated with condensate released from tanks at a gas plant is not exempt
slide37
Condensate released from a gas plant at a point prior to natural gas “manufacturing” or transportation out of the plant is a “solid waste,” and should fit within the E&P exemption
strategy
Strategy
  • Try to resolve the issue on a site-specific factual basis, e.g., condensate not released from “transportation” pipeline
  • If possible, establish that the source of contamination is not from “manufacturing” or “transportation” phases of gas plant operations as defined by Region VIII
tactics carpe documentum
TacticsCarpe Documentum
  • Obtain all documents in EPA and COGCC files that relate to the site and the issue
    • FOIA/Open Records Act requests may be necessary
  • Obtain all other written determinations on the issue generated by Region VIII, or at least those on which EPA is relying
conclusion
Conclusion
  • Resolve E&P issues regarding condensate on a factual basis if possible
  • Obtain all available information relating to the sources of any contamination at the gas plant and relied upon by EPA and/or COGCC in making the E&P determination
  • Don’t leave RCRA issues involving condensate until the end, or use methods that won’t require disposal via UIC well