EPA Finalizes Source Determination Rule for Oil and Gas Sector

On June 3, 2016, U.S. EPA finalized its long-awaited rule defining the scope of a “stationary source” in the oil and gas industry for purposes of New Source Review and Title V permitting. The regulation provides that a group of oil and gas extraction sources “shall be considered adjacent if they are located on the same surface site; or if they are located on surface sites that are located within a quarter mile of one another (measured from the center of the equipment on the surface site) and they share equipment.” A surface site is defined as “any combination of one or more graded pad sites, gravel pad sites, foundations, platforms, or the immediate physical location upon which equipment is physically affixed.”

In the final rule, EPA specified that it “would not require that all emitting equipment located on separate surface sites within a quarter mile of each other be considered ‘adjacent.’ Instead, emitting equipment located on separate surface sites within a quarter mile of each other would only be aggregated as a single stationary source if the emitting equipment also have a relationship that meets the ‘common sense notion of a plant.’” In determining whether a group of oil and gas wells meets the common sense notion of a plant, EPA expressly decided not to use the functional interrelatedness test and instead concluded “that it is preferable to look for ‘shared equipment’ to determine when emitting activities in oil and natural gas operations have a relationship that meets the ‘common sense notion of a plant.’”

The rule responds to the U.S. Court of Appeals for the Sixth Circuit’s 2012 decision in Summit Petroleum Corp. v. U.S. EPA, which rejected U.S. EPA’s long-held functional interrelatedness test for determining adjacency for purposes of source aggregation. Although the rule is directly applicable to only the oil and gas industry, it may have implications for source aggregation determinations in other industries as well.