Courtesy of McCarthy Tetrault. View original article here.
On May 27, 2017, the federal government published the proposed Regulations Respecting Reduction in the Release of Methane and Certain Volatile Organic Compounds (Upstream Oil and Gas Sector)(the Proposed Regulations) in the Canada Gazette Part I. The Proposed Regulations are designed to meet the federal government’s domestic (under the Pan-Canadian Framework on Clean Growth and Climate Change) and international commitments (under the Paris Agreement) to reduce methane emissions by 40–45% by 2025. In particular, the Proposed Regulations seek to introduce control measures (i.e. facility and equipment level standards) to reduce fugitive and venting emissions of hydrocarbons, including methane, from the oil and gas sector. Depending on the standard adopted, the Proposed Regulations would come into force on January 1, 2020 or January 1, 2023. Both Alberta and British Columbia (BC) have also made matching commitments under their climate change strategies to reduce methane emissions in the oil and gas sector by 45% by 2025.
Current Regulatory Context
According to the Regulatory Impact Analysis Statement prepared by Environment and Climate Change Canada (ECCC), the oil and gas sector is the largest emitter of greenhouse gases (GHG) in Canada and, more specifically, the largest industrial emitter of methane in the country. The most recent emissions data indicates that the GHG emissions from production and processing activities in the oil and gas sector account for 26% of Canada’s total GHG emissions. In 2012, 90% of methane emissions from the oil and gas sector came from upstream activities, with the major sources of emissions being facility production venting, fugitive equipment leaks, well completion by hydraulic fracturing, pneumatic controllers and pumps, and compressors.
While there are currently no federal regulations established to regulate GHG emissions from upstream activities, certain provinces including BC, Alberta and Saskatchewan have requirements in place to address fugitive and venting emissions. In addition, the Canadian Association of Petroleum Producers (CAPP) and the Canadian Standards Association (CSA) have established guidelines for flaring (CAPP) and addressing fugitive and vented emissions from certain point sources (CSA). In BC, the Flaring and Venting Reduction Guideline applies to the flaring, incineration and venting of natural gas at well sites, facilities and pipelines. Alberta’s Directive 060 sets outs requirements for incinerating and venting at all petroleum industry wells and facilities. Saskatchewan’s Directive S-10 establishes requirements for the reduction of flaring and venting of associated gas, applicable to oil wells, associated gas processing plants, and any wells that vent, flare or incinerate associated gas; Directive S-20 provides performance requirements and specifications for equipment spacing and setback distance specifications for oil and gas flaring and incineration, which are applicable to licensed wells and facilities. The Proposed Regulations are designed to bring a consistent approach to methane emission reductions from the oil and gas sector in terms of scope and coverage.
Overview of Compliance Obligations
The Proposed Regulations would target emissions from the upstream oil and gas sector by implementing facility and equipment level requirements. In particular, the Proposed Regulations would impose both general requirements and requirements that are conditional on a facility producing and receiving at least 60 000 m3 of hydrocarbon gas in any of the previous five years of operations. Facility level requirements would include emission limits on facility production venting and leak detection and repair (LDAR) standards. At the equipment level, there would be requirements for well completion by hydraulic fracturing, as well as limits on emissions from pneumatic devices (controllers and pumps) and compressors. Facility operators with the charge, management, or control of the facility will be responsible for ensuring compliance with the requirements.
The Proposed Regulations’ general requirements target emissions from the following methane sources:
1. Well Completion by Hydraulic Fracturing
- As of January 1, 2020, these sites must conserve or destroy methane gas instead of venting it. However, the requirement will not apply in Alberta or BC, where provincial measures already exist.
- As of January 1, 2020, the flow rate of methane emissions of a compressor must be measured annually. If emissions exceed 0.17 m3 per minute for centrifugal compressors and 0.023 m3 per minute for reciprocating compressors, corrective action is required. Any new compressors installed must capture and route gas to the facility’s gas conservation equipment.
3. Gas Conservation and Destruction Equipment
- As of January 1, 2020, gas conservation equipment must capture and conserve at least 95% of methane gas, and gas destruction equipment must comply with provincial guidelines and rules.
The Proposed Regulations’ conditional requirements (i.e. facilities meeting the 60,000 m3 per year threshold in any of the previous five years) in a year target emissions from the following methane sources:
1. Facility Production Venting
- As of January 1, 2023, facilities must not vent more than 250 m3 per month except in emergencies. These facilities would need to capture the gas and either use it on site, reinject it underground, send it to a sales pipeline, or route it to a flare. Facilities that vent less than 40,000 m3 of gas per year without destroying or selling any would not be required to destroy or conserve it.
2. Pneumatic Controllers and Pumps
- As of January 1, 2023, controllers with a total compressor power rating of 745 kilowatts (kW) or more must not emit methane. Similarly, pumps pumping an average of more than 20 L of liquid per day must not emit methane as of January 1, 2023. However, where it would not be technically or economically feasible for a facility to comply with the pump requirement, the facility may apply for a permit exempting it from this requirement.
3. Equipment Leaks
- As of January 1, 2020, upstream oil and gas facilities (except single wellheads) would be required to implement LDAR programs with inspections three times a year using eligible leak detection instruments. If a leak is discovered, the leak must be repaired (1) within 30 days of being discovered where repairs are possible while facility is operating; (2) within 365 days of being discovered where the facility is located offshore; and (3) during a planned shutdown after being discovered where repairs are not possible without shutting down the facility.
4. Other Equipment
- As of January 1, 2020, open ends of pipes and hatches must be closed in a way that minimizes methane emissions. Likewise, sampling systems or pressure relief devices must be installed and operated in a way that minimizes methane emissions.
All upstream oil and gas facilities would also be required to register and keep records in order to demonstrate compliance with the Proposed Regulations. Further, facilities would be required to submit reports at the request of the Minister. ECCC estimates that the Proposed Regulations would increase annual administrative costs by approximately $1,100 per business. The main administrative costs for business will result from increased record-keeping and document-keeping requirements under the Proposed Regulations. Further, the Regulatory Impact Analysis Statement notes that both industry stakeholders and the federal government are expected to incur incremental costs to ensure regulatory compliance. Most compliance costs are not expected to take effect until 2023 and will be partially offset by recovering the market value of natural gas conserved.
It is estimated that the Proposed Regulations will affect 57,874 oil and gas facilities, owned by 1,062 companies. Although the majority of facilities that would be covered by the Proposed Regulations are owned by medium and large businesses, some facilities operated by small businesses would also be covered (ECCC notes that 579 facilities are owned by 475 small businesses). Therefore, the Proposed Regulations would trigger the small business lens, meaning that several regulatory exemptions would be incorporated into the Proposed Regulations. In particular, facilities operating with a potential to emit under the 60 000 m3 threshold would be exempt from most of the facility-based requirements under the Proposed Regulations. Since most small businesses own facilities that emit gaseous hydrocarbons less than the threshold, ECCC anticipates that they would not be subject to the above requirements or the associated record-keeping and reporting requirements.
Consequences of Non-Compliance
The Proposed Regulations would be made under Canadian Environmental Protection Act, 1999 (CEPA), meaning that fines will be determined in accordance with the applicable CEPA regulations and the Compliance and Enforcement Policy for CEPA (the Policy) will apply. The Policy sets out the range of possible responses to alleged violations, including warnings, directions, environmental protection compliance orders, tickets, ministerial orders, injunctions, prosecution and environmental protection alternative measures (which are an alternative to a court prosecution after the laying of charges for a CEPA violation). The implementation of the Proposed Regulations will require related changes to the Regulations Designating Regulatory Provisions for Purposes of Enforcement (Canadian Environmental Protection Act, 1999), which designate the various provisions in the CEPA regulations that apply the fine regime under the Environmental Enforcement Act (under this fine regime, which came into force in June 2012, designated offences involving direct harm or risk of harm to the environment, or obstruction of authority, are subject to an increased fine range).
Public Comment Period Open Until July 27, 2017
ECCC is accepting public comments on the Proposed Regulations until July 27, 2017. All comments and notices must cite the Canada Gazette, Part I, and the date of publication of the notice, and be sent by mail to the Oil, Gas and Alternative Energy Division, Department of the Environment, Gatineau, Quebec K1A 0H3 or by email to firstname.lastname@example.org.