Regulatory Impact Analysis of the 

Final Oil and Natural Gas Sector: Emission 

Standards for New, Reconstructed, and 

Modified Sources 

 
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EPA-452/R-16-002, May 2016 

Regulatory Impact Analysis of the Final Oil and Natural Gas Sector: 

Emission Standards for New, Reconstructed, and Modified Sources

U.S. Environmental Protection Agency 

Office of Air and Radiation 

Office of Air Quality Planning and Standards 

Research Triangle Park, NC 27711 

 
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CONTACT INFORMATION 

This document has been prepared by staff from the Office of Air and Radiation, U.S. 

Environmental Protection Agency. Questions related to this document should be addressed to Dr. 

Beth Miller, U.S. Environmental Protection Agency, Office of Air and Radiation, Research 

Triangle Park, North Carolina 27711 (email: miller.elizabeth@epa.gov). 

ACKNOWLEDGEMENTS

In addition to U.S. EPA staff from the Office of Air and Radiation, personnel from the U.S. EPA 

Office of Policy, EC/R Incorporated, and ICF International contributed data and analysis to this 

document. 
v 

TABLE OF CONTENTS 

TABLE OF CONTENTS ..................................................................................................................... V

LIST OF TABLES ............................................................................................................................ VII

LIST OF FIGURES ........................................................................................................................... IX

1 EXECUTIVE SUMMARY ........................................................................................................ 1-1

1.1 BACKGROUND .............................................................................................................................................. 1-1

1.2 MARKET FAILURE ........................................................................................................................................ 1-3

1.3 REGULATORY OPTIONS ANALYZED IN THIS RIA .......................................................................................... 1-3

1.4 SUMMARY OF RESULTS ................................................................................................................................ 1-5

1.5 SUMMARY OF NSPS IMPACTS CHANGES FROM THE PROPOSAL RIA .......................................................... 1-10

1.6 ORGANIZATION OF THIS REPORT ................................................................................................................ 1-12

2 INDUSTRY PROFILE ............................................................................................................. 2-1

2.1 INTRODUCTION ............................................................................................................................................ 2-1

2.2 PRODUCTS OF THE CRUDE OIL AND NATURAL GAS INDUSTRY .................................................................... 2-2

2.2.1 Crude Oil ........................................................................................................................................... 2-2

2.2.2 Natural Gas ........................................................................................................................................ 2-3

2.2.3 Condensates ....................................................................................................................................... 2-3

2.2.4 Other Recovered Hydrocarbons ......................................................................................................... 2-4

2.2.5 Produced Water ................................................................................................................................. 2-4

2.3 OIL AND NATURAL GAS PRODUCTION PROCESSES ...................................................................................... 2-4

2.3.1 Exploration and Drilling .................................................................................................................... 2-4

2.3.2 Production .......................................................................................................................................... 2-5

2.3.3 Natural Gas Processing ...................................................................................................................... 2-7

2.3.4 Natural Gas Transmission and Distribution ....................................................................................... 2-8

2.4 RESERVES AND MARKETS ............................................................................................................................ 2-8

2.4.1 Domestic Proved Reserves ................................................................................................................ 2-9

2.4.2 Domestic Production........................................................................................................................ 2-13

2.4.3 Domestic Consumption .................................................................................................................... 2-21

2.4.4 International Trade ........................................................................................................................... 2-25

2.4.5 Forecasts .......................................................................................................................................... 2-27

2.5 INDUSTRY COSTS ....................................................................................................................................... 2-32

2.5.1 Finding Costs ................................................................................................................................... 2-32

2.5.2 Lifting Costs .................................................................................................................................... 2-33

2.5.3 Operating and Equipment Costs ...................................................................................................... 2-35

2.6 FIRM CHARACTERISTICS ............................................................................................................................ 2-37

2.6.1 Ownership ........................................................................................................................................ 2-37

2.6.2 Size Distribution of Firms in Affected NAICS ................................................................................ 2-38

2.6.3 Trends in National Employment and Wages ................................................................................... 2-39

2.6.4 Horizontal and Vertical Integration ................................................................................................. 2-41

2.6.5 Firm-level Information .................................................................................................................... 2-43

2.6.6 Financial Performance and Condition................................................................................................ 2-3

2.7 REFERENCES ................................................................................................................................................ 2-7

3 EMISSIONS AND ENGINEERING COSTS ................................................................................ 3-1

3.1 INTRODUCTION ............................................................................................................................................ 3-1

3.2 SECTOR EMISSIONS OVERVIEW .................................................................................................................... 3-1

3.3 EMISSIONS POINTS AND POLLUTION CONTROLS ASSESSED IN THE RIA ....................................................... 3-2

3.4 ENGINEERING COST ANALYSIS .................................................................................................................... 3-5

3.4.1 Regulatory Options ............................................................................................................................ 3-6

3.4.2 Projection of Incrementally Affected Facilities ................................................................................. 3-8
vi 

3.4.3 Emissions Reductions ...................................................................................................................... 3-12

3.4.4 Product Recovery ............................................................................................................................. 3-13

3.4.5 Engineering Compliance Costs ........................................................................................................ 3-15

3.4.6 Comparison of Regulatory Alternatives .......................................................................................... 3-17

3.5 ENGINEERING COST SENSITIVITY ANALYSIS.............................................................................................. 3-19

3.5.1 Compliance Costs Estimated Using 3 and 7 Percent Discount Rates .............................................. 3-19

3.5.2 Sensitivity of Compliance Costs to Natural Gas Prices ................................................................... 3-20

3.6 DETAILED IMPACTS TABLES ...................................................................................................................... 3-22

4 BENEFITS OF EMISSIONS REDUCTIONS ............................................................................... 4-1

4.1 INTRODUCTION ............................................................................................................................................ 4-1

4.2 EMISSION REDUCTIONS FROM THE FINAL NSPS .......................................................................................... 4-4

4.3 METHANE CLIMATE EFFECTS AND VALUATION ........................................................................................... 4-5

4.4 VOC AS A PM2.5 PRECURSOR ..................................................................................................................... 4-20

4.4.1 PM2.5 Health Effects and Valuation ................................................................................................. 4-20

4.4.2 Organic PM Welfare Effects ............................................................................................................ 4-24

4.4.3 Visibility Effects .............................................................................................................................. 4-25

4.5 VOC AS AN OZONE PRECURSOR ................................................................................................................ 4-25

4.5.1 Ozone Health Effects and Valuation ................................................................................................ 4-26

4.5.2 Ozone Vegetation Effects ................................................................................................................ 4-27

4.5.3 Ozone Climate Effects ..................................................................................................................... 4-27

4.6 HAZARDOUS AIR POLLUTANT (HAP) BENEFITS ........................................................................................ 4-28

4.6.1 Benzene ........................................................................................................................................... 4-33

4.6.2 Toluene ............................................................................................................................................ 4-34

4.6.3 Carbonyl Sulfide .............................................................................................................................. 4-35

4.6.4 Ethylbenzene.................................................................................................................................... 4-35

4.6.5 Mixed Xylenes ................................................................................................................................. 4-36

4.6.6 n-Hexane .......................................................................................................................................... 4-37

4.6.7 Other Air Toxics .............................................................................................................................. 4-37

4.7 SECONDARY AIR EMISSIONS IMPACTS ....................................................................................................... 4-37

4.8 REFERENCES .............................................................................................................................................. 4-41

5 COMPARISON OF BENEFITS AND COSTS ............................................................................. 5-1

5.1 COMPARISON OF BENEFITS AND COSTS ACROSS REGULATORY OPTIONS ..................................................... 5-1

5.2 UNCERTAINTIES AND LIMITATIONS .............................................................................................................. 5-4

6 ECONOMIC IMPACT ANALYSIS AND DISTRIBUTIONAL ASSESSMENTS............................... 6-1

6.1 INTRODUCTION ............................................................................................................................................ 6-1

6.2 ENERGY MARKETS IMPACTS ANALYSIS ....................................................................................................... 6-1

6.2.1 Description of the Department of Energy National Energy Modeling System .................................. 6-2

6.2.2 Inputs to National Energy Modeling System ..................................................................................... 6-3

6.2.3 Energy Markets Impacts .................................................................................................................... 6-7

6.3 FINAL REGULATORY FLEXIBILITY ANALYSIS ............................................................................................ 6-10

6.3.1 Reasons why the Action is Being Considered ................................................................................. 6-11

6.3.2 Significant Issues Raised ................................................................................................................. 6-11

6.3.3 Small Business Administration Comments ...................................................................................... 6-15

6.3.4 Description and Estimate of Affected Small Entities ...................................................................... 6-15

6.3.5 Projected Reporting, Recordkeeping and Other Compliance Requirements ................................... 6-18

6.3.6 Regulatory Flexibility Alternatives .................................................................................................. 6-24

6.4 EMPLOYMENT IMPACT ANALYSIS .............................................................................................................. 6-26

6.4.1 Employment Impacts of Environmental Regulation ........................................................................ 6-26

6.4.2 Labor Estimates Associated with Final Requirements ..................................................................... 6-30

6.5 REFERENCES .............................................................................................................................................. 6-37
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LIST OF TABLES 

Table 1-1 Emissions Sources and Controls Evaluated for the NSPS ................................................................. 1-4

Table 1-2 Summary of the Monetized Benefits, Costs, and Net Benefits for Option 1 in 2020 and 2025 (2012$)

 .......................................................................................................................................................... 1-8

Table 1-3 Summary of the Monetized Benefits, Costs, and Net Benefits for Option 2 (Finalized Option) in 2020 

and 2025 (2012$) .............................................................................................................................. 1-9

Table 1-4 Summary of the Monetized Benefits, Costs, and Net Benefits for Option 3 in 2020 and 2025 (2012$)

 ........................................................................................................................................................ 1-10

Table 2-1 Technically Recoverable Crude Oil and Natural Gas Resource ...................................................... 2-10

Table 2-2 Crude Oil and Natural Gas Cumulative Domestic Production, Proved Reserves, and Proved Ultimate 

Recovery, 1990-2014 ...................................................................................................................... 2-11

Table 2-3 Crude Oil and Dry Natural Gas Proved Reserves by State, 2013 .................................................... 2-13

Table 2-4 Crude Oil Domestic Production, Wells, Well Productivity, and U.S. Average First Purchase Price, 

1990-2014 ....................................................................................................................................... 2-14

Table 2-5 Natural Gas Production and Well Productivity, 1990-2014 ............................................................ 2-16

Table 2-6 Crude Oil and Natural Gas Exploratory and Development Wells and Average Depth, 1990-2010 2-17

Table 2-7 U.S. Onshore and Offshore Oil, Gas, and Produced Water Generation, 2007 ................................. 2-19

Table 2-8 U.S. Oil and Natural Gas Pipeline Mileage, 2010-2014 .................................................................. 2-21

Table 2-9 Crude Oil Consumption by Sector, 1990-2012 ................................................................................ 2-22

Table 2-10 Natural Gas Consumption by Sector, 1990-2014 ............................................................................ 2-24

Table 2-11 Total Crude Oil and Petroleum Products Trade (Million Bbl), ........................................................ 2-26

Table 2-12 Natural Gas Imports and Exports, 1990-2014.................................................................................. 2-27

Table 2-13 Forecast of Total Successful Wells Drilled, Lower 48 States, 2010-2040 ....................................... 2-28

Table 2-14 Forecast of Crude Oil Supply, Reserves, and Wellhead Prices, 2012-2040 .................................... 2-29

Table 2-15 Forecast of Natural Gas Supply, Lower 48 Reserves, and Wellhead Price 2012-2040 ................... 2-31

Table 2-16 SBA Size Standards and Size Distribution of Oil and Natural Gas Firms ....................................... 2-39

Table 2-17 Oil and Natural Gas Industry Employment by NAICS, 1990-2014 ................................................. 2-40

Table 2-18 Oil and Natural Gas Industry Average Wages by NAICS, 1990-2014 (2012 dollars) .................... 2-41

Table 2-19 Top 20 Oil and Natural Gas Companies (Based on Total Assets), 2012 ......................................... 2-44

Table 2-20 Top 20 Natural Gas Processing Firms (Based on Throughput), 2009 ............................................... 2-2

Table 2-21 Performance of Top 20 Gas Pipeline Companies (Based on Net Income), 2014 .............................. 2-3

Table 2-22 Selected Financial Items from Income Statements (Billion 2008 Dollars) ........................................ 2-5

Table 2-23 Return on Investment for Lines of Business (all FRS), for 1998, 2003, 2008, and 2009 (percent) ... 2-6

Table 2-24 Income and Production Taxes, 1990-2009 (Million 2008 Dollars) ................................................... 2-7

Table 3-1 Emissions Sources and Controls Evaluated for the NSPS ................................................................. 3-7

Table 3-2 Incrementally Affected Sources under Final NSPS, 2016 to 2025 on an Annual Basis .................. 3-10

Table 3-3 Total Number of Affected Sources for the NSPS in 2020 and 2025 ............................................... 3-11

Table 3-4 Emissions Reductions for Final NSPS Option 2, 2020 and 2025 .................................................... 3-13

Table 3-5 Estimated Natural Gas Recovery (Mcf) for selected Option 2 in 2020 and 2025 ............................ 3-15

Table 3-6 Engineering Compliance Cost Estimates for Final NSPS Option 2 in 2020 and 2025 (millions 2012$)

 ........................................................................................................................................................ 3-16

Table 3-7 Comparison of Regulatory Alternatives .......................................................................................... 3-18

Table 3-11 Annualized Costs using 3 and 7 Percent Discount Rates for Final NSPS Option 2 in 2020 and 2025 

(millions 2012$) ............................................................................................................................. 3-19

Table 3-12 Annualized Costs Using Natural Gas Prices from $2 to $5 per Mcf ............................................... 3-21

Table 3-13 Incrementally Affected Units, Emissions Reductions and Costs, Option 1, 2020 ........................... 3-23

Table 3-14 Incrementally Affected Units, Emissions Reductions and Costs, Option 1, 2025 ........................... 3-24

Table 3-15 Incrementally Affected Units, Emissions Reductions and Costs, Selected Option 2, 2020 ............. 3-25

Table 3-16 Incrementally Affected Units, Emissions Reductions and Costs, Selected Option 2, 2025 ............. 3-26

Table 3-17 Incrementally Affected Units, Emissions Reductions and Costs, Option 3, 2020 ........................... 3-27

Table 3-18 Incrementally Affected Units, Emissions Reductions and Costs, Option 3, 2025 ........................... 3-28

Table 4-1 Climate and Human Health Effects of Emission Reductions from this Rule..................................... 4-2

Table 4-2 Direct Emission Reductions across NSPS Regulatory Options in 2020 and 2025 ............................ 4-5
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Table 4-3 Social Cost of Methane (SC-CH4), 2012 – 2050a [in 2012$ per metric ton] (Source: Marten et al., 

2014b

) ............................................................................................................................................. 4-16

Table 4-4 Estimated Global Benefits of Methane Reductions* (in millions, 2012$) ....................................... 4-18

Table 4-5 Monetized Benefits-per-Ton Estimates for VOC in 9 Urban Areas and Nationwide based on Fann, 

Fulcher, and Hubbell (2009) in (2012$) ......................................................................................... 4-23

Table 4-6 Increases in Secondary Air Pollutant Emissions (short tons per year) ............................................. 4-38

Table 4-7 Summary of Emissions Changes (short tons per year, except where noted) .................................... 4-41

Table 5-1 Summary of the Monetized Benefits, Costs, and Net Benefits for Option 1 in 2020 and 2025 (2012$)

 .......................................................................................................................................................... 5-1

Table 5-2 Summary of the Monetized Benefits, Costs, and Net Benefits for Selected Option 2 in 2020 and 2025 

(2012$) ............................................................................................................................................. 5-2

Table 5-3 Summary of the Monetized Benefits, Costs, and Net Benefits for Option 3 in 2020 and 2025 (2012$)

 .......................................................................................................................................................... 5-3

Table 5-4 Summary of Emissions Changes across Options for the NSPS in 2020 and 2025 (short tons per year, 

unless otherwise noted) .................................................................................................................... 5-4

Table 6-1 Per Well Costs for Environmental Controls Entered into NEMS (2012$) ........................................ 6-6

Table 6-2 Successful Oil and Gas Wells Drilled (Onshore, Lower 48 States) ................................................... 6-8

Table 6-3 Domestic Natural Gas and Crude Oil Production (Onshore, Lower 48 States) ................................. 6-8

Table 6-4 Average Natural Gas and Crude Oil Wellhead Price (Onshore, Lower 48 States, 2012$) ................ 6-9

Table 6-5 Net Imports of Natural Gas and Crude Oil ...................................................................................... 6-10

Table 6-6 SBA Size Standards by NAICS Code .............................................................................................. 6-15

Table 6-7 Distribution of Estimated Compliance Costs Across Sources ......................................................... 6-16

Table 6-8 No. of Completions in 2012 by Preliminary Firm Size.................................................................... 6-17

Table 6-9 No. of Completions in 2012 by Firm Size ....................................................................................... 6-18

Table 6-10 No. of Incrementally Affected Sources in 2020 and 2025 by Firm Size ......................................... 6-21

Table 6-11 Distribution of Estimated Compliance Costs1 across Firm Size Classes ......................................... 6-21

Table 6-12 Compliance Costs-to-Sales1 Ratios across Firm Size Classes for Primary Scenario and Low Oil Price 

Scenario2 ......................................................................................................................................... 6-23

Table 6-6 Estimates of Labor Required to Comply with NSPS for Hydraulically Fractured Oil Well 

Completions, 2020 and 2025 .......................................................................................................... 6-33

Table 6-7 Estimates of Labor Required to Comply with NSPS for Fugitive Emissions, 2020 and 2025 ........ 6-34

Table 6-8 Estimates of Labor Required to Comply with NSPS for Reciprocating and Centrifugal Compressors, 

2020 and 2025 ................................................................................................................................ 6-35

Table 6-9 Estimates of Labor Required to Comply with NSPS for Pneumatic Controllers and Pumps, 2020 and 

2025 ................................................................................................................................................ 6-36

Table 6-10 Estimates of Labor Required to Comply with NSPS, 2020 and 2025 ............................................. 6-37

 
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LIST OF FIGURES 

Figure 2-1 A) Domestic Crude Oil Proved Reserves and Cumulative Production, 1990-2013. B) Domestic 

Natural Gas Proved Reserves and Cumulative Production, 1990-2013.......................................... 2-12

Figure 2-2 A) Total Producing Crude Oil Wells and Average Well Productivity, 1990-2011. B) Total Producing 

Natural Gas Wells and Average Well Productivity, 1990-2014. .................................................... 2-15

Figure 2-3 U.S. Produced Water Volume by Management Practice, 2007 ....................................................... 2-20

Figure 2-4 Crude Oil Consumption by Sector (Percent of Total Consumption), 1990-2012 ............................ 2-23

Figure 2-5 Natural Gas Consumption by Sector (Percent of Total Consumption), 1990-2012 ......................... 2-25

Figure 2-6 Forecast of Domestic Crude Oil Production and Net Imports, 2010-2040 ...................................... 2-30

Figure 2-7 Costs of Crude Oil and Natural Gas Wells Drilled, 1981-2008 ....................................................... 2-32

Figure 2-8 Finding Costs for FRS Companies, 1981-2009 ............................................................................... 2-33

Figure 2-9 Direct Oil and Natural Gas Lifting Costs for FRS Companies, 1981-2009 (3-year Running Average)

 ........................................................................................................................................................ 2-34

Figure 2-10 Crude Oil Operating Costs and Equipment Costs Indices (1976=100) and Crude Oil Price (in 1976 

dollars), 1976-2009 ......................................................................................................................... 2-36

Figure 2-11 Natural Operating Costs and Equipment Costs Indices (1976=100) and Natural Gas Price, 1976-2009

 ........................................................................................................................................................ 2-37

Figure 4-1 Path from GHG Emissions to Monetized Damages ......................................................................... 4-12

Figure 4-2 2011 NATA Model Estimated Census Tract Carcinogenic Risk from HAP Exposure from All 

Outdoor Sources based on the 2011 National Emissions Inventory ............................................... 4-30

Figure 4-3 2011 NATA Model Estimated Census Tract Noncancer (Respiratory) Risk from HAP Exposure from 

All Outdoor Sources based on the 2011 National Emissions Inventory ......................................... 4-31
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1 EXECUTIVE SUMMARY 

1.1 Background 

The action analyzed in this regulatory impact analysis (RIA) amends the new source 

performance standards (NSPS) for the oil and natural gas source category by setting standards 

for both methane and volatile organic compounds (VOC) for certain equipment, processes and 

activities across this source category. The Environmental Protection Agency (EPA) is including 

requirements for methane emissions in this rule because methane is a greenhouse gas (GHG), 

and the oil and natural gas category is the country's largest emitter of methane. In 2009, the EPA 

found that by causing or contributing to climate change, GHGs endanger both the public health 

and the public welfare of current and future generations. 

The EPA is amending the NSPS to include standards for reducing methane as well as 

VOC emissions across the oil and natural gas source category. Specifically, we are establishing 

both methane and VOC standards for several emission sources not covered by the 2012 NSPS 

(i.e., hydraulically fractured oil well completions, fugitive emissions from well sites, compressor 

stations, pneumatic pumps). In addition, we are establishing methane standards for certain 

emission sources that are regulated for VOC under the 2012 NSPS (i.e., hydraulically fractured 

gas well completions, equipment leaks at natural gas processing plants). However, we do not 

expect any incremental benefits or costs as a result from regulating methane for VOC sources 

regulated under the 2012 NSPS. 

With respect to certain equipment that are used across the source category, the 2012 

NSPS regulates only a subset of this equipment (pneumatic controllers, centrifugal compressors, 

reciprocating compressors). The new amendents establish methane standards for these equipment 

across the source category and extend the VOC standards from the 2012 NSPS to the remaining 

unregulated equipment. Lastly, amendments to the 2012 NSPS are established that improve 

several aspects of the 2012 standards related to implementation. These improvements result from 

reconsideration of certain issues raised in petitions for reconsideration that were received by the 

Administrator on the 2012 NSPS for the oil and natural gas sector and related amendments. 

Except for these implementation improvements and the setting of standards for methane, these 

amendments do not change the requirements for operations already covered by the 2012 
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standards. 

As part of the regulatory process, the EPA is required to develop a regulatory impact 

analysis (RIA) for rules that have costs or benefits that exceed $100 million annually. The EPA 

estimates the final NSPS will have costs that exceed $100 million, so the Agency has prepared 

an RIA. This RIA includes an economic impact analysis and an analysis of the climate, health, 

and welfare impacts anticipated from the final NSPS.

1

 We also estimate potential impacts of the 

rule on national energy markets using the U.S. Energy Information Administration’s National 

Energy Modeling System (NEMS). The engineering compliance costs are annualized using 3 and 

7 percent discount rates. 

This analysis estimates regulatory impacts for the analysis years of 2020 to represent the 

near-term impacts of the rule, and 2025 to represent impacts of the rule over a longer period. 

Therefore, the emissions reductions, benefits, and costs by 2020 and 2025 (i.e., including all 

emissions reductions, costs, and benefits in all years from 2016 to 2025) would be potentially 

significantly greater than the estimated emissions reductions, benefits, and costs provided within 

this rule. Affected facilities are facilities that are new or modified since the proposal in 

September 2015. In 2020, affected facilities are those that are newly established or modified in 

2020, as well as those that have accumulated between 2016 and 2019. The regulatory impact 

estimates for 2025 include sources newly affected in 2025 as well as the accumulation of 

affected sources from 2016 through 2024 that are assumed to be in continued operation in 2025, 

thus incurring compliance costs and emissions reductions in 2025. 

Several emission controls for the NSPS, such as reduced emissions completions (RECs) 

of hydraulically-fractured oil wells, capture methane and VOC emissions that otherwise would 

be vented to the atmosphere. The averted methane emissions can be directed into natural gas 

production streams and sold. The revenues derived from natural gas recovery are expected to 

offset a portion of the engineering costs of implementing the NSPS. In this RIA, we present 

 

1

 The analysis in this RIA and the RIA that accompanied the proposal together constitute the economic assessment 

required by CAA section 317. In the EPA’s judgment, the assessment is as extensive as practicable taking into 

account the EPA’s time, resources, and other duties and authorities. 
1-3 

results that include the additional product recovery and the revenues we expect producers to gain 

from the additional product recovery. 

The baseline used for the impacts analysis of our NSPS takes into account emissions 

reductions conducted pursuant to state regulations covering the relevant operations. A detailed 

discussion on the derivation of the baseline is presented in Section 3 of this RIA. 

1.2 Market Failure 

Many regulations are promulgated to correct market failures, which lead to a suboptimal 

allocation of resources within the free market. Air quality and pollution control regulations 

address “negative externalities” whereby the market does not internalize the full cost of 

production that is borne by society, as public goods such as air quality are unpriced. 

Greenhouse Gas (GHG) and VOC emissions impose costs on society, such as negative 

climate, health, and welfare impacts. These impacts are not reflected in the market price of the 

goods produced through the polluting process and are referred to as negative externalities. For 

this regulatory action, the goods produced, processed, transported, or stored are crude oil, natural 

gas, and other hydrocarbon products. If an oil and natural gas firm pollutes the atmosphere while 

extracting, processing, transporting, or storing goods, this cost will not be borne by the polluting 

firm but by society as a whole. The market price of the products will fail to incorporate the full 

cost to society of the pollution related to production. All else held equal, the quantity of oil and 

natural gas produced in a competitive market will not be at the socially optimal level. More oil 

and natural gas will be produced than would occur if the oil and natural gas producers had to 

account for the full cost of production, including the negative externality. Consequently, absent a 

regulation on emissions, the marginal social cost of the last units of oil and natural gas produced 

will exceed its marginal social benefit. 

1.3 Regulatory Options Analyzed in this RIA 

In this RIA, we examine three broad regulatory options. Table 1-1 shows the emissions 

sources, points, and controls for the three NSPS regulatory options analyzed in this RIA, which 

we term Option 1, Option 2, and Option 3. Option 2 was selected for promulgation. 

 
1-4 

Table 1-1 Emissions Sources and Controls Evaluated for the NSPS 

Emissions Point Emissions Control Option 1 Option 2 

(final) Option 3 

Well Completions and Recompletions 

Hydraulically Fractured 

Development Oil Wells REC / Combustion X X X 

Hydraulically Fractured Wildcat 

and Delineation Oil Wells Combustion X X X 

Fugitive Emissions 

Well Sites 

Planning, 

Monitoring and 

Maintenance 

Annual Semiannual Quarterly 

Gathering and Boosting Stations 

Planning, 

Monitoring and 

Maintenance 

Semiannual Quarterly Quarterly 

Transmission Compressor Stations 

Planning, 

Monitoring and 

Maintenance 

Semiannual Quarterly Quarterly 

Pneumatic Pumps 

Well Sites Route to control X X X 

Pneumatic Controllers 

Natural Gas Transmission and 

Storage Emissions limit X X X 

Reciprocating Compressors 

Natural Gas Transmission and 

Storage Maintenance X X X 

Centrifugal Compressors 

 Natural Gas Transmission and 

Storage Route to control X X X 

Option 2 contains reduced emission completion (REC) and completion combustion 

requirements for a subset of newly completed oil wells that are hydraulically fractured or 

refractured. Option 2 requires fugitive emissions survey and repair programs be performed 

semiannually (twice per year) at the affected newly drilled or refractured oil and natural gas well 

sites, and quarterly at new or modified gathering and boosting stations and new or modified 

transmission and storage compressor stations. Option 2 also requires reductions from centrifugal 

compressors, reciprocating compressors, and pneumatic controllers and pumps. 

Options 1 and 3 differ from the finalized Option 2 with respect to the requirements for 

fugitive emissions. Well site fugitive requirements under Option 1 are annual, while new or 
1-5 

modified gathering and boosting station and new or modified transmission and storage 

compressor stations require a semiannual fugitive emission survey and repair program. Less 

frequent survey requirements lead to lower costs as well as lower emissions reduction compared 

to the selected Option 2. The more stringent Option 3 requires quarterly monitoring for all sites 

under the fugitive emissions program. More frequent surveys result in greater emission 

reductions, however there are also increased costs, resulting in a net effect of lower net benefits 

compared to the finalized Option 2. 

1.4 Summary of Results 

For the final NSPS, a summary of the key results of the RIA for the final standards 

(Option 2) follow. Key results for Options 1 through 3 are summarized in Table 1-2 through 

Table 1-4, respectively. Note all dollar estimates are in 2012 dollars: 

• Emissions Analysis: The final NSPS is anticipated to prevent significant new emissions, 

including 300,000 short tons of methane, 150,000 tons of VOCs and 1,900 tons of 

hazardous air pollutants (HAP) in 2020, increasing to 510,000 short tons of methane, 

210,000 tons of VOCs, and 3,900 tons of HAP prevented in 2025.2

 The CO2-equivalent 

(CO2 Eq.) methane emission reductions are 6.9 million metric tons in 2020 and 11 

million metric tons in 2025. 

• Benefits Analysis: The monetized benefits in this RIA include those from reducing 

methane emissions, which are valued using the social cost of methane (SC-CH4).3

 The 

EPA estimates that, in 2020, the rule will yield monetized climate benefits of $160 

million to approximately $950 million; the mean SC-CH4 at the 3% discount rate results 

in an estimate of about $360 million in 2020. In 2025, the EPA estimates monetized 

climate benefits of $320 million to approximately $1.8 billion; the mean SC-CH4 at the 

3% discount rate results in an estimate of about $690 million in 2025.4 While we expect 

that the avoided emissions will result in improvements in ambient air quality and 

reductions in negative health effects associated with exposure to HAP, ozone, and 

particulate matter (PM), we have determined that quantification of those benefits cannot 

be accomplished for this rule.5

 This is not to imply that there are no health benefits 

 

2

 Estimates are presented in short tons. 

3

 The social cost of methane (SC-CH4) is the monetary value of impacts associated with a marginal change in 

methane emissions in a given year. 

4

 The range of estimates reflects four SC-CH4 estimates and are associated with different discount rates (model 

average at 2.5, 3 and 5 percent; 95th percentile at 3 percent). See Section 4.3 for a complete discussion. 

5

 Previous studies have estimated the monetized benefits-per-ton of reducing VOC emissions associated with the 

effect that those emissions have on ambient PM2.5 levels and the health effects associated with PM2.5 exposure 

(Fann, Fulcher, and Hubbell, 2009). While these ranges of benefit-per-ton estimates provide useful context, the 

geographic distribution of VOC emissions from the oil and gas sector are not consistent with emissions modeled 

in Fann, Fulcher, and Hubbell (2009). In addition, the benefit-per-ton estimates for VOC emission reductions in 
1-6 

anticipated from the final NSPS; rather, it is a reflection of the difficulties in modeling 

the direct and indirect impacts of the reductions in emissions for this industrial sector 

with the data currently available. In addition to health improvements, there will be 

improvements in visibility effects, ecosystem effects, as well as additional natural gas 

recovery. The specific control technologies for the final NSPS are anticipated to have 

minor secondary disbenefits. 

• Engineering Cost Analysis: The EPA estimates the total capital cost of the final NSPS 

to be $250 million for affected sources in 2020 and $360 million for affected sources in 

2025. The estimate of total annualized engineering costs of the final NSPS is $390 

million in 2020 and $640 million in 2025 when using a 7 percent discount rate. When 

estimated revenues from additional natural gas are included, the annualized engineering 

costs of the NSPS are estimated to be $320 million in 2020 and $530 million in 2025, 

assuming a wellhead natural gas price of $4/thousand cubic feet (Mcf). The estimated 

engineering compliance costs that include product recovery are sensitive to the 

assumption about the price of the recovered product. There is also geographic variability 

in wellhead prices, which can influence estimated engineering costs. For example, 

$1/Mcf change in the wellhead price causes a change in estimated engineering 

compliance costs of about $16 million in 2020 and $27 million in 2025, given the EPA 

estimates that about 16 million Mcf in 2020 and 27 million Mcf of natural gas will be 

recovered by implementing the NSPS. When using a 3 percent discount rate, the estimate 

of total annualized engineering costs of the final NSPS is $380 million in 2020 and $630 

million in 2025, or $320 million in 2020 and $520 million in 2025, when estimated 

revenues from additional natural gas are included. 

• Energy Markets Impacts Analysis: The EPA used the National Energy Modeling 

System (NEMS) to estimate the impacts of the final rule on the United States energy 

markets. We estimate that natural gas and crude oil drilling levels decline slightly over 

the 2020 to 2025 period relative to the baseline (by about 0.17 percent for natural gas 

wells and about 0.02 percent for crude oil wells). Natural gas production decreases 

slightly over the 2020 to 2025 period under the rule relative to the baseline (by about 0.03 

percent), while crude oil production does not vary appreciably. Crude oil wellhead prices 

for onshore lower 48 production are not estimated to change appreciably over the 2020 to 

2025 period relative to the baseline. However, wellhead natural gas prices for onshore 

lower 48 production are estimated to increase slightly over the 2020 to 2025 period 

relative to the baseline (about 0.20 percent). Net imports of natural gas are estimated to 

increase slightly over the 2020 to 2025 period (by about 0.11 percent) relative to the 

baseline. Crude oil net imports are not estimated to to change appreciably over the 2020 

to 2025 period relative to the baseline. 

• Small Entity Analyses: To understand the potential impact of the rule on small entities, 

the EPA conducted a screening analysis of the potential impacts by estimating the ratio of 

potential compliance costs to firm sales (i.e. a cost-to-sales test). Based on the results of 

this screening analysis, the EPA concluded that it is unable to certify that the final rule 

 

that study are derived from total VOC emissions across all sectors. Larger uncertainties about the relationship 

between VOC emissions and PM2.5 coupled with the highly localized nature of air quality responses associated 

with VOC reductions, lead us to conclude that the available VOC benefit-per-ton estimates are not appropriate to 

calculate monetized benefits of these rules, even as a bounding exercise. 
1-7 

will not have a Significant Impact on a Substantial Number of Small Entities (SISNOSE). 

The EPA convened a Small Business Advisory Review panel and completed an Inititial 

Regulatory Flexibility Analysis before proposing the rule. The EPA also completed a 

Final Regulatory Flexibility Analysis for the final rule.

• Employment Impacts Analysis: The EPA estimated the labor impacts due to the 

installation, operation, and maintenance of control equipment and control activities, as 

well as the labor associated with new reporting and recordkeeping requirements. The 

EPA estimated one-time and continual, annual labor requirements by estimating hours of 

labor required for compliance and converting this number to full-time equivalents (FTEs) 

by dividing by 2,080 (40 hours per week multiplied by 52 weeks). The one-time labor 

requirement to comply with the final NSPS is estimated at about 270 FTEs in 2020 and in 

2025. The annual labor requirement to comply with the NSPS is estimated at about 1,100 

FTEs in 2020 and 1,800 FTEs in 2025. The EPA notes that this type of FTE estimate 

cannot be used to identify the specific number of employees involved or whether new 

jobs are created for new employees, versus displacing jobs from other sectors of the 

economy. 

Table 1-2 presents the summary results for Option 1, Table 1-3 presents summary results 

for Option 2, and Table 1-4 presents summary results for Option 3. 

 
1-8 

Table 1-2 Summary of the Monetized Benefits, Costs, and Net Benefits for Option 1 in 

2020 and 2025 (2012$) 

 2020 2025 

Total Monetized Benefits1 $290 million $540 million 

Total Costs2 $240 million $360 million 

Net Benefits3

 $54 million $180 million 

Non-monetized Benefits 

Non-monetized climate benefits Non-monetized climate benefits 

Health effects of PM2.5 and ozone 

exposure from 130,000 tons of VOC 

reduced 

Health effects of PM2.5 and ozone 

exposure from 170,000 tons of VOC 

reduced 

Health effects of HAP exposure from 

1,300 tons of HAP reduced 

Health effects of HAP exposure from 

2,700 tons of HAP reduced 

Health effects of ozone exposure from 

250,000 tons of methane 

Health effects of ozone exposure from 

390,000 tons of methane 

Visibility impairment Visibility impairment 

 Vegetation effects Vegetation effects 

1 The benefits estimates are calculated using four different estimates of the social cost of methane (SC-CH4) 

(model average at 2.5 percent discount rate, 3 percent, and 5 percent; 95th percentile at 3 percent). For purposes of 

this table, we show the benefits associated with the model average at a 3 percent discount rate. However, we 

emphasize the importance and value of considering the benefits calculated using all four SC-CH4 estimates; the 

additional benefit estimates range from $130 million to $780 million in 2020 and $250 million to $1.4 billion in 

2025 for Option 1, as shown in Section 4.3. The CO2-equivalent (CO2 Eq.) methane emission reductions are 5.6 

million metric tons in 2020 and 8.9 million metric tons in 2025. Also, the specific control technologies for the 

NSPS are anticipated to have minor secondary disbenefits. See Section 4.7 for details. 

2 The engineering compliance costs are annualized using a 7 percent discount rate and include estimated revenue 

from additional natural gas recovery as a result of the NSPS. As can be seen in section 3.5.1 of the final RIA, the 

national cost estimates in for this rule are not highly sensitive to the use of a 3 percent or 7 percent discount rate 

in this RIA. As a result, the net benefits of the rule are not highly sensitive to choice of discount rate for 

annualizing capital costs. 

3

 Estimates may not sum due to independent rounding.

 
1-9 

Table 1-3 Summary of the Monetized Benefits, Costs, and Net Benefits for Option 2 

(Finalized Option) in 2020 and 2025 (2012$) 

 2020 2025 

Total Monetized Benefits1 $360 million $690 million 

Total Costs2 $320 million $530 million 

Net Benefits3

 $35 million $170 million 

Non-monetized Benefits Non-monetized climate benefits Non-monetized climate benefits 

Health effects of PM2.5 and ozone 

exposure from 150,000 tons of VOC 

reduced 

Health effects of HAP exposure from 

1,900 tons of HAP reduced 

Health effects of ozone exposure from 

300,000 tons of methane 

Health effects of PM2.5 and ozone 

exposure from 210,000 tons of VOC 

reduced 

Health effects of HAP exposure from 

3,900 tons of HAP reduced 

Health effects of ozone exposure from 

510,000 tons of methane 

Visibility impairment Visibility impairment 

Vegetation effects Vegetation effects 

1 The benefits estimates are calculated using four different estimates of the social cost of methane (SC-CH4) 

(model average at 2.5 percent, 3 percent, and 5 percent; 95th percentile at 3 percent). For purposes of this table, 

we show the benefits associated with the model average at a 3 percent discount rate. However, we emphasize the 

importance and value of considering the benefits calculated using all four SC-CH4 estimates; the additional 

benefit estimates range from $160 million to $950 million in 2020 and $320 million to $1.8 billion in 2025 for 

Option 2, as shown in Section 4.3. The CO2-equivalent (CO2 Eq.) methane emission reductions are 6.9 million 

metric tons in 2020 and 11 million metric tons in 2025. Also, the specific control technologies for the NSPS are 

anticipated to have minor secondary disbenefits. See Section 4.7 for details. 

2 The engineering compliance costs are annualized using a 7 percent discount rate and include estimated revenue 

from additional natural gas recovery as a result of the NSPS. As can be seen in section 3.5.1 of the final RIA, the 

national cost estimates in for this rule are not highly sensitive to the use of a 3 percent or 7 percent discount rate 

in this RIA. As a result, the net benefits of the rule are not highly sensitive to choice of discount rate for 

annualizing capital costs. 

3

 Estimates may not sum due to independent rounding.

 
1-10 

Table 1-4 Summary of the Monetized Benefits, Costs, and Net Benefits for Option 3 in 

2020 and 2025 (2012$) 

 2020 2025 

Total Monetized Benefits1 $420 million $840 million 

Total Costs2 $490 million $880 million 

Net Benefits3

 -$75 million -$38 million 

Non-monetized Benefits 

Non-monetized climate benefits Non-monetized climate benefits 

Health effects of PM2.5 and ozone 

exposure from 160,00 tons of VOC 

reduced 

Health effects of PM2.5 and ozone 

exposure from 230,000 tons of VOC 

reduced 

Health effects of HAP exposure from 

2,400 tons of HAP reduced 

Health effects of HAP exposure from 

5,000 tons of HAP reduced 

Health effects of ozone exposure from 

350,000 tons of methane 

Health effects of ozone exposure from 

610,000 tons of methane 

 Visibility impairment Visibility impairment 

 Vegetation effects Vegetation effects 

1 The benefits estimates are calculated using four different estimates of the social cost of methane (SC-CH4) 

(model average at 2.5 percent, 3 percent, and 5 percent; 95th percentile at 3 percent). For purposes of this table, 

we show the benefits associated with the model average at a 3 percent discount rate. However, we emphasize the 

importance and value of considering the benefits calculated using all four SC-CH4 estimates; the additional 

benefit estimates range from $190 million to $1.1 billion in 2020 and $390 million to $2.2 billion in 2025 for this 

more stringent option, as shown in Section 4.3. The CO2-equivalent (CO2 Eq.) methane emission reductions are 8 

million metric tons in 2020 and 14 million metric tons in 2025. Also, the specific control technologies for the 

NSPS are anticipated to have minor secondary disbenefits. 

2 The engineering compliance costs are annualized using a 7 percent discount rate and include estimated revenue 

from additional natural gas recovery as a result of the NSPS. As can be seen in section 3.5.1 of the final RIA, the 

national cost estimates in for this rule are not highly sensitive to the use of a 3 percent or 7 percent discount rate 

in this RIA. As a result, the net benefits of the rule are not highly sensitive to choice of discount rate for 

annualizing capital costs. 

3

 Estimates may not sum due to independent rounding.

1.5 Summary of NSPS Impacts Changes from the Proposal RIA 

This section summarizes major changes from the proposal version of the RIA. These 

changes were a result of revised assumptions and technical factors, as well as changes in the rule 

itself from proposal. With respect to changes in the rule’s provisions from proposal, we focus on 

changes that have an effect on estimates of emissions reductions, costs, and benefits. 

Changes resulting from revised assumptions and technical factors include: 

• Annual Energy Outlook and National Energy Modeling System updates: At 

proposal, the Energy Information Administration (EIA) 2014 Annual Energy Outlook 

(AEO) was used to derive projections of oil and natural gas well drilling activities. For 

this RIA, we used the 2015 AEO, the latest version available at the time of the signature 

of the rule. Section 3.4.2 presents a brief discussion comparing the 2014 and 2105 AEOs. 
1-11 

The EPA also updated the version of the NEMS model from 2014 to 2015 to develop the 

energy markets impacts presented in Section 6.2 of this RIA.

• EPA Greenhouse Gas Inventory updates: The EPA updated the unit-level cost and 

emissions analyses where possible to reflect recent updates to the Greenhouse Gas 

Inventory. In particular, data from the Greenhouse Gas Reporting program and the 

Greenhouse Gas Inventory was used to update the equipment and component counts and 

potential emissions of the model plants for fugitive emissions. 

• Revised first year of regulatory program: At proposal, 2020 was assumed to represent 

a single year of potential impacts. However, NSPS-affected facilities are facilities that are 

new or modified since the proposal in September 2015. In this final RIA, affected 

facilities in 2020 are those that are newly established or modified in 2020, as well as 

those that have accumulated between 2016 and 2019. As a result, the years of analysis in 

this RIA are 2020, to represent the near-term impacts of the rule, and 2025, to represent 

impacts of the rule over a longer period. This methodological change results in a higher 

estimate of the number of affected facilities than at proposal and better represents the 

impacts of the rule.

• New hydraulically fractured oil well completions with insufficient pressure to 

implement REC required to combust completions emissions: Using the formula 

estimated to identify hydraulically fractured well completions that would not have 

sufficient pressure to perform a REC, approximately 40 percent of oil well completions 

that would otherwise be required to perform a REC would be required to combust 

emissions rather than implement a REC. The overall proportion of completions that are 

assumed to be feasible to REC remains unchanged from the proposal analysis at 50 

percent. More detailed discussion is presented in a technical memorandum on this subject 

in the docket.6

• Revised unit-level emissions and cost estimates: The EPA revised the cost of control 

esimates for fugitive emissions monitoring and pneumatic pumps based on information 

provided by commenters.

• Revised approach to projecting affected facilities from historical activity data: 

Newly constructed affected facilities are estimated based on averaging the year-to-year 

changes in the past 10 years of activity data in the Greenhouse Gas Inventory for 

compressor stations, pneumatic pumps, compressors, and controllers. At proposal, this 

was done by averaging the increasing years only. The approach was modified to average 

the number of newly constructed units in all years. 

The changes in the rules requirements that affect emissions, cost, and benefit estimates 

include: 

• Fugitive emissions: The EPA proposed to exclude low production well sites (e.g., well 

sites where the average combined oil and natural gas production is less than 15 barrels of 

oil equivalent (boe) per day averaged over the first 30 days of production) from the 

standards for the collection of fugitive emissions components at well sites. Based on 

 

6

 [Placeholder for title of low pressure well eequation technical memo] 
1-12 

analysis in response to comments, the EPA is finalizing the requirement that low 

production well sites are regulated under a monitoring and repair standard based on 

semiannual monitoring. With respect to fugitive emissions at compressor stations, based 

on analysis in response to comments, the EPA is finalizing the requirement to implement 

the fugitives program at compressor stations on a quarterly basis, as opposed to the 

proposed semiannual (twice per year) basis. 

• Hydraulically fractured oil well completions: For the final rule, the EPA refined 

requirements that require wells that are not low GOR, low pressure, or 

exploration/delineation wells to have a separator on site during completion flowback. 

Wells with low GOR (less than 300 scf/of gas per stock barrel of oil produced) are still 

excluded from well completion requirements, but, unlike at proposal, they are considered 

affected facilities and their exclusion from requirements is provided the owner or 

operator maintains records of the low GOR certification, and submit a claim signed by 

the certifying official. 

• Pneumatic pumps: The EPA changed the definition of an affected pneumatic pump 

facility to include only natural gas driven pumps in order to incentivize the use of lower 

emitting alternatives. The EPA also exempted chemical injection pumps and portable or 

temporary pumps from control requirements. 

1.6 Organization of this Report 

The remainder of this report details the methodology and the results of the RIA. Section 2 

presents the industry profile of the oil and natural gas industry. Section 3 describes the emissions 

and engineering cost analysis. Section 4 presents the benefits analysis. Section 5 presents a 

comparison of benefits and costs. Section 6 presents energy markets impact, employment impact, 

and small entity impact analyses. 
2-1 

2 INDUSTRY PROFILE 

2.1 Introduction 

The oil and natural gas industry includes five segments: drilling and extraction, 

processing, transportation, refining, and marketing. The Oil and Natural Gas NSPS require 

controls for the oil and natural gas products and processes of the drilling and extraction of crude 

oil and natural gas, natural gas processing, and natural gas transportation segments. 

Most crude oil and natural gas production facilities are classified under NAICS 211: 

Crude Petroleum and Natural Gas Extraction (211111) and Natural Gas Liquid Extraction 

(211112). The drilling of oil and natural gas wells is included in NAICS 213111. Most natural 

gas transmission and storage facilities are classified under NAICS 486210—Pipeline 

Transportation of Natural Gas. While other NAICS (221210—Natural Gas Distribution, 

486110—Pipeline Transportation of Crude Oil, and 541360—Geophysical Surveying and 

Mapping Services) are often included in the oil and natural gas sector, these are not discussed in 

detail in the Industry Profile because they are not directly affected by the final NSPS. 

The outputs of the oil and natural gas industry are inputs for larger production processes 

of gas, energy, and petroleum products. As of 2014, the Energy Information Administration 

(EIA) estimates that about 515,000 producing natural gas wells are operating in the U.S. The 

latest available information from EIA indicates that there were about 536,000 producing oil wells 

in the U.S. as of 2011. Domestic dry natural gas production was 25.7 trillion cubic feet (tcf) in 

2014, the highest annual production level in U.S. history. The leading five natural gas producing 

states in 2014 were Texas, Pennsylvania, Oklahoma, Louisiana and Wyoming. Domestic crude 

oil production in 2014 was 3,200 million barrels (bbl), the highest annual level in the U.S. since 

1991. The leading five crude oil producing states in 2014 were Texas, North Dakota, California, 

Alaska, and Oklahoma. 

The Industry Profile provides a brief introduction to the components of the oil and natural 

gas industry that are relevant to the NSPS. The purpose is to give the reader a general 

understanding of the geophysical, engineering, and economic aspects of the industry that are 

addressed in subsequent economic analyses in this RIA. The Industry Profile relies heavily on 

background material from the EPA’s “Economic Analysis of Air Pollution Regulations: Oil and 
2-2 

Natural Gas Production” (1996), the EPA’s “Sector Notebook Project: Profile of the Oil and Gas 

Extraction Industry” (2000), and the EPA’s “Regulatory Impact Analysis: Final New Source 

Performance Standards and Amendments to the National Emissions Standards for Hazardous Air 

Pollutants for the Oil and Natural Gas Industry” (2012). 

2.2 Products of the Crude Oil and Natural Gas Industry 

Each producing crude oil and natural gas field has its own unique properties. The 

composition of the crude oil and the natural gas as well as the reservoir characteristics are likely 

to be different across all reservoirs. 

2.2.1 Crude Oil 

Crude oil can be broadly classified as paraffinic, naphthenic (or asphalt-based), or 

intermediate. Generally, paraffinic crudes are used in the manufacture of lube oils and kerosene. 

Paraffinic crudes have a high concentration of straight chain hydrocarbons and are relatively low 

in sulfur compounds. Naphthenic crudes are generally used in the manufacture of gasolines and 

asphalt and have a high concentration of olefin and aromatic hydrocarbons. Naphthenic crudes 

may contain a high concentration of sulfur compounds. Intermediate crudes are those that are not 

classified in either of the above categories. 

Another method to classify hydrocarbons, including crude oil, is through the 

measurement of API gravity. API gravity is a weight per-unit of volume measure of a 

hydrocarbon liquid as determined by a method recommended by the American Petroleum 

Institute (API). A heavy or paraffinic crude oil is typically one with an API gravity of 20o

 or less, 

while a light or naphthenic crude oil, which typically flows freely at atmospheric conditions, 

usually has an API gravity in the range of the high 30's to the low 40's. 

Crude oils recovered in the production phase may be referred to as live crudes. Live 

crudes contain entrained or dissolved gases that may be released during processing or storage. 

Dead crudes are those that have gone through various separation and storage phases and contain 

little, if any, entrained or dissolved gases. 
2-3 

2.2.2 Natural Gas 

Natural gas is a mixture of hydrocarbons and varying quantities of non-hydrocarbons that 

exist in a gaseous phase or in a solution with crude oil or other hydrocarbon liquids in natural 

underground reservoirs. Natural gas may contain contaminants, such as hydrogen sulfide (H2S), 

CO2, mercaptans, and entrained solids. 

Natural gas may be classified as a wet gas or dry gas. Wet gas is unprocessed or partially 

processed natural gas produced from a reservoir that contains condensable hydrocarbons. Dry 

gas is either natural gas whose water content has been reduced through dehydration or natural 

gas that contains little or no recoverable liquid hydrocarbons. 

Natural gas is classified as acid, sour or sweet. Acid gas contains CO2 and/or H2S, where 

the concentration of H2S is below the threshold to be classified as sour. Acid gas may contain 

other contaminants. Natural gas is classified as sour when it contains an H2S concentration of 

greater than 0.25 grains per 100 standard cubic feet. Sour gas may also contain other 

contaminants. Concentrations of H2S and CO2, along with organic sulfur compounds, vary 

widely among sour gases. The process by which these two contaminants are removed from the 

natural gas stream is called sweetening, most commonly performed through amine treating. A 

majority of total onshore natural gas production and nearly all offshore natural gas production is 

classified as sweet. 

2.2.3 Condensates 

Condensates are hydrocarbons in a gaseous state under reservoir conditions, but become 

liquid in either the wellbore or the production process. Condensates, including volatile oils, 

typically have an API gravity of 40o

 or more. In addition, condensates may include hydrocarbon 

liquids recovered from gaseous streams from various oil and natural gas production or natural 

gas transmission and storage processes and operations. 
2-4 

2.2.4 Other Recovered Hydrocarbons 

Various hydrocarbons may be recovered through the processing of the extracted 

hydrocarbon streams. These hydrocarbons include mixed natural gas liquids (NGL), natural 

gasoline, propane, butane, and liquefied petroleum gas (LPG). 

2.2.5 Produced Water 

Produced water is the water recovered from a production well. Produced water is 

separated from the extracted hydrocarbon streams in various production processes and 

operations. 

2.3 Oil and Natural Gas Production Processes 

2.3.1 Exploration and Drilling 

Exploration involves the search for rock formations associated with oil or natural gas 

deposits and involves geophysical prospecting and/or exploratory drilling. Well development 

occurs after exploration has located an economically recoverable field and involves the 

construction of one or more wells from the beginning (called spudding) to either well completion 

if hydrocarbons are found in sufficient quantities, or to abandonment otherwise. 

After the site of a well has been located, drilling commences. A well bore is created by 

using a rotary drill to drill into the ground. As the well bore gets deeper, sections of drill pipe are 

added. A mix of fluids called drilling mud are released down into the drill pipe, which then push 

up the walls of the well bore, removing drill cuttings by taking them to the surface. The weight 

of the mud prevents high-pressure reservoir fluids from pushing their way out (“blowing out”). 

The well bore is cased in with telescoping steel piping during drilling to avoid its collapse, to 

prevent water infiltration into the well and to prevent crude oil and natural gas from 

contaminating the water table. The steel pipe is cemented by filling the gap between the steel 

casing and the wellbore with cement. 

Horizontal drilling technology has been available since the 1950s. Horizontal drilling 

facilitates the construction of horizontal wells by allowing for the well bore to run horizontally 

underground, increasing the surface area of contact between the reservoir and the well bore 
2-5 

allowing more oil or natural gas to move into the well. Horizontal wells are particularly useful in 

unconventional gas extraction where the gas is not concentrated in a reservoir. Recent advances 

have made it possible to steer the drill in different directions (directional drilling) from the 

surface without stopping the drill to switch directions and allowing for a more controlled and 

precise drilling trajectory. 

Hydraulic fracturing (also referred to as “fracking”) has been performed since the 1940s 

(U.S. DOE, 2013). Hydraulic fracturing involves pumping fluids into the well under very high 

pressures in order to fracture the formation containing the resource. Proppant, a mixture of sand 

and other materials, is pumped down to hold the fractures open to secure gas flow from the 

formation (U.S. EPA, 2004). 

2.3.2 Production 

Production is the process of extracting the hydrocarbons and separating the mixture of 

liquid hydrocarbons, gas, water, and solids, removing the constituents that are non-saleable, and 

selling the liquid hydrocarbons and gas. The major activities of crude oil and natural gas 

production are bringing the fluid to the surface, separating the liquid and gas components, and 

removing impurities. 

Oil and natural gas are found in the pores of rocks and sand (Hyne, 2001). In a 

conventional source, the oil and natural gas have been pushed out of these pores by water and 

moved until an impermeable surface had been reached. Because the oil and natural gas can travel 

no further, the liquids and gases accumulate in a reservoir. Where oil and gas are associated, a 

gas cap forms above the oil. Natural gas is extracted from a well either because it is associated 

with oil in an oil well or from a pure natural gas reservoir. Once a well has been drilled to reach 

the reservoir, the oil and gas can be extracted in different ways depending on the well pressure 

(Hyne, 2001). 

Frequently, oil and natural gas are produced from the same reservoir. As wells deplete the 

reservoirs into which they are drilled, the gas to oil ratio increases (as does the ratio of water to 

hydrocarbons). This increase of gas over oil occurs because the well is usually drilled into the 

bottom, oil-heavy portion of a formation to recover most of the liquid first, with the natural gas 
2-6 

cap sitting on top. Production sites often handle crude oil and natural gas from more than one 

well (Hyne, 2001). 

Well pressure is required to move the resource up from the well to the surface. During 

primary extraction, pressure from the well itself drives the resource out of the well directly. 

Well pressure depletes during this process. Typically, about 30 to 35 percent of the resource in 

the reservoir is extracted this way (Hyne, 2001). The amount extracted depends on the specific 

well characteristics (such as permeability and oil viscosity). When the well lacks enough 

pressure itself to drive the resource to the surface, gas or water is injected into the well to 

increase the well pressure and force the resource out (secondary or improved oil recovery). 

Finally, in tertiary extraction or enhanced recovery, gas, chemicals or steam are injected into 

the well. This can result in recovering up to 60 percent of the original amount of oil in the 

reservoir (Hyne, 2001).

In contrast to conventional sources, unconventional oil and gas are trapped in rock, sand 

or, in the case of oil, are found in rock as a chemical substance that requires a further chemical 

transformation to become oil (U.S. DOE, 2013). Therefore, the resource does not move into a 

reservoir as in the case with a conventional source. Mining, induced pressure, or heat is required 

to release the resource. The specific type of extraction method needed depends on the type of 

formation where the resource is located. Unconventional oil and natural gas resource types 

relevant for this rule include: 

• Shale Oil and Natural Gas: Shale natural gas comes from sediments of clay mixed with 

organic matter. These sediments form low permeability shale rock formations that do not 

allow the gas to move. To release the gas, the rock must be fragmented, making the 

extraction process more complex than it is for conventional gas extraction. Shale gas can 

be extracted by drilling either vertically or horizontally, and breaking the rock using 

hydraulic fracturing (U.S. DOE, 2013). 

• Tight Sands Natural Gas: Reservoirs are composed of low-porosity sandstones and 

carbonate into which natural gas has migrated from other sources. Extraction of the 

natural gas from tight gas reservoirs is often performed using horizontal wells. Hydraulic 

fracturing is often used in tight sands (U.S. DOE, 2013). 

• Coalbed Methane: Natural gas is present in a coal bed due to the activity of microbes in 

the coal or from alterations of the coal through temperature changes. Horizontal drilling 

is used but given that coalbed methane reservoirs are frequently associated with 

underground water reservoirs, hydraulic fracturing is often restricted (Andrews, 2009). 
2-7 

2.3.3 Natural Gas Processing 

As natural gas is separated from the liquid components, it may contain impurities that 

pose potential hazards or other problems. Natural gas conditioning is the process of removing 

impurities from the gas stream so it is of sufficient quality to pass through transportation systems 

and to be used by final consumers. Conditioning is not always required. Natural gas from some 

formations emerges from the well sufficiently pure that it can be sent directly to the pipeline. 

One concern in natural gas processing is posed by water vapor. At high pressures, water 

can react with components in the gas to form gas hydrates, which are solids that can clog pipes, 

valves, and gauges, especially at cold temperatures (Manning and Thompson, 1991). Nitrogen 

and other gases may also be mixed with the natural gas in the subsurface. These other gases must 

be separated from the methane prior to sale. High vapor pressure hydrocarbons that are liquid at 

surface temperature and pressure (benzene, toluene, ethylbenzene, and xylene, or BTEX) are 

removed and processed separately. 

Dehydration removes water from the gas stream. Three main approaches toward 

dehydration are the use of a liquid desiccant, a solid desiccant, or refrigeration. When using a 

liquid desiccant, the gas is exposed to a glycol that absorbs the water. The water can be 

evaporated from the glycol by a process called heat regeneration and the glycol can then be 

reused. Solid desiccants, often materials called molecular sieves, are crystals with high surface 

areas that attract water molecules. The solids can be regenerated by heating them above the 

boiling point of water and then be reused as well. Finally, particularly for gas extracted from 

deep, hot wells, simply cooling the gas to a temperature below the condensation point of water 

can remove enough water to transport the gas. Of the three approaches mentioned above, glycol 

dehydration is the most common when processing at or near the well. 

The most significant impurity in natural gas is H2S, which may or may not be contained 

in natural gas. H2S is toxic and potentially fatal, at certain concentrations, to humans and it is 

corrosive to pipes. It is therefore desirable to remove H2S as soon as possible in the conditioning 

process. 

Sweetening, the procedure in which H2S and sometimes CO2 are removed from the gas 

stream, is most commonly performed using amine treatment. In this process, the gas stream is 
2-8 

exposed to an amine solution, which will react with H2S and separate it from the natural gas. The 

contaminant gas solution is then heated, thereby separating the gases and regenerating the amine. 

The sulfur gas may be disposed of by flaring, incinerating, or when a market exists, sending it to 

a sulfur-recovery facility to generate elemental sulfur as a salable product. 

2.3.4 Natural Gas Transmission and Distribution 

After processing, natural gas enters a network of compressor stations, high-pressure 

transmission pipelines, and often-underground storage sites. Compressor stations are any facility 

which supplies energy to increase pressure to improve the movement of natural gas through 

transmission pipelines or into underground storage. Typically, compressor stations are located at 

intervals along a transmission pipeline to maintain desired pressure for natural gas transport. 

These stations will use either large internal combustion engines or gas turbines as prime movers 

to provide the necessary horsepower to maintain system pressure. Underground storage facilities 

are subsurface facilities utilized for storing natural gas which has been transferred from its 

original location for the primary purpose of load balancing, which is the process of equalizing 

the receipt and delivery of natural gas. Processes and operations that may be located at 

underground storage facilities include compression and dehydration. 

2.4 Reserves and Markets 

Crude oil and natural gas have historically served two separate and distinct markets. Oil 

is an international commodity, transported and consumed throughout the world. Natural gas, on 

the other hand, has historically been consumed close to where it is produced. However, as 

pipeline infrastructure and LNG trade expand, natural gas is increasingly a national and 

international commodity. The following subsections provide historical and forecast data on the 

U.S. reserves, production, consumption, and foreign trade of crude oil and natural gas.
2-9 

2.4.1 Domestic Proved Reserves 

Table 2-1 shows crude oil and dry natural gas proved reserves, unproved reserves, and 

total technically recoverable resources as of 2009. The EIA7

 defines these concepts as: 

• Proved reserves: estimated quantities of energy sources that analysis of geologic and 

engineering data demonstrates with reasonable certainty are recoverable under 

existing economic and operating conditions. 

• Unproved resources: additional volumes estimated to be technically recoverable 

without consideration of economics or operating conditions, based on the application 

of current technology. 

• Total technically recoverable resources: resources that are producible using current 

technology without reference to the economic viability of production. 

According to the EIA, dry natural gas is consumer-grade natural gas. The dry natural gas 

volumes reported in Table 2-1 reflect the amount of gas remaining after the liquefiable portion 

and any non-hydrocarbon gases that render it unmarketable have been removed from the natural 

gas. The sum of proved reserves and unproved reserves equal the total technically recoverable 

resources. As seen in Table 2-1, as of 2009, proved domestic crude oil reserves accounted for 

about 10 percent of the total technically recoverable crude oil resources. 

Total proved natural gas reserves, accounted for about 12 percent of the total technically 

recoverable natural gas resources. Significant proportions of these reserves exist in Alaska and in 

offshore areas. While dry natural gas proved reserves were estimated at 272.5 tcf in 2009, wet 

natural gas reserves were estimated at 283.9 tcf. Of the 283.9 tcf, 250.5 tcf (about 88 percent) 

were considered to be wet non-associated natural gas, while 33.3 tcf (about 12 percent) were 

considered to be wet associated-dissolved natural gas. Associated-dissolved natural gas, 

according to EIA, is natural gas that occurs in crude oil reservoirs as free natural gas or in 

solution with crude oil. 

 

7

 U.S. Department of Energy, Energy Information Administration, Glossary of Terms 

<http://www.eia.doe.gov/glossary/index.cfm?id=P> Accessed 12/21/2010. 
2-10 

Table 2-1 Technically Recoverable Crude Oil and Natural Gas Resource 

 Estimates, 2009 

Region Proved Reserves 

Unproved 

Resources 

Total Technically 

Recoverable 

Resources 

Crude Oil and Lease Condensate (billion barrels) 

 48 States Onshore 14.2 112.6 126.7 

 48 States Offshore 4.6 50.3 54.8 

 Alaska 3.6 35.0 38.6 

 Total U.S. 22.3 197.9 220.2 

 

Dry Natural Gas (trillion cubic feet) 

 Conventionally Reservoired Fields 105.5 904.0 1,009.5 

 48 States Onshore 1 81.4 369.7 451.1 

 48 States Offshore 15.0 262.6 277.6 

 Alaska 9.1 271.7 280.8 

Tight Gas, Shale Gas and Coalbed Methane 167.1 1,026.7 1,193.8 

Total U.S. 272.5 1,930.7 2,203.3 

Source: U.S. Energy Information Administration, Annual Energy Review 2012. Totals may not sum due to 

independent rounding. 

1

 Includes associated-dissolved natural gas that occurs in crude oil reservoirs either as free gas (associated) or as gas 

in solution with crude oil (dissolved gas). 

 Table 2-2 and Figure 2-1 show trends in crude oil and natural gas production and reserves 

from 1990 to 2014. In Table 2-2, proved ultimate recovery equals the sum of cumulative 

production and proved reserves. Cumulative production is the accumulated crude oil or dry 

natural gas that has been produced over time. While crude oil and natural gas are nonrenewable 

resources, the table shows that proved ultimate recovery rises over time as new discoveries 

become economically accessible. Reserves growth and decline is also partly a function of 

exploration activities, which are correlated with oil and natural gas prices. For example, when oil 

prices are high there is more of an incentive to use secondary and tertiary recovery, as well as to 

develop unconventional sources. Annual production (the difference in cumulate production over 

one year) as a percentage of proved reserves has declined over time for both crude oil and natural 

gas from around 11 percent in the early 1990s to between 8 and 10 percent over the period from 

2006 to 2014 for crude oil and from about 10 percent during the early 1990s to between 7 and 9 

percent from 2006 to 2014 for natural gas. 
2-11 

Table 2-2 Crude Oil and Natural Gas Cumulative Domestic Production, Proved 

Reserves, and Proved Ultimate Recovery, 1990-2014 

 Crude Oil and Lease Condensate 

(million barrels) 

Dry Natural Gas 

(Billion Cubic Feet or bcf) 

 

Cumulative 

Production 

Proved 

Reserves 

Proved Ult. 

Recovery 

Cumulative 

Production 

Proved 

Reserves 

Proved Ult. 

Recovery 

1990 158,175 26,254 184,429 744,546 169,346 913,892

1991 160,882 24,682 185,564 762,244 167,062 929,306

1992 163,507 23,745 187,252 780,084 165,015 945,099

1993 166,006 22,957 188,963 798,179 162,415 960,594

1994 168,437 22,457 190,894 817,000 163,837 980,837

1995 170,831 22,351 193,182 835,599 165,146 1,000,745 

1996 173,197 22,017 195,214 854,453 166,474 1,020,927 

1997 175,552 22,546 198,098 873,355 167,223 1,040,578 

1998 177,834 21,034 198,868 892,379 164,041 1,056,420 

1999 179,981 21,765 201,746 911,211 167,406 1,078,617 

2000 182,112 22,045 204,157 930,393 177,427 1,107,820 

2001 184,229 22,446 206,675 950,009 183,460 1,133,469 

2002 186,326 22,677 209,003 968,937 186,946 1,155,883 

2003 188,388 21,891 210,279 988,036 189,044 1,177,080 

2004 190,379 21,371 211,750 1,006,627 192,513 1,199,140 

2005 192,270 21,757 214,027 1,024,677 204,385 1,229,062 

2006 194,127 20,972 215,099 1,043,181 211,085 1,254,266 

2007 195,981 21,317 217,298 1,062,447 237,726 1,300,173 

2008 197,811 19,121 216,932 1,082,605 244,656 1,327,261 

2009 199,765 20,682 220,447 1,103,229 272,509 1,375,738 

2010 201,764 23,267 225,031 1,124,545 304,625 1,429,170 

2011 203,822 26,544 230,366 1,147,447 334,067 1,481,514 

2012 206,192 30,529 236,721 1,171,480 308,036 1,479,516 

2013 208,913 33,371 242,284 1,195,685 338,264 1,533,949 

2014 212,092 36,385 248,477 1,221,414 368,704 1,590,118 

Source: U.S. Energy Information Administration (U.S. EIA). November 2015. U.S. Crude Oil and Natural Gas 

Proved Reserves, 2014. Table 7 and Table 17. 

<http://www.eia.gov/naturalgas/crudeoilreserves/pdf/usreserves.pdf>. Accessed January 15, 2016. 

Source: U.S. Energy Information Administration (U.S. EIA). 2014. Natural Gas Annual 2014. 

<http://www.eia.gov/naturalgas/annual/pdf/nga14.pdf>. Accessed January 22, 2016. 

Source: U.S. Energy Information Administration (U.S. EIA). Crude Oil Production. 

<http://www.eia.gov/dnav/pet/pet_crd_crpdn_adc_mbbl_a.htm>. Accessed on January 29, 2016. 

Note: Cumulative Crude Oil Production includes Crude Oil plus Lease Condensate Production. 

Note: The EIA reports Proved Reserves for Crude Oil and Proved Reserves for Crude Oil plus Lease Condensate 

separately. We have reported Proved Reserves for Crude Oil here. 
2-12 

Figure 2-1 A) Domestic Crude Oil Proved Reserves and Cumulative Production, 1990-

2013. B) Domestic Natural Gas Proved Reserves and Cumulative Production, 1990-2013 

Source: U.S. Energy Information Administration (U.S. EIA). November 2015. U.S. Crude Oil and Natural Gas 

Proved Reserves, 2014. Table 7 and Table 17. <http://www.eia.gov/naturalgas/crudeoilreserves/pdf/usreserves.pdf>. 

Accessed January 15, 2016. 

Source: U.S. Energy Information Administration (U.S. EIA). 2014. Natural Gas Annual 2014. 

<http://www.eia.gov/naturalgas/annual/pdf/nga14.pdf>. Accessed January 22, 2016. 

Source: U.S. Energy Information Administration (U.S. EIA). Crude Oil Production. 

<http://www.eia.gov/dnav/pet/pet_crd_crpdn_adc_mbbl_a.htm>. Accessed on January 29, 2016. 

Table 2-3 presents the U.S. proved reserves of crude oil and natural gas by state or 

producing area as of 2014. Five areas currently account for 79 percent of total proved reserves of 

crude oil in the U.S., led by Texas and followed by North Dakota, U.S. Federal Offshore, Alaska, 

and California. The top five states in terms of proved reserves of natural gas, Texas, 
2-13 

Pennsylvania, Oklahoma, West Virginia, and Wyoming, account for about 67 percent of the U.S. 

total proved natural gas reserves. 

Table 2-3 Crude Oil and Dry Natural Gas Proved Reserves by State, 2013 

State/Region 

Crude Oil 

(million bbls) 

Dry Natural Gas 

(bcf) 

Crude Oil 

(% of total) 

Dry Natural Gas 

(% of total) 

Alabama 66 2,036 0.2 0.6 

Alaska 2,855 6,745 7.8 1.8 

Arkansas 65 12,789 0.2 3.5 

California 2,854 2,107 7.8 0.6 

Colorado 1,200 20,851 3.3 5.7 

Florida 70 0 0.2 0.0 

Kansas 414 4,359 1.1 1.2 

Kentucky 16 1,611 0.0 0.4 

Louisiana 534 22,975 1.5 6.2 

Michigan 53 1,845 0.1 0.5 

Miscellaneous States ** 84 2,976 0.2 0.8 

Mississippi 230 558 0.6 0.2 

Montana 444 667 1.2 0.2 

New Mexico 1,476 15,283 4.1 4.1 

New York * 143 * 0.0 

North Dakota 6,043 6,034 16.6 1.6 

Ohio 78 6,723 0.2 1.8 

Oklahoma 1,241 31,778 3.4 8.6 

Pennsylvania 22 59,873 0.1 16.2 

Texas 12,272 97,154 33.7 26.4 

U.S. Federal Offshore 4,849 8,527 13.3 2.3 

Utah 555 6,685 1.5 1.8 

West Virginia 11 29,432 0.0 8.0 

Wyoming 953 27,553 2.6 7.5 

 

Total Proved Reserves 36,385 368,704 100.0 100.0 

Source: U.S. Energy Information Administration (U.S. EIA). November 2015. U.S. Crude Oil and Natural Gas 

Proved Reserves, 2014. Table 7 and Table 17. 

<http://www.eia.gov/naturalgas/crudeoilreserves/pdf/usreserves.pdf>. Accessed January 15, 2016. 

Total may not sum due to independent rounding. 

* New York crude oil reserves are included in miscellaneous states 

**Miscellaneous for crude oil includes Arizona, Idaho, Missouri, Nevada, New York, South Dakota, Tennessee & 

Virginia as well as Illinois, Indiana, and Nebraska. 

**Miscellaneous for dry natural gas includes Arizona, Idaho, Illinois, Indiana, Maryland, Missouri, Nebraska, 

Oregon, South Dakota & Tennessee as well as Virginia. 

2.4.2 Domestic Production 

Domestic oil production was in a state of decline that began in 1970 and continued to a 

low point in 2008. As of 2014, domestic oil production has recovered to the highest levels since 

1991. Table 2-4 shows U.S. production in 2014 at 3,179 million bbl per year. 
2-14 

Table 2-4 Crude Oil Domestic Production, Wells, Well Productivity, and U.S. Average 

First Purchase Price, 1990-2014 

 

Total 

Production 

(million barrels) 

Producing Wells 

(1000s) 

Avg. Well 

Productivity 

(bbl/well) 

US Average 

First Purchase 

Price/Barrel 

(nominal 

dollars) 

US Average 

First Purchase 

Price/Barrel 

(2012 dollars) 

1990 2,685 602 4,460 20.03 31.56 

1991 2,707 614 4,409 16.54 25.22 

1992 2,625 594 4,419 15.99 23.84 

1993 2,499 584 4,279 14.25 20.75 

1994 2,431 582 4,178 13.19 18.81 

1995 2,394 574 4,171 14.62 20.42 

1996 2,366 574 4,122 18.46 25.32 

1997 2,355 573 4,110 17.23 23.24 

1998 2,282 562 4,060 10.87 14.50 

1999 2,147 546 3,932 15.56 20.45 

2000 2,131 534 3,990 26.72 34.33 

2001 2,118 530 3,995 21.84 27.44 

2002 2,097 529 3,963 22.51 27.85 

2003 2,062 513 4,019 27.56 33.43 

2004 1,991 510 3,905 36.77 43.41 

2005 1,891 498 3,798 50.28 57.51 

2006 1,857 497 3,737 59.69 66.24 

2007 1,853 500 3,706 66.52 71.90 

2008 1,830 526 3,479 94.04 99.69 

2009 1,954 526 3,715 56.35 59.29 

2010 1,999 520 3,844 74.71 77.66 

2011 2,058 536 3,840 95.73 97.50 

2012 2,370 N/A N/A 94.52 94.52 

2013 2,721 N/A N/A 95.99 94.45 

2014 3,179 N/A N/A 87.39 84.60 

Source: U.S. Energy Information Administration (U.S. EIA). Crude Oil Production. 

<http://www.eia.gov/dnav/pet/pet_crd_crpdn_adc_mbbl_a.htm>. Accessed on January 29, 2016. 

Source: U.S. Energy Information Administration (U.S. EIA). U.S. Crude Oil First Purchase Price. 

<https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=f000000__3&f=a>. Accessed on January 22, 2016. 

Source: Federal Reserve Bank of St. Louis. Economic Research. Gross Domestic Product: Implicit Price Deflator. 

<https://research.stlouisfed.org/fred2/series/GDPDEF>. Accessed February 3, 2016. 

Note: First purchase price represents the average price at the lease or wellhead at which domestic crude is 

purchased. Prices adjusted using GDP Implicit Price Deflator. 

Note: Total Production includes Crude Oil plus Lease Condensate Production. 

 

 Average well productivity has also generally decreased since 1990 (Table 2-4 and Figure 

2-2), though there are signs of a slight rebounding starting around 2008. These overall 

production and productivity decreases are in spite of the fact that average first purchase prices 

have generally shown an increasing trend with some decline in 2014. 
2-15 

Figure 2-2 A) Total Producing Crude Oil Wells and Average Well Productivity, 1990-

2011. B) Total Producing Natural Gas Wells and Average Well Productivity, 1990-2014. 

Source: U.S. Energy Information Administration (U.S. EIA). 2014. Natural Gas Annual 2014. 

<http://www.eia.gov/naturalgas/annual/pdf/nga14.pdf>. Accessed January 22, 2016.

Annual production of natural gas from natural gas wells has increased more than 8000 

bcf from the 1990 to 2014 (Table 2-5). The number of wells producing natural gas has nearly 

doubled between 1990 and 2014 (Figure 2-2B). While the number of producing wells has 

increased overall, average well productivity has declined, despite improvements in exploration 

and gas well stimulation technologies. Average well productivity has shown slight improvements 

since 2009. 

0

1,000

2,000

3,000

4,000

5,000

0

100

200

300

400

500

600

700

Crude Oil (bbl)/Well

Producing Wells

A). Crude Oil Wells

Producing Wells (1000s) Avg. Well Productivity (bbl/well)
2-16 

Table 2-5 Natural Gas Production and Well Productivity, 1990-2014 

 

Natural Gas Gross Withdrawals 

(Billion Cubic Feet) 

Natural Gas Well 

Productivity 

 Total 

Dry Gas 

Production 1

Producing 

Wells 

Avg. Well 

Productivity 

Million Cubic 

Feet/Year) 

1990 21,523 17,810 269,790 66.0 

1991 21,750 17,698 276,987 63.9 

1992 22,132 17,840 276,014 64.6 

1993 22,726 18,095 282,152 64.1 

1994 23,581 18,821 291,773 64.5 

1995 23,744 18,599 298,541 62.3 

1996 24,114 18,854 301,811 62.5 

1997 24,213 18,902 310,971 60.8 

1998 24,108 19,024 316,929 60.0 

1999 23,823 18,832 302,421 62.3 

2000 24,174 19,182 341,678 56.1 

2001 24,501 19,616 373,304 52.5 

2002 23,941 18,928 387,772 48.8 

2003 24,119 19,099 393,327 48.6 

2004 23,970 18,591 406,147 45.8 

2005 23,457 18,051 425,887 42.4 

2006 23,535 18,504 440,516 42.0 

2007 24,664 19,266 452,945 42.5 

2008 25,636 20,159 476,652 42.3 

2009 26,057 20,624 493,100 41.8 

2010 26,816 21,316 487,627 43.7 

2011 28,479 22,902 514,637 44.5 

2012 29,542 24,033 482,822 49.8 

2013 29,523 24,206 484,994 49.9 

2014 31,346 25,728 514,786 50.0 

Source: U.S. Energy Information Administration (U.S. EIA). 2014. Natural Gas Annual 2014. 

<http://www.eia.gov/naturalgas/annual/pdf/nga14.pdf>. Accessed January 22, 2016. 

1 Dry gas production is gas production after accounting for gas used repressurizing wells, the removal of 

nonhydrocarbon gases, vented and flared gas, and gas used as fuel during the production process. 

 Domestic exploration and development for oil has continued during the last two decades. 

From 2002 to 2010, crude oil well drilling showed significant increases, although the 1992-2004 

period showed relatively low levels of crude drilling activity compared to periods before and 

after (Table 2-6). The drop in 2009 showed a departure from the increasing trend, likely due to 

the recession experienced in the U.S.

Meanwhile, natural gas drilling has increased significantly during the 1990-2010 period. 

Like crude oil drilling, 2009 and 2010 saw a relatively low level of natural gas drillings. The 
2-17 

success rate of wells (producing wells versus dry wells) has also increased gradually over time 

from 75 percent in 1990, to 86 percent in 2000, to a peak of 90 percent in 2009 (Table 2-6). The 

increasing success rate reflects improvements in exploration technology, as well as technological 

improvements in well drilling and completion. Similarly, average well depth has increased by an 

estimated 1,227 feet during this period (Table 2-6). 

Table 2-6 Crude Oil and Natural Gas Exploratory and Development Wells and 

Average Depth, 1990-2010 

 Wells Drilled 

Year Crude Oil Natural Gas Dry Holes Total 

Successful 

Wells (%) 

Average 

Depth (ft) 

1990 12,445 11,126 8,496 32,067 75 4,881 

1991 12,035 9,611 7,882 29,528 75 4,920 

1992 9,019 8,305 6,284 23,608 75 5,202 

1993 8,764 10,174 6,513 25,451 75 5,442 

1994 7,001 9,739 5,515 22,255 77 5,795 

1995 7,827 8,454 5,319 21,600 77 5,636 

1996 8,760 9,539 5,587 23,886 79 5,617 

1997 10,445 11,186 5,955 27,586 79 5,691 

1998 6,979 11,127 4,805 22,911 80 5,755 

1999 4,314 11,121 3,504 18,939 83 5,090 

2000 8,090 17,051 4,146 29,287 86 4,961 

2001 8,888 22,072 4,598 35,558 87 5,087 

2002 6,775 17,342 3,754 27,871 87 5,232 

2003 8,129 20,722 3,982 32,833 88 5,426 

2004 8,789 24,186 4,082 37,057 89 5,547 

2005 10,779 28,590 4,653 44,022 89 5,508 

2006 13,385 32,838 5,206 51,429 90 5,613 

2007 13,371 32,719 4,981 51,071 90 6,064 

2008 16,633 32,246 5,423 54,302 90 5,964 

2009* 11,190 18,088 3,525 32,803 90 6,202 

2010* 15,753 16,696 4,162 36,611 89 6,108 

Source: U.S. Energy Information Administration 

* Average Depth values for 2009-2010 are estimates.

Produced water is an important byproduct of the oil and natural gas industry, as 

management, including reuse and recycling, of produced water can be costly and challenging. 

Texas, California, Wyoming, Oklahoma, and Kansas were the top five states in terms of 

produced water volumes in 2007 (Table 2-7). These estimates do not include estimates of 
2-18 

flowback water from hydraulic fracturing activities (ANL 2009). As can be seen in Table 2-7, 

the amount of water produced is not necessarily correlated with the ratio of water produced to the 

volume of oil or natural gas produced. Texas, Alaska and Wyoming were the three largest 

producers in barrels of oil equivalent (boe) terms, but had relatively low produced water to oil 

ratios compared to states like Illinois, Florida, Missouri, Indiana and Kansas. 
2-19 

Table 2-7 U.S. Onshore and Offshore Oil, Gas, and Produced Water Generation, 2007 

State 

Crude Oil 

(1000 bbl) 

Total Gas 

(bcf) 

Produced Water 

(1000 bbl) 

Total Oil and 

Natural Gas 

(1000 bbls oil 

equivalent) 

Barrels 

Produced 

Water per 

Barrel Oil 

Equivalent 

Alabama 5,028 285 119,004 55,758 2.13 

Alaska 263,595 3,498 801,336 886,239 0.90 

Arizona 43 1 68 221 0.31 

Arkansas 6,103 272 166,011 54,519 3.05 

California 244,000 312 2,552,194 299,536 8.52 

Colorado 2,375 1,288 383,846 231,639 1.66 

Florida 2,078 2 50,296 2,434 20.66 

Illinois 3,202 no data 136,872 3,202 42.75 

Indiana 1,727 4 40,200 2,439 16.48 

Kansas 36,612 371 1,244,329 102,650 12.12 

Kentucky 3,572 95 24,607 20,482 1.20 

Louisiana 52,495 1,382 1,149,643 298,491 3.85 

Michigan 5,180 168 114,580 35,084 3.27 

Mississippi 20,027 97 330,730 37,293 8.87 

Missouri 80 no data 1,613 80 20.16 

Montana 34,749 95 182,266 51,659 3.53 

Nebraska 2,335 1 49,312 2,513 19.62 

Nevada 408 0 6,785 408 16.63 

New Mexico 59,138 1,526 665,685 330,766 2.01 

New York 378 55 649 10,168 0.06 

North Dakota 44,543 71 134,991 57,181 2.36 

Ohio 5,422 86 6,940 20,730 0.33 

Oklahoma 60,760 1,643 2,195,180 353,214 6.21 

Pennsylvania 1,537 172 3,912 32,153 0.12 

South Dakota 1,665 12 4,186 3,801 1.10 

Tennessee 350 1 2,263 528 4.29 

Texas 342,087 6,878 7,376,913 1,566,371 4.71 

Utah 19,520 385 148,579 88,050 1.69 

Virginia 19 112 1,562 19,955 0.08 

West Virginia 679 225 8,337 40,729 0.20 

Wyoming 54,052 2,253 2,355,671 455,086 5.18 

State Total 1,273,759 21,290 20,258,560 5,063,379 4.00 

Federal 

Offshore 467,180 2,787 587,353 963,266 0.61 

Tribal Lands 9,513 297 149,261 62,379 2.39 

Federal Total 476,693 3,084 736,614 1,025,645 0.72 

U.S. Total 1,750,452 24,374 20,995,174 6,089,024 3.45 

Source: Argonne National Laboratory and Department of Energy (2009). Natural gas production converted to 

barrels oil equivalent to facilitate comparison using the conversion of 0.178 barrels of crude oil equals 1000 

cubic feet natural gas. Totals may not sum due to independent rounding. 
2-20 

 Figure 2-3 shows the distribution of produced water management practices in 2007. More 

than half of the water produced (51 percent) was re-injected to enhance resource recovery 

through maintaining reservoir pressure or hydraulically pushing oil from the reservoir. About 

one third (34 percent) was injected, typically into wells whose primary purpose is to sequester 

produced water. A small percentage (three percent) was discharged into surface water when it 

met water quality criteria. The destination of the remaining produced water (11 percent, the 

difference between the total managed and total generated) is uncertain (ANL, 2009).

Figure 2-3 U.S. Produced Water Volume by Management Practice, 2007 

The movement of crude oil and natural gas primarily takes place via pipelines. Total 

crude oil pipeline mileage decreased during the 1990-2010 period, appearing to follow the 

downward supply trend shown in Table 2-4. Since 2010, total crude oil pipeline mileage has 

increased by over 12,000 miles (Table 2-8). 

Table 2-8 splits natural gas pipelines into four types: distribution mains, distribution 

service, transmission pipelines, and gathering lines. Gathering lines are low-volume pipelines 

that gather natural gas from production sites and deliver it directly to gas processing plants or 

compression stations which connect numerous gathering lines to transport gas primarily to 

processing plants. Transmission pipelines move large volumes of gas to or from processing 

plants and distribution points. From these distribution points, the gas enters a distribution system 

that delivers the gas to final consumers. Mileage on the distribution side, distribution mains and 

51%

34%

3%

11%

Injection for

Enhanced Recovery 

Injection or

Disposal 

Surface Discharge 

Unknown

Source: Argonne National Laboratory 
2-21 

distribution service, has increased while transmission pipeline and gathering line mileage has 

decreased. Since 2010, total natural gas pipeline has increased by over 61,000 miles. 

Table 2-8 U.S. Oil and Natural Gas Pipeline Mileage, 2010-2014 

 

Natural Gas 

Pipelines (miles) 

Crude Oil 

Pipelines 

(miles) 

 

Distribution 

mains 

Distribution 

Service 

Transmission 

pipelines 

Gathering 

lines Total Total 

2010 1,229,725 872,466 304,805 19,626 2,426,622 54,631 

2011 1,238,947 881,955 305,058 19,350 2,445,310 56,100 

2012 1,247,231 890,361 303,341 16,532 2,457,465 57,463 

2013 1,255,145 894,283 302,827 17,369 2,469,624 61,087 

2014 1,266,039 902,772 301,806 17,621 2,488,238 66,700 

Source: U.S. Department of Transportation, Pipeline and Hazardous Materials Safety Administration, Office of 

Pipeline Safety, Annual Report Mileage Summary Statistics, available at <http://phmsa.dot.gov/pipeline/library/datastats> as of January 4, 2016.

2.4.3 Domestic Consumption 

Historical crude oil sector-level consumption trends for 1990 through 2012 are shown in 

Table 2-9 and Figure 2-4. Total consumption rose gradually until 2008, when total consumption 

basically leveled off as a result of the economic recession. The share of residential, commercial, 

industrial, and electric power on a percentage basis declined during this period, while the 

percentage of the share of total consumption by the transportation sector rose from 64 percent in 

1990 to 71 percent in 2012. 
2-22 

Table 2-9 Crude Oil Consumption by Sector, 1990-2012 

 Percent of Total 

 

Total 

(million 

barrels) 

Residential and 

Commercial Industrial 

Transportation 

Sector 

Electric 

Power 

1990 6,178 7.3 25.1 64.3 3.3 

1991 6,068 7.3 24.9 64.7 3.2 

1992 6,209 7.1 26.1 64.3 2.6 

1993 6,277 6.9 25.3 65.0 2.9 

1994 6,439 6.6 26.0 64.8 2.6 

1995 6,402 6.4 25.7 66.0 1.9 

1996 6,627 6.7 26.1 65.2 2.0 

1997 6,726 6.3 26.4 65.1 2.2 

1998 6,837 5.7 25.4 65.8 3.1 

1999 7,053 6.1 25.6 65.5 2.8 

2000 6,984 4.6 25.1 67.6 2.6 

2001 6,963 4.6 25.1 67.4 2.9 

2002 6,990 4.2 25.2 68.3 2.2 

2003 7,091 4.6 24.8 67.9 2.7 

2004 7,399 4.4 25.3 67.7 2.6 

2005 7,530 5.8 24.2 67.3 2.6 

2006 7,506 5.0 24.8 68.9 1.4 

2007 7,517 5.1 24.1 69.5 1.4 

2008 7,095 5.5 23.0 70.4 1.1 

2009 6,849 5.5 22.2 71.4 1.0 

2010 6,994 5.2 22.8 71.0 0.9 

2011 7,013 5.0 23.2 71.1 0.7 

2012 6,902 5.0 23.4 71.1 0.5 

Source: U.S. Energy Information Administration. 
2-23 

Figure 2-4 Crude Oil Consumption by Sector (Percent of Total Consumption), 1990-

2012 

Natural gas consumption has increased over the last twenty years. From 1990 to 2014, 

total U.S. consumption increased by an average of about 1.6 percent per year (Table 2-10 and 

Figure 2-5). Over this period, the percentage of natural gas consumed by the industrial sector 

declined, whereas the percent of total natural gas used for electric power generation increased 

dramatically, an important trend in the industry as many utilities increasingly use natural gas for 

peak generation or switch from coal-based to natural gas-based electricity generation. The 

residential sector demand has bounced around between about 23 and 19 percent, where the lower 

percentage of total demand falls mainly in the years post 2008 with slightly larger dip in 2012. 

Commercial sector demand hovered around 13 and 14 percent, also with a slight dip in 2012. 

The transportation sector has maintained a fairly constant consumption level of right around 3 

percent between 1990 and 2014. 

 

0%

10%

20%

30%

40%

50%

60%

70%

80%

Consumption (% of total)

Residential and Commercial Industrial

Transportation Sector Electric Power
2-24 

Table 2-10 Natural Gas Consumption by Sector, 1990-2014

 Percent of Total 

 Total (tcf) Residential Commercial Industrial 

Electric 

Power Transportation 

1990 19.17 22.9 13.7 43.1 16.9 3.4 

1991 19.56 23.3 13.9 42.7 17.0 3.1 

1992 20.23 23.2 13.9 43.0 17.0 2.9 

1993 20.79 23.8 13.8 42.7 16.7 3.0 

1994 21.25 22.8 13.6 42.0 18.4 3.2 

1995 22.21 21.8 13.6 42.3 19.1 3.2 

1996 22.61 23.2 14.0 42.8 16.8 3.2 

1997 22.74 21.9 14.1 42.7 17.9 3.3 

1998 22.25 20.3 13.5 42.7 20.6 2.9 

1999 22.41 21.1 13.6 40.9 21.5 2.9 

2000 23.33 21.4 13.6 39.8 22.3 2.8 

2001 22.24 21.5 13.6 38.1 24.0 2.9 

2002 23.03 21.2 13.7 37.5 24.6 3.0 

2003 22.28 22.8 14.3 37.1 23.1 2.7 

2004 22.40 21.7 14.0 37.3 24.4 2.6 

2005 22.01 21.9 13.6 35.0 26.7 2.8 

2006 21.70 20.1 13.1 35.3 28.7 2.8 

2007 23.10 20.4 13.0 34.1 29.6 2.8 

2008 23.28 21.0 13.5 33.9 28.6 2.9 

2009 22.91 20.9 13.6 32.5 30.0 3.0 

2010 24.09 19.9 12.9 33.7 30.7 2.9 

2011 24.48 19.3 12.9 34.0 30.9 2.9 

2012 25.54 16.2 11.3 33.8 35.7 3.0 

2013 26.16 18.7 12.6 34.1 31.3 3.3 

2014 26.69 19.1 13.0 34.2 30.5 3.3 

Source: U.S. Energy Information (U.S. EIA). Monthly Energy Review. Table 4.3 Natural Gas Consumption by 

Sector data. < http://www.eia.gov/beta/MER/index.cfm?tbl=T04.03#/?f=A&start=1990&end=2014&charted=1-

2-9-13-14>. Accessed February 3, 2016. 

Note: Industrial Consumption is reported as Lease and Plant Fuel, Other Industrial: CHP, and Other Industrial: 

Non-CHP 
2-25 

Figure 2-5 Natural Gas Consumption by Sector (Percent of Total Consumption), 1990-

2012 

Source: U.S. Energy Information (U.S. EIA). Monthly Energy Review. Table 4.3 Natural Gas Consumption by 

Sector data. < http://www.eia.gov/beta/MER/index.cfm?tbl=T04.03#/?f=A&start=1990&end=2014&charted=1-2-9-

13-14>. Accessed February 3, 2016. 

2.4.4 International Trade 

Until 2006, net trade of crude oil and refined petroleum products increased, showing 

increased substitution of imports for domestic production, as well as imports satisfying growing 

consumer demand in the U.S. (Table 2-11). Since then, however, imports have been declining 

while exports have been rising, leading to significant declines in net trade or crude oil and 

petroleum products. 

 

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Consumption (% of total)

Residential Commercial

Industrial Electric Power

Transportation
2-26 

Table 2-11 Total Crude Oil and Petroleum Products Trade (Million Bbl), 

1990-2014

 Imports Exports Net Imports 

 

Crude 

Oil 

Petroleum 

Products Total 

Crude 

Oil 

Petroleum 

Products Total 

Crude 

Oil 

Petroleum 

Products Total 

1990 2,151 775 2,926 40 273 313 2,112 502 2,614 

1991 2,111 673 2,784 42 323 365 2,068 350 2,418 

1992 2,226 661 2,887 32 315 348 2,194 345 2,539 

1993 2,477 669 3,146 36 330 366 2,441 339 2,780 

1994 2,578 706 3,284 36 308 344 2,542 398 2,940 

1995 2,639 586 3,225 35 312 346 2,604 274 2,878 

1996 2,748 721 3,469 40 319 359 2,708 403 3,110 

1997 3,002 707 3,709 39 327 366 2,963 380 3,343 

1998 3,178 731 3,908 40 305 345 3,137 426 3,564 

1999 3,187 774 3,961 43 300 343 3,144 474 3,618 

2000 3,320 874 4,194 18 362 381 3,301 512 3,813 

2001 3,405 928 4,333 7 347 354 3,398 581 3,979 

2002 3,336 872 4,209 3 356 359 3,333 517 3,849 

2003 3,528 949 4,477 5 370 375 3,523 579 4,102 

2004 3,692 1119 4,811 10 374 384 3,682 745 4,427 

2005 3,696 1310 5,006 12 414 425 3,684 896 4,580 

2006 3,693 1310 5,003 9 472 481 3,684 838 4,523 

2007 3,661 1255 4,916 10 513 523 3,651 742 4,393 

2008 3,581 1146 4,727 10 649 659 3,570 497 4,068 

2009 3,290 977 4,267 16 723 739 3,274 255 3,528 

2010 3,363 942 4,305 15 843 859 3,348 98 3,446 

2011 3,261 913 4,174 17 1073 1,090 3,244 -160 3,084 

2012 3,121 758 3,879 25 1148 1,173 3,096 -390 2,706 

2013 2,821 777 3,598 49 1273 1,322 2,773 -496 2,277 

2014 2,681 692 3,373 128 1396 1,524 2,552 -704 1,849

Sources: U.S. Energy Information Administration (U.S. EIA). U.S. Imports by Country of Origin. 

<http://www.eia.gov/dnav/pet/pet_move_impcus_a2_nus_ep00_im0_mbbl_a.htm>. Accessed January 22, 2016. 

U.S. Energy Information Administration (U.S. EIA). U.S. Exports by Destination. 

<https://www.eia.gov/dnav/pet/pet_move_expc_a_EP00_EEX_mbbl_a.htm>. Accessed January 22, 2016. 

From 1990 to 2007, natural gas imports have increased steadily in both volume and 

percentage terms (Table 2-12). Imported natural gas constituted a lower percentage of domestic 

natural gas consumption from 2007 through 2014 compared to earlier years. Until recent years, 

industry analysts have forecasted that LNG imports would continue to grow as a percentage of 

U.S. consumption. However, it is possible that increasingly accessible domestic unconventional 

gas resources, such as shale gas and coalbed methane, is reducing the need for the U.S. to import 

natural gas, either via pipeline or shipped LNG. 
2-27 

Table 2-12 Natural Gas Imports and Exports, 1990-2014

 

Total Imports 

(bcf) 

Total Exports 

(bcf) 

Net Imports 

(bcf) 

Percent of U.S. 

Consumption 

1990 1,532 86 1,447 7.5 

1991 1,773 129 1,644 8.4 

1992 2,138 216 1,921 9.5 

1993 2,350 140 2,210 10.6 

1994 2,624 162 2,462 11.6 

1995 2,841 154 2,687 12.1 

1996 2,937 153 2,784 12.3 

1997 2,994 157 2,837 12.4 

1998 3,152 159 2,993 13.4 

1999 3,586 163 3,422 15.3 

2000 3,782 244 3,538 15.2 

2001 3,977 373 3,604 16.2 

2002 4,015 516 3,499 15.2 

2003 3,944 680 3,264 14.8 

2004 4,259 854 3,404 15.5 

2005 4,341 729 3,612 16.7 

2006 4,186 724 3,462 16.2 

2007 4,608 822 3,785 16.6 

2008 3,984 963 3,021 13.2 

2009 3,751 1,072 2,679 11.7 

2010 3,741 1,137 2,604 10.8 

2011 3,468 1,506 1,962 8.0 

2012 3,138 1,619 1,519 5.9 

2013 2,883 1,572 1,311 5.0% 

2014 2,695 1,514 1,181 4.4% 

Source: U.S. Energy Information Administration (U.S. EIA). U.S. Natural Gas Imports & Exports by State. 

<https://www.eia.gov/dnav/ng/NG_MOVE_STATE_DCU_NUS_A.htm>. Accessed January 21, 2016. 

2.4.5 Forecasts 

In this section, we provide forecasts of well drilling activity and crude oil and natural gas 

domestic production, imports, and prices. The forecasts are from the most current forecast 

information available from the EIA, the 2014 and 2015 Annual Energy Outlook. The 2014 and 

2015 Annual Energy Outlook was produced using the National Energy Modeling System 

(NEMS), which the EPA uses to analyze the impacts of the final NSPS on the national economy 

as is discussed in detail in Section 7. 

 Table 2-13 present forecasts of successful wells drilled in the U.S. from 2010 to 2040. 

Crude oil well forecasts for the lower 48 states show a rise up to the year 2025 then a gradual 
2-28 

decline until 2040. Meanwhile, the forecast shows an increase in natural gas drilling in the lower 

48 states from the present to 2040, more than doubling during this 25-year period. 

Table 2-13 Forecast of Total Successful Wells Drilled, Lower 48 States, 2010-2040

 Totals 

Year Crude Oil Natural Gas 

2010 19,316 19,056 

2011 23,048 14,355 

2012 26,749 11,011 

2013 25,248 11,507 

2014 22,274 14,099 

2015 22,706 14,076 

2016 22,552 15,004 

2017 22,355 15,773 

2018 22,421 18,340 

2019 22,525 20,188 

2020 24,765 20,396 

2021 25,017 23,427 

2022 25,400 24,945 

2023 25,981 24,999 

2024 26,917 24,745 

2025 27,763 24,831 

2026 26,258 25,445 

2027 25,830 26,895 

2028 25,270 28,341 

2029 24,801 29,019 

2030 24,310 28,799 

2031 23,972 29,681 

2032 23,607 31,406 

2033 23,283 31,749 

2034 23,057 32,882 

2035 22,740 33,278 

2036 22,494 33,456 

2037 22,343 33,536 

2038 22,075 33,944 

2039 21,911 34,001 

2040 21,750 33,656 

Source: U.S. Energy Information Administration, Annual Energy Outlook 2014. 

Table 2-14 presents forecasts of domestic crude oil production, reserves, imports and 

Figure 2-6 depicts these trends graphically. Table 2-14 also shows forecasts of proved reserves in 

the lower 48 states. The reserves forecast shows steady growth from 2012 to 2040, with an 

increase of 49 percent overall. This increment is smaller than the forecast increase in production 

from the lower 48 states during this period, 52 percent, showing production is forecast to grow 
2-29 

more rapidly than reserves. In addition, Table 2-14 shows average wellhead prices increasing 

more than 41 percent from 2012 to 2040, from $96.38 per barrel to $136.13 per barrel in 2013 

dollar terms. 

Table 2-14 Forecast of Crude Oil Supply, Reserves, and Wellhead Prices, 2012-2040 

 Domestic Production (million bbls) 

 

Total 

Domestic 

Lower 

48 

Onshore 

Lower 

48 

Offshore Alaska 

Other 

Crude 

Supply 

Net 

Imports 

Total 

Crude 

Supply 

Lower 

48 End 

of Year 

Reserves 

(million 

bbls) 

Lower 48 

Average 

Wellhead 

Price (2013 

dollars per 

barrel) 

2012 2,373 1,678 503 192 16 3,088 5,476 30,051 96.38 

2013 2,715 2,032 495 188 97 2,773 5,584 29,441 96.51 

2014 3,151 2,422 549 180 47 2,563 5,761 31,131 90.37 

2015 3,404 2,640 599 164 78 2,343 5,826 31,966 53.49 

2016 3,486 2,691 637 158 51 2,307 5,845 33,549 68.35 

2017 3,651 2,790 699 162 0 2,156 5,807 34,747 72.44 

2018 3,786 2,865 757 164 0 2,055 5,841 35,948 72.34 

2019 3,861 2,906 797 158 0 1,995 5,857 37,002 73.79 

2020 3,870 2,933 785 153 0 2,012 5,882 37,403 75.16 

2021 3,837 2,923 770 145 0 2,086 5,924 37,760 76.97 

2022 3,812 2,918 757 137 0 2,131 5,943 38,137 79.27 

2023 3,785 2,918 738 129 0 2,181 5,966 38,605 81.68 

2024 3,786 2,932 732 122 0 2,189 5,975 39,066 84.11 

2025 3,752 2,924 712 116 0 2,222 5,974 39,389 86.57 

2026 3,692 2,869 712 110 0 2,285 5,977 39,908 89.27 

2027 3,682 2,850 729 103 0 2,300 5,982 40,633 92.03 

2028 3,700 2,837 766 97 0 2,291 5,991 41,497 94.89 

2029 3,681 2,802 787 92 0 2,321 6,002 42,109 97.86 

2030 3,665 2,773 805 86 0 2,349 6,014 42,593 100.92 

2031 3,573 2,688 804 82 0 2,454 6,027 42,708 104.19 

2032 3,495 2,622 795 77 0 2,533 6,028 42,665 107.44 

2033 3,448 2,587 787 73 0 2,604 6,052 42,795 110.82 

2034 3,424 2,578 777 69 0 2,657 6,081 43,066 113.86 

2035 3,425 2,580 780 66 0 2,683 6,108 43,425 117.20 

2036 3,407 2,571 773 62 0 2,723 6,130 43,609 120.77 

2037 3,404 2,557 766 81 0 2,752 6,156 43,808 124.33 

2038 3,422 2,541 774 107 0 2,748 6,170 44,124 128.36 

2039 3,420 2,534 761 126 0 2,766 6,187 44,234 132.37 

2040 3,440 2,527 790 123 0 2,768 6,208 44,779 136.13 

Source: U.S. Energy Information Administration (U.S. EIA). April 2015. Annual Energy Outlook 2015 with Projections to 

2040. < http://www.eia.gov/forecasts/aeo/pdf/0383(2015).pdf>. Accessed January 25, 2016. 
2-30 

Figure 2-6 Forecast of Domestic Crude Oil Production and Net Imports, 2010-2040 

Source: U.S. Energy Information Administration (U.S. EIA). April 2015. Annual Energy Outlook 2015 with

Projections to 2040. < http://www.eia.gov/forecasts/aeo/pdf/0383(2015).pdf>. Accessed January 25, 2016. 

Table 2-15 shows domestic natural gas production is forecast to increase until 2040. 

Meanwhile, imports of natural gas via pipeline are eliminated during the forecast period, from 

1.37 tcf in 2012 to -2.33 tcf in 2040. Imports of LNG are also expected to be eliminated during 

the forecast period, from 0.15 tcf in 2012 to -3.29 tcf in 2040. Dry Gas Production increases 

about 47 percent, from 24.06 tcf in 2012 to 35.45 in 2040. Total supply increases about 17 

percent, from 25.64 tcf in 2012 to 29.90 tcf in 2040. 

 
2-31 

Table 2-15 Forecast of Natural Gas Supply, Lower 48 Reserves, and Wellhead Price 

2012-2040 

 Domestic Production (tcf) Net Imports (tcf) 

 

Dry Gas 

Production 

Supplemental 

Natural Gas 

Net 

Imports 

(Pipeline) 

Net 

Imports 

(LNG) 

Total 

Supply 

Lower 48 

End of 

Year Dry 

Reserves 

(tcf) 

Average Henry 

Hub Spot Price 

(2013 dollars 

per million 

Btu) 

2012 24.06 0.06 1.37 0.15 25.64 298.5 2.79 

2013 24.40 0.05 1.20 0.09 25.75 293.2 3.73 

2014 25.57 0.06 1.09 0.05 26.77 299.0 4.37 

2015 26.43 0.06 0.83 -0.03 27.29 300.8 3.69 

2016 27.30 0.06 0.58 -0.23 27.71 301.5 3.70 

2017 27.18 0.06 0.23 -0.69 26.78 303.7 3.80 

2018 27.68 0.06 -0.07 -1.05 26.62 305.5 4.21 

2019 28.27 0.06 -0.29 -1.52 26.53 307.5 4.55 

2020 28.82 0.06 -0.48 -2.08 26.33 308.9 4.88 

2021 29.17 0.06 -0.58 -2.37 26.28 310.6 5.02 

2022 29.53 0.06 -0.72 -2.49 26.39 312.1 5.09 

2023 29.85 0.06 -0.83 -2.49 26.60 313.3 5.25 

2024 30.17 0.06 -0.91 -2.49 26.84 314.7 5.35 

2025 30.51 0.06 -1.01 -2.49 27.07 315.7 5.46 

2026 30.78 0.06 -1.09 -2.49 27.27 316.8 5.67 

2027 31.37 0.06 -1.21 -2.69 27.54 319.2 5.67 

2028 31.94 0.06 -1.31 -2.89 27.80 322.2 5.67 

2029 32.50 0.06 -1.41 -3.09 28.06 325.3 5.71 

2030 33.01 0.06 -1.52 -3.29 28.27 328.7 5.69 

2031 33.19 0.06 -1.60 -3.29 28.37 330.8 5.91 

2032 33.40 0.06 -1.69 -3.29 28.49 332.7 6.09 

2033 33.63 0.06 -1.77 -3.29 28.63 334.5 6.27 

2034 33.84 0.06 -1.83 -3.29 28.79 336.5 6.45 

2035 34.14 0.06 -1.90 -3.29 29.01 338.3 6.60 

2036 34.46 0.06 -2.00 -3.29 29.24 339.9 6.76 

2037 34.75 0.06 -2.09 -3.29 29.44 341.5 6.84 

2038 35.04 0.06 -2.19 -3.29 29.62 343.3 7.02 

2039 35.28 0.06 -2.30 -3.29 29.75 344.3 7.38 

2040 35.45 0.06 -2.33 -3.29 29.90 345.2 7.85 

Source: U.S. Energy Information Administration (U.S. EIA). April 2015. Annual Energy Outlook 2015 with

Projections to 2040. < http://www.eia.gov/forecasts/aeo/pdf/0383(2015).pdf>. Accessed January 19, 2016
2-32 

2.5 Industry Costs 

2.5.1 Finding Costs 

Real costs of drilling oil and natural gas wells have increased significantly over the past 

two decades, particularly in recent years. Cost per well has increased by an annual average of 

about 15 percent, and cost per foot has increased on average of about 13 percent per year (Figure 

2-7). 

Figure 2-7 Costs of Crude Oil and Natural Gas Wells Drilled, 1981-2008 

The average finding costs compiled and published by the EIA add an additional level of 

detail to drilling costs, in that finding costs incorporate the broader costs associated with adding 

proved reserves of crude oil and natural gas. These costs include exploration and development 

costs, as well as costs associated with the purchase or leasing of real property. The EIA publishes 

finding costs as running three-year averages, in order to better compare these costs, which occur 

over several years, with annual average lifting costs. Figure 2-8 shows average domestic 

onshore, offshore and foreign finding costs for the sample of U.S. firms in the EIA’s Financial 

Reporting System (FRS) database from 1981 to 2009. The costs are reported in 2009 dollars on a 

barrel of oil equivalent basis for crude oil and natural gas combined. The average domestic 

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

5,000,000

1981 1984 1987 1990 1993 1996 1999 2002 2005 2008

Drilling Costs Per Well ($2005)

0

100

200

300

400

500

600

700

800

Drilling Costs Per Foot ($2005)

Dollars per Well (2005 dollars) Dollars per Foot (2005 dollars)
2-33 

finding costs dropped from 1981 until the mid-1990s. Interestingly, in the mid-1990s, domestic 

onshore, offshore and foreign finding costs converged for a few years. After this period, offshore 

finding costs rose faster than domestic onshore and foreign costs. 

After 2000, average finding costs rose sharply, with the finding costs for domestic 

onshore, offshore and foreign proved reserves diverging onto different trajectories. Note the 

drilling costs in Figure 2-7 and finding costs in Figure 2-8 present similar trends overall. 

Figure 2-8 Finding Costs for FRS Companies, 1981-2009 

Source: U.S. Energy Information Administration (U.S. EIA). February 2011. Performance Profiles of Major Energy 

Producers, 2009.Figure 17 data. <http://www.eia.gov/finance/performanceprofiles/oil_gas.cfm>. Accessed January 

19, 2016.

2.5.2 Lifting Costs 

Lifting costs are the costs to produce crude oil or natural gas once the resource has been 

found and accessed. The EIA’s definition of lifting costs includes costs of operating and 

maintaining wells and associated production equipment. Direct lifting costs exclude production 

taxes or royalties, while total lifting costs includes taxes and royalties. Like finding costs, the 

EIA reports average lifting costs for FRS firms in 2009 dollars on a barrel of oil equivalent basis. 

0

10

20

30

40

50

60

70

80

$2008/boe

U.S. Onshore U.S. Offshore Foreign
2-34 

Total lifting costs are the sum of direct lifting costs and production taxes. Figure 2-9 depicts 

direct lifting cost trends from 1981 to 2009 for domestic and foreign production. 

Direct lifting costs (excludes taxes and royalties) for domestic production rose a little 

more than $2 per barrel of oil equivalent between 1981 and 1985, then declined almost $5 per 

barrel of oil equivalent by 2000. From 2000 to 2009, domestic lifting costs increased sharply, 

just over $8 per barrel of oil equivalent. Foreign lifting costs diverged from domestic lifting costs 

from 1981 to 1991, with foreign lifting costs lower than domestic costs during this period. After 

1991, foreign and domestic lifting costs followed a similar track until they again diverged in 

2004, with domestic lifting again becoming more expensive. Combined with finding costs, the 

total finding and lifting costs rose significantly in from 2000 to 2009. 

Figure 2-9 Direct Oil and Natural Gas Lifting Costs for FRS Companies, 1981-2009 (3-

year Running Average) 

Source: U.S. Energy Information Administration (U.S. EIA). February 2011. Performance Profiles of Major Energy 

Producers, 2009.Figure 15 data. <http://www.eia.gov/finance/performanceprofiles/oil_gas.cfm>. Accessed January 

19, 2016. 

0

2

4

6

8

10

12

14

$2008/boe

Domestic Foreign
2-35 

2.5.3 Operating and Equipment Costs 

The EIA report, “Oil and Gas Lease Equipment and Operating Costs 1994 through 

2009”8

, contains indices and estimated costs for domestic oil and natural gas equipment and 

production operations. The indices and cost trends track costs for representative operations in six 

regions (California, Mid-Continent, South Louisiana, South Texas, West Texas, and Rocky 

Mountains) with producing depths ranging from 2000 to 16,000 feet and low to high production 

rates (for example, 50,000 to 1 million cubic feet per day for natural gas). 

Figure 2-10 depicts crude oil operating costs and equipment costs indices for 1976 to 

2009, as well as the crude oil price in 1976 dollars. The indices show that crude oil operating and 

equipment costs track the price of oil over this time period, but operating costs have risen more 

quickly than equipment costs. Operating and equipment costs and oil prices rose steeply in the 

late 1970s, but generally decreased from about 1980 until the late 1990s. Oil costs and prices 

again generally rose between 2000 and 2009, with a peak in 2008. The 2009 index values for 

crude oil operating and equipment costs are 154 and 107, respectively. 

 

 

8

 U.S. Energy Information Administration. “Oil and Gas Lease Equipment and Operating Costs 1994 through 2009.” 

September 28, 2010. 

<http://www.eia.doe.gov/pub/oil_gas/natural_gas/data_publications/cost_indices_equipment_production/current/

coststudy.html> Accessed February 2, 2011. 
2-36 

Figure 2-10 Crude Oil Operating Costs and Equipment Costs Indices (1976=100) and 

Crude Oil Price (in 1976 dollars), 1976-20099

Source: U.S. Energy Information Administration. “Oil and Gas Lease Equipment and Operating Costs 1994 through 

2009.” September 28, 2010. 

<http://www.eia.doe.gov/pub/oil_gas/natural_gas/data_publications/cost_indices_equipment_production/current/cos

tstudy.html> Accessed February 2, 2011. 

Figure 2-11 depicts natural gas operating and equipment costs indices, as well as natural 

gas prices. Similar to the cost trends for crude oil, natural gas operating and equipment costs 

track the price of natural gas over this time period, while operating costs have risen more quickly 

than equipment costs. Operating and equipment costs and gas prices also rose steeply in the late 

1970s, but generally decreased from about 1980 until the mid-1990s. The 2009 index values for 

natural gas operating and equipment costs are 137 and 112, respectively. 

 

9

 The last release date for the EIA’s Oil and Gas Lease Equipment and Operating Costs analysis was September 

2010. Updates have been discontinued. 

0

20

40

60

80

100

120

140

160

180

200

1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009

Cost Index (1976=100)

0

5

10

15

20

25

30

35

40

45

50

Oil Price ($/bbl, 1976 Dollars)

Crude Oil Operating Costs

Crude Oil Equipment Cost Index

Crude Oil Price ($/bbl, 1976 Dollars)
2-37 

Figure 2-11 Natural Operating Costs and Equipment Costs Indices (1976=100) and 

Natural Gas Price, 1976-2009 

Source: U.S. Energy Information Administration. “Oil and Gas Lease Equipment and Operating Costs 1994 through 

2009.” September 28, 2010. 

<http://www.eia.doe.gov/pub/oil_gas/natural_gas/data_publications/cost_indices_equipment_production/current/cos

tstudy.html> Accessed February 2, 2011.

2.6 Firm Characteristics 

A regulatory action to reduce pollutant discharges from facilities producing crude oil and 

natural gas will potentially affect the business entities that own the regulated facilities. In the oil 

and natural gas production industry, facilities comprise those sites where plants and equipment 

extract, process, and transport extracted streams recovered from the raw crude oil and natural gas 

resources. Companies that own these facilities are legal business entities that have the capacity to 

conduct business transactions and make business decisions that affect the facility. 

2.6.1 Ownership 

Enterprises in the oil and natural gas industry may be divided into different groups that 

include producers, transporters, and distributors. The producer segment may be further divided 

between major and independent producers. Major producers include large oil and gas companies 

that are involved in each of the five industry segments: drilling and exploration, production, 

0

20

40

60

80

100

120

140

160

1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009

Cost Index (1976=100)

0

1

1

2

2

3

3

4

4

5

5

Natural Gas Price ($/MMcf, 1976 Dollars)

Natural Gas Operating Costs

Natural Gas Equipment Costs

Natural Gas Price ($/Mcf, 1976 Dollars)
2-38 

transportation, refining, and marketing. Independent producers include smaller firms that are 

involved in some but not all of the five activities. 

According to the Independent Petroleum Association of America (IPAA), independent 

companies produce approximately 54 percent of domestic crude oil, 85 percent of domestic 

natural gas, and drill almost 95 percent of the wells in the U.S (IPAA, 2012-13). Through the 

mid-1980s, natural gas was a secondary fuel for many producers. However, now it is of primary 

importance to many producers. IPAA reports that about 50 percent of its members’ spending in 

2007 was directed toward natural gas production, largely toward production of unconventional 

gas (IPAA, 2009). Meanwhile, transporters are comprised of the pipeline companies, while 

distributors are comprised of the local distribution companies. 

2.6.2 Size Distribution of Firms in Affected NAICS 

As of 2012, there were 6,679 firms within the 211111 and 211112 NAICS codes, of 

which 6,551 (98 percent) were considered small entities (Table 2-16). Within NAICS 211111 

and 211112, large firms compose about 2 percent of the firms, but account for almost 61 percent 

of employment listed under these NAICS. The small and large firms within NAICS 21311 are 

similarly distributed, with large firms accounting for about 2 percent of firms, but 56 percent of 

employment. Within NAICS 486210, large firms compose about 43 percent of total firms and 

about 95 percent of employment. 
2-39 

Table 2-16 SBA Size Standards and Size Distribution of Oil and Natural Gas Firms

NAICS NAICS Description 

SBA Size 

Standard** 

(Employees or 

Annual Receipts) 

*Small 

Firms 

*Large 

Firms 

*Total 

Firms 

Number of Firms by Firm Size 

211111 Crude Petroleum and Natural Gas Extraction 5001 6,444 92 6,536 

211112 Natural Gas Liquid Extraction 5002 107 36 143 

213111 Drilling Oil and Gas Wells 5003 2,085 59 2,144 

213112 Support Activities for Oil and Gas Operations $38.5 million 8,750 127 8,877 

486210 Pipeline Transportation of Natural Gas $27.5 million 92 46 138 

 

Total Employment by Firm Size 

211111 Crude Petroleum and Natural Gas Extraction 500 47,528 66,996 114,524 

211112 Natural Gas Liquid Extraction 500 1,709 8,768 10,477 

213111 Drilling Oil and Gas Wells 500 39,628 66,740 106,368 

213112 Support Activities for Oil and Gas Operations $38.5 million 126,523 145,834 272,357 

486210 Pipeline Transportation of Natural Gas $27.5 million 1,503 31,823 33,326 

*These numbers are reported by Enterprise Employment Size <500 and 500+ 

Sources: U.S. Census Bureau. Statistics of U.S. Businesses. Accessed January 18, 2016. 

U.S. Government Publishing Office. Electronic Code of Regulation, Title 13, Chapter 1, Part 121. Accessed January 

18, 2016. 

U.S. Small Business Administration, Office of Advocacy. 2014. Firm Size Data. Accessed January 5, 2016. 

**The SBA size standards for some of the NAICS were updated in February, 2016. 

1. Updated to 1,250 employees 

2. Updated to 750 employees 

3. Updated to 1,000 employees. 

2.6.3 Trends in National Employment and Wages 

As well as producing much of the U.S. energy supply, the oil and natural gas industry 

directly employs a significant number of people. Table 2-17 shows employment in oil and 

natural gas-related NAICS codes from 1990 to 2014. The overall trend shows a decline in total 

industry employment throughout the 1990s, hitting a low of about 314,000 in 1999, but 

rebounding to a 2014 peak of about 660,000. Crude Petroleum and Natural Gas Extraction 

(NAICS 211111) and Support Activities for Oil and Gas Operations (NAICS 213112) employ 

the majority of workers in the industry. 
2-40 

Table 2-17 Oil and Natural Gas Industry Employment by NAICS, 1990-2014 

 

Crude 

Petroleum 

and Natural 

Gas 

Extraction 

(NAICS 

211111) 

Natural 

Gas 

Liquid 

Extraction 

(NAICS 

211112) 

Drilling of 

Oil and 

Natural Gas 

Wells 

(NAICS 

213111) 

Support 

Activities 

for Oil and 

Gas Ops. 

(NAICS 

213112) 

Pipeline 

Trans. of 

Crude Oil 

(NAICS 

486110) 

Pipeline 

Trans. of 

Natural Gas 

(NAICS 

486210) Total 

1990 182,848 8,260 52,365 109,497 11,112 47,533 411,615 

1991 177,803 8,443 46,466 116,170 11,822 48,643 409,347 

1992 169,615 8,819 39,900 99,924 11,656 46,226 376,140 

1993 159,219 7,799 42,485 102,840 11,264 43,351 366,958 

1994 150,598 7,373 44,014 105,304 10,342 41,931 359,562 

1995 142,971 6,845 43,114 104,178 9,703 40,486 347,297 

1996 139,016 6,654 46,150 107,889 9,231 37,519 346,459 

1997 137,667 6,644 55,248 117,460 9,097 35,698 361,814 

1998 133,137 6,379 53,943 122,942 8,494 33,861 358,756 

1999 124,296 5,474 41,868 101,694 7,761 32,610 313,703 

2000 117,175 5,091 52,207 108,087 7,657 32,374 322,591 

2001 119,099 4,500 62,012 123,420 7,818 33,620 350,469 

2002 116,559 4,565 48,596 120,536 7,447 31,556 329,259 

2003 115,636 4,691 51,526 120,992 7,278 29,684 329,807 

2004 117,060 4,285 57,332 128,185 7,073 27,340 341,275 

2005 121,535 4,283 66,691 145,725 6,945 27,341 372,520 

2006 130,188 4,670 79,818 171,127 7,202 27,685 420,690 

2007 141,239 4,842 84,525 197,100 7,975 27,431 463,112 

2008 154,898 5,183 92,640 223,635 8,369 27,080 511,805 

2009 155,150 5,538 67,756 193,589 8,753 26,753 457,539 

2010 153,490 4,833 74,491 201,685 8,893 26,708 470,100 

2011 164,900 5,835 87,272 241,490 8,959 27,320 535,776 

2012 181,473 6,529 92,340 282,447 9,348 27,595 599,732 

2013 189,804 6,928 93,261 296,891 10,059 26,981 623,924 

2014 189,222 7,482 98,208 326,353 10,708 28,242 660,215 

Source: U.S. Bureau of Labor Statistics, Quarterly Census of Employment and Wages, 2014 , 

<http://data.bls.gov/cgi-bin/dsrv>. Accessed on January 19, 2016. 

From 1990 to 2014, average wages for the oil and natural gas industry have increased. 

Table 2-18 shows real wages (in 2012 dollars) from 1990 to 2014 for the NAICS codes 

associated with the oil and natural gas industry. Employees in the NAICS 211 codes earn the 

highest average wages in the oil and natural gas industry, while employees in the NAICS 213 

codes have relatively lower wages. Average wages in natural gas pipeline transportation show 

the highest variation. 
2-41 

Table 2-18 Oil and Natural Gas Industry Average Wages by NAICS, 1990-2014 (2012 

dollars) 

 

Crude 

Petroleum 

and Natural 

Gas 

Extraction 

(211111) 

Natural 

Gas 

Liquid 

Extraction 

(211112) 

Drilling of 

Oil and 

Natural 

Gas Wells 

(213111) 

Support 

Activities 

for Oil and 

Gas Ops. 

(213112) 

Pipeline 

Trans. of 

Crude Oil 

(486110) 

Pipeline 

Trans. of 

Natural 

Gas 

(486210) Total 

1990 74,510 69,910 44,213 48,033 71,265 64,482 62,274 

1991 76,016 70,026 45,614 49,601 72,311 68,260 63,916 

1992 80,259 72,319 45,704 51,379 77,977 70,505 67,466 

1993 81,252 72,271 47,508 52,674 76,481 70,810 67,765 

1994 83,014 74,311 46,739 52,590 79,827 71,838 68,090 

1995 85,381 70,906 48,485 53,319 82,756 75,453 69,667 

1996 88,360 72,290 51,280 55,426 80,627 80,141 71,760 

1997 94,353 83,408 54,780 58,370 82,343 86,898 75,390 

1998 97,915 94,471 55,718 60,473 83,066 88,409 77,429 

1999 103,283 93,896 57,242 62,786 86,666 99,165 83,007 

2000 115,071 117,532 63,817 63,535 85,034 136,971 91,032 

2001 116,471 116,567 64,822 64,328 87,404 128,302 89,458 

2002 115,367 108,753 65,257 62,876 91,806 96,055 86,280 

2003 116,216 118,377 64,125 64,398 91,831 96,154 86,755 

2004 127,383 124,432 66,282 65,703 98,426 98,531 91,002 

2005 133,983 134,481 74,521 70,786 96,951 95,061 95,074 

2006 145,726 140,751 78,083 74,119 96,738 104,104 100,131 

2007 143,333 140,394 86,745 76,134 101,563 111,528 101,771 

2008 153,226 132,644 86,886 78,468 107,886 105,176 105,060 

2009 141,818 131,569 85,894 74,614 106,237 106,647 102,241 

2010 152,145 132,041 86,337 77,810 108,906 112,910 106,572 

2011 156,107 120,995 91,928 81,479 114,764 116,320 108,914 

2012 155,735 136,353 92,266 80,222 120,292 139,127 108,872 

2013 152,884 122,618 92,610 80,405 116,055 116,460 106,881 

2014 157,827 123,305 95,454 83,364 109,590 116,679 108,807 

Source: U.S. Bureau of Labor Statistics, Quarterly Census of Employment and Wages, 2014, annual wages per 

employee <http://www.bls.gov/cew/>. Accessed on January 21, 2016. 

2.6.4 Horizontal and Vertical Integration 

Because of the existence of major companies, the industry possesses a wide dispersion of 

vertical and horizontal integration. The vertical aspects of a firm’s size reflect the extent to which

goods and services that can be bought from outside are produced in house, while the horizontal 

aspect of a firm’s size refers to the scale of production in a single-product firm or its scope in a 

multiproduct one. Vertical integration is a potentially important dimension in analyzing firmlevel impacts because the regulation could affect a vertically integrated firm on more than one 
2-42 

level. The regulation may affect companies for whom oil and natural gas production is only one 

of several processes in which the firm is involved. For example, a company that owns oil and 

natural gas production facilities may ultimately produce final petroleum products, such as motor 

gasoline, jet fuel, or kerosene. This firm would be considered vertically integrated because it is 

involved in more than one level of requiring crude oil and natural gas and finished petroleum 

products. A regulation that increases the cost of oil and natural gas production will ultimately 

affect the cost of producing final petroleum products. 

Horizontal integration is also a potentially important dimension in firm-level analyses for 

any of the following reasons. A horizontally integrated firm may own many facilities of which 

only some are directly affected by the regulation. Additionally, a horizontally integrated firm 

may own facilities in unaffected industries. This type of diversification would help mitigate the 

financial impacts of the regulation. A horizontally integrated firm could also be indirectly as well 

as directly affected by the regulation. 

In addition to the vertical and horizontal integration that exists among the large firms in 

the industry, many major producers often diversify within the energy industry and produce a 

wide array of products unrelated to oil and gas production. As a result, some of the effects of 

regulation of oil and gas production can be mitigated if demand for other energy sources moves 

inversely compared to petroleum product demand. 

In the natural gas sector of the industry, vertical integration is less predominant than in 

the oil sector. Transmission and local distribution of natural gas usually occur at individual firms, 

although processing is increasingly performed by the integrated major companies. Several 

natural gas firms operate multiple facilities. However, natural gas wells are not exclusive to 

natural gas firms. Typically, wells produce both oil and gas and can be owned by a natural gas 

firm or an oil company. 

Unlike the large integrated firms that have several profit centers such as refining, 

marketing, and transportation, most independent firms have to rely solely on profits generated at 

the wellhead from the sale of oil and natural gas or the provision of oil and gas productionrelated engineering or financial services. Overall, independent producers typically sell their 

output to refineries or natural gas pipeline companies and are not vertically integrated. 
2-43 

Independents may also own relatively few facilities, indicating limited horizontal integration. 

2.6.5 Firm-level Information 

The annual Oil and Gas Journal (OGJ) survey, the OGJ150, reports financial and 

operating results for public oil and natural gas companies with domestic reserves and 

headquarters in the U.S. In the past, the survey reported information on the top 300 companies, 

though now it has been reduced to the top 150. In 2014, 143 public companies are listed; in 2013 

there were 139 firms.10 The 2012 list contains four companies that were not on the list in the 

previous year. Table 2-19 lists selected statistics for the top 20 companies in 2014. The results 

presented in the table reflect a decline in U.S. oil prices. 

Net income for the top 134 companies fell about 17.5% between 2013 and 2014 to about 

$74 billion. Revenues for these companies increased by about $6 billion from 2013 to 2014, 

reaching $920.5 billion. Even though net revenue decreased in 2014, companies continued to 

invest. Capital and exploratory spending for the companies in 2014 totaled $226.4 billion, up 

9.3% from 2013. 

The total worldwide liquids production for the 143 firms increased 8.41 percent 3.32 

billion bbl, while total worldwide gas production increased 0.54 percent to a total of 17 tcf (Oil 

and Gas Journal, September 7, 2015). Meanwhile, the firms increased both oil and natural gas 

production and reserves from 2013 to 2014. Domestic production of liquids increased about 

16.73 percent from 2013 to 1.97 billion bbl, and domestic natural gas production was up about 

3.95 percent to 12.4 tcf in 2014. US liquids reserves from the OGJ150 firms increased by 9.85% 

up to 25.53 billion bbl, and US natural gas reserves increased by 8.56% to 172.92 tcf. For 

context, the OGJ150 domestic crude production represents about 62 percent of total domestic 

production (3.18 billion bbl, according to EIA) in 2014. The OGJ150 natural gas production 

represents about 48 percent of total domestic production (31.3 tcf, according to EIA) in 2014. 

 

10 Oil and Gas Journal. “OGJ150 Earnings Down as US Production Climbs.” September 2, 2013. 
2-44 

Table 2-19 Top 20 Oil and Natural Gas Companies (Based on Total Assets), 2012 

Worldwide Production 

U

Prod

Rank by 

Total 

Assets Company Employees 

Total 

Assets 

($Million) 

Total 

Revenue 

($Million) 

Net 

Income 

($Million) 

Liquids 

(Million 

bbl) 

Natural 

Gas 

(Bcf) 

Liqu

(Mill

bbl

1 ExxonMobil Corp. 75,300 349,493 411,939 33615 631 2,645 12 Chevron Corp. 64,700 266,026 211,970 19310 508 1,744 163 ConocoPhillips 19,100 116,539 55,517 6938 270 1,443 174 Anadarko Petroleum Corp. 6,100 61,689 18,470 -1563 154 951 15 Occidental Petroleum Corp. 11,700 56,259 21,947 630 163 331 86 Apache Corp. 4,950 55,952 13,851 -5060 142.2 580 70.27 Devon Energy Corp. 6,600 50,637 19,566 1691 129 701 68 Chesapeake Energy Corp. 5,500 40,751 20,951 2056 75.4 1095 759 Hess Corp. 3,045 38,578 11,439 2374 89 197 5

10 Marathon Oil Corp. 3,330 36,011 11,258 3046 118 295 611 EOG Resources Inc. 3,000 34,763 18,035 2915 134.7 506.3 1312 Noble Energy Inc. 2,735 22,553 5,101 1214 49 362 313 Freeport-McMoRan Inc. 35,000 20,834 4,710 -4479 43 82 414 Murphy Oil Corp. 1,712 16,742 5,476 906 55.4 162.8 215 Linn Energy LLC 1,800 16,424 4,983 -452 38.8 209 3816 Continental Resources Inc. 300 15,145 4,802 977 44.53 114 44.517 Pioneer Natural Resources Co. 4,075 14,926 5,055 930 48.48 154.4 48.418 Southwestern Energy Corp. 2,781 14,925 4,038 924 0.466 765 0.4619 Whiting Petroleum Corp. 1282 14,020 3,085 65 36.77 30.22 36.720 Denbury Resources Corp. 1,523 12,728 2,435 635 25.77 8.379 25.7

Source: Oil and Gas Journal. “OGJ150” September 7, 2015. The annual Oil and Gas Journal (OGJ) survey, the OGJ150, reports fina

results for public oil and natural gas companies with domestic reserves and headquarters in the U.S. 

Notes: The source for employment figures is Hoovers, a D&B Company. (Data accessed on January 20, 2016. Employee numbers ar
2-1 

The OGJ also releases a period report entitled “Worldwide Gas Processing Survey”, 

which provides a wide range of information on existing processing facilities. We used a recent 

list of U.S. gas processing facilities (Oil and Gas Journal, June 7, 2010) and other resources, 

such as the American Business Directory and company websites, to best identify the parent 

company of the facilities. As of 2009, there are 579 gas processing facilities in the U.S., with a 

processing capacity of 73,767 million cubic feet per day and throughput of 45,472 million cubic 

feet per day (Table 2-20). The overall trend in U.S. gas processing capacity is showing fewer, but 

larger facilities. For example, in 1995, there were 727 facilities with a capacity of 60,533 million 

cubic feet per day (U.S. DOE, 2006). 

Trends in gas processing facility ownership are also showing a degree of concentration, 

with large firms owning multiple facilities, which also tend to be relatively large (Table 2-20). 

While we estimate 142 companies own the 579 facilities, the top 20 companies (in terms of total 

throughput) own 264, or 46 percent, of the facilities. That larger companies tend to own larger 

facilities is indicated by these top 20 firms owning 86 percent of the total capacity and 88 percent 

of actual throughput. 
2-2 

Table 2-20 Top 20 Natural Gas Processing Firms (Based on Throughput), 2009 

Rank Company 

Processing 

Plants (No.) 

Natural Gas 

Capacity 

(MMcf/day) 

Natural Gas 

Throughput 

(MMcf/day) 

1 BP PLC 19 13,378 11,420 

2 DCP Midstream Inc. 64 9,292 5,586 

3 Enterprise Products Operating LP— 23 10,883 5,347 

4 Targa Resources 16 4,501 2,565 

5 Enbridge Energy Partners LP— 19 3,646 2,444 

6 Williams Cos. 10 4,826 2,347 

7 Martin Midstream Partners 16 3,384 2,092 

8 Chevron Corp. 23 1,492 1,041 

9 Devon Gas Services LP 6 1,038 846 

10 ExxonMobil Corp. 6 1,238 766 

11 Occidental Petroleum Corp 7 776 750 

12 Kinder Morgan Energy Partners 9 1,318 743 

13 Enogex Products Corp. 8 863 666 

14 Hess Corp. 3 1,060 613 

15 Norcen Explorer 1 600 500 

16 Copano Energy 1 700 495 

17 Anadarko 18 816 489 

18 Oneok Field Services 10 1,751 472 

19 Shell 4 801 446 

20 DTE Energy 1 800 400 

 TOTAL FOR TOP 20 264 63,163 40,028 

 TOTAL FOR ALL COMPANIES 579 73,767 45,472 

Source: Oil and Gas Journal. “Special Report: Worldwide Gas Processing: New Plants, Data Push Global Gas 

Processing Capacity Ahead in 2009.” June 7, 2010, with additional analysis to determine ultimate ownership of 

plants. 

 

The OGJ also issues a periodic report on the economics of the U.S. pipeline industry. 

This report examines the economic status of all major and non-major natural gas pipeline 

companies, which amounts to 165 companies in 2014 (Oil and Gas Journal. September 7, 2015, 

“Gas Pipeline Table,” pp. 126-128). Table 2-21 presents the pipeline mileage, volumes of natural 

gas transported, operating revenue, and net income for the top 20 U.S. natural gas pipeline 

companies in 2014. Ownership of gas pipelines is mostly independent from ownership of oil and 

gas production companies, as is seen from the lack of overlap between the OGJ list of Top 20 

pipeline companies and the Top 20 firms from the OGJ150. This observation shows that the 

pipeline industry is still largely based upon firms serving regional markets. 

The top 20 companies maintain about 58 percent of the total pipeline mileage and 

transport about 52 percent of the total volume of the industry (Table 2-21). Operating revenues 
2-3 

of the top 20 companies equaled $13.2 billion, representing 54 percent of the total operating 

revenues for major and non-major companies. The top 20 companies also account for 69 percent 

of the net income of the industry. 

Table 2-21 Performance of Top 20 Gas Pipeline Companies (Based on Net Income), 2014

Rank Company 

Transmission 

(miles) 

Vol. trans 

for others 

(MMcf) 

Operating 

Revenue 

($000s) 

Net 

Income 

($000s) 

1 Tennessee Gas Pipeline Co. 11,917 2,990,155 1,192,621 331,768 

2 Texas Eastern Transmission LP 9,592 2,610,451 1,165,248 318,519 

3 Dominion Transmission Inc. 3,842 1,151,691 1,042,755 308,512 

4 Transcontinental Gas Pipe Line Co. LLC 9,183 4,655,090 1,413,206 289,463 

5 Florida Gas Transmission Co. LLC 5,324 902,592 795,990 234,412 

6 Columbia Gas Transmission LLC 9,641 1,379,418 1,116,715 200,271 

7 Northern Natural Gas Co. 14,781 1,025,465 749,039 150,275 

8 Southern Natural Gas Co. 7,033 961,725 577,037 146,469 

9 ETC Tiger Pipeline LLC 196 340,851 279,299 130,851 

10 Kinder Morgan Lousiana Pipeline LLC 136 2,803 265,334 130,678 

11 Natural Gas Pipeline Co. of America 9,122 1,417,903 651,548 116,693 

12 Rockies Express Pipeline LLC 1,712 789,454 805,485 116,630 

13 El Paso Natural Gas Co. 10,222 1,318,671 577,604 113,429 

14 Colorado Interstate Gas Co. 4,225 839,291 402,882 108,983 

15 Northwest Pipeline LLC 3,890 686,974 470,050 107,172 

16 Dominion Cove Point LNG LP 136 92,710 296,555 97,654 

17 Texas Gas Transmission LLC 5,766 1,154,029 406,562 97,237 

18 Enable Gas Transmission LLC 5,902 913,254 494,067 93,115 

19 Lake Charles LNG Co. LLC1 (new) - - 216,247 92,236 

20 Equitrans LP 900 635,883 268,052 92,036 

 TOTAL FOR TOP 20 113,520 23,868,410 13,186,296 3,276,403 

 TOTAL FOR ALL COMPANIES 195,194 46,293,010 24,514,239 4,776,194 

Source: Oil and Gas Journal. September 7, 2015. “Gas Pipeline Table” pp.126-128. 

2.6.6 Financial Performance and Condition 

From a broad industry perspective, the EIA Financial Reporting System (FRS) collects 

financial and operating information from a subset of the major U.S. energy producers and reports 

summary information in the publication “The Performance Profiles of Major Energy 

Producers”.11 This information is used in annual report to Congress, and is released to the public 

in aggregate form. While the companies that report information to the FRS each year changes, 

 

11 The “Performance Profiles of Major Energy Producers 2009” released on February 25, 2011 is the most recent 

release of this report. 
2-4 

the EIA makes an effort to retain sufficient consistency to reliably evaluate trends. For 2009, 30 

companies in the FRS12 accounted for 43 percent of total U.S. crude oil and NGL production, 43 

percent of natural gas production, 78 percent of U.S. refining capacity, and 0.3 percent of U.S. 

electricity net generation (U.S. EIA, 2011). Table 2-22 aggregates a series of financial trends 

selected from the FRS firms’ financial statements presented in 2008 dollars. The table shows 

operating revenues and expenses rising significantly from 1990 to 2008, with operating income 

(the difference between operating revenues and expenses) rising as well, followed by all three 

financial factors dropping off significantly in 2009. Interest expenses remained relatively flat 

during this period. Meanwhile, recent years have shown that other income and income taxes have 

played a more significant role for the industry. Net income has risen as well, though the decrease 

in net income spans both 2008 and 2009 mainly as a factor of oil and natural gas prices declining 

significantly during the latter half of 2008. 

 

12 Alenco, Alon USA, Anadarko Petroleum Corporation, Apache Corporation, BP America, Inc., Chalmette, 

Chesapeake Energy Corporation, Chevron Corporation, CITGO Petroleum Corporation, ConocoPhillips, Devon

Energy Corporation, El Paso Corporation, EOG Resources, Inc., Equitable Resources, Inc., Exxon Mobil 

Corporation, Hess Corporation, Hovensa, Lyondell Chemical Corporation, Marathon Oil Corporation, Motiva 

Enterprises, L.L.C., Occidental Petroleum Corporation, Shell Oil Company, Sunoco, Inc., Tesoro Petroleum 

Corporation, The Williams Companies, Inc., Total Holdings USA, Inc., Valero Energy Corp., Western Refining, 

WRB Refining LLC, and XTO Energy, Inc. 
2-5 

Table 2-22 Selected Financial Items from Income Statements (Billion 2008 Dollars)

Year 

Operating 

Revenues 

Operating 

Expenses 

Operating 

Income 

Interest 

Expense 

Other 

Income* 

Income 

Taxes 

Net 

Income 

1990 766.9 706.4 60.5 16.8 13.6 24.8 32.5 

1991 673.4 635.7 37.7 14.4 13.4 15.4 21.3 

1992 670.2 637.2 33.0 12.7 -5.6 12.2 2.5 

1993 621.4 586.6 34.8 11.0 10.3 12.7 21.5 

1994 606.5 565.6 40.9 10.8 6.8 14.4 22.5 

1995 640.8 597.5 43.3 11.1 12.9 17.0 28.1 

1996 706.8 643.3 63.6 9.1 13.4 26.1 41.8 

1997 673.6 613.8 59.9 8.2 13.4 23.9 41.2 

1998 614.2 594.1 20.1 9.2 11.0 6.0 15.9 

1999 722.9 682.6 40.3 10.9 12.7 13.6 28.6 

2000 1,114.3 1,011.8 102.5 12.9 18.4 42.9 65.1 

2001 961.8 880.3 81.5 10.8 7.6 33.1 45.2 

2002 823.0 776.9 46.2 12.7 7.9 17.2 24.3 

2003 966.9 872.9 94.0 10.1 19.5 37.2 66.2 

2004 1,188.5 1,051.1 137.4 12.4 20.1 54.2 90.9 

2005 1,447.3 1,263.8 183.5 11.6 34.6 77.1 129.3 

2006 1,459.0 1,255.0 204.0 12.4 41.2 94.8 138.0 

2007 1,475.0 1,297.7 177.3 11.1 47.5 86.3 127.4 

2008 1,818.1 1,654.0 164.1 11.4 32.6 98.5 86.9 

2009 1,136.8 1,085.9 50.8 10.8 18.7 29.5 29.3 

Source: Energy Information Administration, Form EIA-28 (Financial Reporting System). 

* Other Income includes other revenue and expenses (excluding interest expense), discontinued operations, 

extraordinary items, and accounting changes. Totals may not sum due to independent rounding.

Table 2-23 shows the estimated return on investments in percentage terms for a variety of 

business lines in 1998, 2003, 2008, and 2009 for FRS companies. For U.S. petroleum-related 

business activities, oil and natural gas production was the most profitable line of business 

relative to refining/marketing and pipelines, sustaining a return on investment greater than 10 

percent in 1998, 2003, and 2008, with a significant decrease in 2009. Returns to foreign oil and 

natural gas production rose above domestic production in 2008 and 2009. Electric power 

generation and sales emerged as a highly profitable line of business in 2008 for the FRS 

companies quickly followed by a significant decline in 2009. 

 
2-6 

Table 2-23 Return on Investment for Lines of Business (all FRS), for 1998, 2003, 2008, 

and 2009 (percent)

Line of Business 1998 2003 2008 2009 

Petroleum 10.8 13.4 11.9 4.5 

 U.S. Petroleum 10 13.7 8.1 0.4 

 Oil and Natural Gas Production 12.5 16.5 10.7 3.5 

 Refining/Marketing 6.6 9.3 2.4 -6.6 

 Pipelines 6.7 11.5 2.4 4.7 

 Foreign Petroleum 11.9 13.0 17.8 10.3 

 Oil and Natural Gas Production 12.5 14.2 16.3 11 

 Refining/Marketing 10.6 8.0 26.2 5.8 

Downstream Natural Gas* - 8.8 5.1 9.6 

Electric Power - 5.2 181.4 -32 

Other Energy 7.1 2.8 -2.1 5.1 

Non-energy 10.9 2.4 -5.3 2.8 

Source: Energy Information Administration, Form EIA-28 (Financial Reporting System). 

Note: Return on investment measured as contribution to net income/net investment in place. 

* The downstream natural gas and electric power lines of business were added to the EIA-28 survey form

beginning with the 2003 reporting year. 

 The oil and natural gas industry also produces significant tax revenues for local, state, 

and federal authorities. Table 2-24 shows income and production tax trends from 1990 to 2009 

for FRS companies. The column with U.S. federal, state, and local taxes paid or accrued includes 

deductions for the U.S. Federal Investment Tax Credit ($198 million in 2008)13 and the effect of 

the Alternative Minimum Tax ($34 million in 2008). Income taxes paid to state and local 

authorizes were $3,060 million in 200813, about 13 percent of the total paid to U.S. authorities. 

The difference between total current taxes and U.S. federal, state, and local taxes includes 

taxes and royalties paid to foreign countries. As can be seen in Table 2-24 foreign taxes paid far 

exceeds domestic taxes paid. Other non-income production taxes paid, which have risen almost 

three-fold between 1990 and 2008, include windfall profit and severance taxes, as well as other 

production-related taxes. 

 

 

13 Data was withheld in 2009 to avoid disclosure. 
2-7 

Table 2-24 Income and Production Taxes, 1990-2009 (Million 2008 Dollars) 

Year 

US Federal, State, 

and Local Taxes 

Paid or Accrued Total Current 

Total 

Deferred 

Total Income 

Tax Expense 

Other 

Production 

Taxes Paid 

1990 9,568 25,056 -230 24,826 4,341 

1991 6,672 18,437 -3,027 15,410 3,467 

1992 4,994 16,345 -4,116 12,229 3,097 

1993 3,901 13,983 -1,302 12,681 2,910 

1994 3,348 13,556 887 14,443 2,513 

1995 6,817 17,474 -510 16,965 2,476 

1996 8,376 22,493 3,626 26,119 2,922 

1997 7,643 20,764 3,141 23,904 2,743 

1998 1,199 7,375 -1,401 5,974 1,552 

1999 2,626 13,410 140 13,550 2,147 

2000 14,308 36,187 6,674 42,861 3,254 

2001 10,773 28,745 4,351 33,097 3,042 

2002 814 17,108 46 17,154 2,617 

2003 9,274 30,349 6,879 37,228 3,636 

2004 19,661 50,185 4,024 54,209 3,990 

2005 29,993 72,595 4,529 77,125 5,331 

2006 29,469 85,607 9,226 94,834 5,932 

2007 28,332 84,119 2,188 86,306 7,501 

2008 23,199 95,590 2,866 98,456 12,507 

2009* -1,655 35,478 -5,988 29,490 -173 

Source: Energy Information Administration, Form EIA-28 (Financial Reporting System). 

*In 2009, data on the U.S. Federal Investment Tax Credit and U.S. State and Local Income Taxes were withheld to 

avoid disclosure. 

2.7 References 

Andrews, et al. 2009. Unconventional Gas Shales: Development, Technology, and Policy Issues. 

Congressional Research Service. R40894. 

Argonne National Laboratory. 2009. Produced Water Volumes and Management Practices in the 

United States. ANL/EVS/R-09/1. 

Federal Reserve Bank of St. Louis. Economic Research. Gross Domestic Product: Implicit Price 

Deflator. <https://research.stlouisfed.org/fred2/series/GDPDEF>. Accessed February 3, 

2016. 

Hyne, N.J. 2001. Nontechnical Guide to Petroleum Geology, Exploration, Drilling and 

Production. Tulsa, OK: Penwell Books. 

Independent Petroleum Association of America. 2009. Profile of Independent Producers. 

<http://www.ipaa.org/wpcontent/uploads/downloads/2011/12/2009ProfileOfIndependentProducers.pdf> Accessed 

March 30, 2011. 
2-8 

Independent Petroleum Association of American. 2012-2013. Profile of Independent Producers. 

<http://www.ipaa.org/wp-content/uploads/downloads/2014/07/2012-

2013ProfileOfIndependentProducers.pdf>. Accessed on January 30, 2016. 

Manning, F.S. and R.E. Thompson. 1991. Oil Field Processing of Petroleum – Volume 3: 

Produced and Injection Waters. Tulsa, OK: Penn Well Books. 

Oil and Gas Journal. “US Pipeline Operators Sink Revenue Growth into Expansion.” September 

2, 2013. 

Oil and Gas Journal. “OGJ150 Earnings Down as US Production Climbs.” September 2, 2013. 

Oil and Gas Journal. “Special Report: Worldwide Gas Processing: New Plants, Data Push 

Global Gas Processing Capacity Ahead in 2009.” June 7, 2010. 

Oil and Gas Journal. September 7, 2015. “OGJ150”. 

Oil and Gas Journal. September 7, 2015. “Gas Pipeline Table”. pp.126-128. 

Oil and Gas Journal. September 7, 2015. “OGJ150 scores higher production, lower earnings”. 

<http://www.ogj.com/articles/print/volume-113/issue-9/special-report-ogj-150-

100/ogj150-scores-higher-production-lower-earnings.html>. Accessed January 27, 2016. 

U.S. Bureau of Labor Statistics, Quarterly Census of Employment and Wages, 2014, 

<http://data.bls.gov/cgi-bin/dsrv>. Accessed on January 19, 2016. 

U.S. Bureau of Labor Statistics, Quarterly Census of Employment and Wages, 2014, 

<http://www.bls.gov/cew/>. Accessed on January 21, 2016. 

U.S. Census Bureau. Statistics of U.S. Businesses. 

<http://www.census.gov/econ/susb/index.html>. Accessed January 18, 2016. 

U.S. Department of Transportation, Pipeline and Hazardous Materials Safety Administration, 

Office of Pipeline Safety. Annual Report Mileage Summary Statistics. 

<http://phmsa.dot.gov/pipeline/library/data-stats>. Accessed January 4, 2016. 

U.S. Energy Information Administration (U.S. EIA). 2006. Natural Gas Processing: The Crucial 

Link between Natural Gas Production and Its Transportation to Market. 

<http://www.eia.doe.gov/pub/oil_gas/natural_gas/feature_articles/2006/ngprocess/ngproc

ess.pdf> Accessed February 2, 2011. 

U.S. Department of Energy. 2013. Modern Shale Gas Development in the United States: An 

Update. < http://www.netl.doe.gov/File20Library/Research/Oil-Gas/shale-gas-primerupdate-2013.pdf> Accessed December 19, 2014. 
2-9 

U.S. Energy Information Administration (U.S. EIA). 2012. Annual Energy Review 2011 (AER). 

<http://www.eia.doe.gov/emeu/aer/contents.html> 

U.S. Energy Information Administration (U.S. EIA). 2010. Oil and Gas Lease Equipment and 

Operating Costs 1994 through 2009 

<http://www.eia.gov/pub/oil_gas/natural_gas/data_publications/cost_indices_equipment_

production/current/coststudy.html> Accessed March 30, 2011. 

U.S. Energy Information Administration (U.S. EIA). 2013. Summary: U.S. Crude Oil, Natural 

Gas, and Natural Gas Liquids Proved Reserves 2011. 

<http://www.eia.doe.gov/oil_gas/natural_gas/data_publications/crude_oil_natural_gas_re

serves/cr.html> Accessed September 15, 2013. 

U.S. Energy Information Administration (U.S. EIA). 2011. Performance Profiles of Major 

Energy Producers 2009. <http://www.eia.gov/finance/performanceprofiles> Accessed 

September 15, 2013. 

U.S. Energy Information Administration (U.S. EIA). 2014. Annual Energy Outlook 2014. 

<http://www.eia.gov/forecasts/aeo/> Accessed March 17, 2014. 

U.S. Environmental Protection Agency (U.S. EPA), Office of Air Quality Planning and 

Standards. 1996. Economic Analysis of Air Pollution Regulations: Oil and Natural Gas 

Production. 

<http://www.epa.gov/ttnecas1/regdata/IPs/Oil20and20NG20Production20and20NG20Tra

nsmission_IP.pdf> Accessed December 19, 2014. 

U.S. Energy Information Administration (U.S. EIA). 2014. Natural Gas Annual 2014. 

<http://www.eia.gov/naturalgas/annual/pdf/nga14.pdf>. Accessed January 22, 2016. 

U.S. Energy Information Administration (U.S. EIA). November 2015. U.S. Crude Oil and 

Natural Gas Proved Reserves, 2014. Table 7 and Table 17. 

<http://www.eia.gov/naturalgas/crudeoilreserves/pdf/usreserves.pdf>. Accessed January 

15, 2016. 

U.S. Energy Information Administration (U.S. EIA). U.S. Imports by Country of Origin. 

<http://www.eia.gov/dnav/pet/pet_move_impcus_a2_nus_ep00_im0_mbbl_a.htm>. 

Accessed January 22, 2016. 

U.S. Energy Information Administration (U.S. EIA). U.S. Exports by Destination. 

<https://www.eia.gov/dnav/pet/pet_move_expc_a_EP00_EEX_mbbl_a.htm>. Accessed 

January 22, 2016. 

U.S. Energy Information Administration (U.S. EIA). U.S. Natural Gas Imports & Exports by 

State. <https://www.eia.gov/dnav/ng/NG_MOVE_STATE_DCU_NUS_A.htm>. 

Accessed January 21, 2016. 
2-10 

U.S. Energy Information Administration (U.S. EIA). April 2015. Annual Energy Outlook 2015 

with Projections to 2040. <http://www.eia.gov/forecasts/aeo/pdf/0383(2015).pdf>. 

Accessed January 25, 2016. 

U.S. Energy Information Administration (U.S. EIA). April 2015. Annual Energy Outlook 2015 

with Projections to 2040. <http://www.eia.gov/forecasts/aeo/pdf/0383(2015).pdf>. 

Accessed January 19, 2016. 

U.S. Energy Information Administration (U.S. EIA). February 2011. Performance Profiles of 

Major Energy Producers, 2009. Table 9, Figure 15, and Figure 17 data. 

<https://www.eia.gov/cfapps/frs/frstables.cfm?tableNumber=9&startYear=2003&endYea

r=2009&loadAction=Apply+Changes>. Accessed January 27, 2016. 

U.S. Energy Information Administration (U.S. EIA). Crude Oil Production. 

<http://www.eia.gov/dnav/pet/pet_crd_crpdn_adc_mbbl_a.htm>. Accessed on January 

29, 2016. 

U.S. Energy Information Administration (U.S. EIA). U.S. Crude Oil First Purchase Price. 

<https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=f000000__3&f=a>. 

Accessed on January 22, 2016. 

U.S. Energy Information Administration (U.S. EIA). Natural Gas Gross Withdrawals and 

Production.<http://www.eia.gov/dnav/ng/ng_prod_sum_a_EPG0_FPD_mmcf_a.htm>. 

Accessed February 1, 2016. 

U.S. Energy Information (U.S. EIA). Monthly Energy Review. Table 4.3 Natural Gas 

Consumption by Sector data. < 

http://www.eia.gov/beta/MER/index.cfm?tbl=T04.03#/?f=A&start=1990&end=2014&ch

arted=1-2-9-13-14>. Accessed February 3, 2016. 

U.S. Government Publishing Office. Electronic Code of Regulation, Title 13, Chapter 1, Part 

121. <http://www.ecfr.gov/cgibin/retrieveECFR?gp=&SID=7780ee089107f59ef3f78b938e2282b7&r=PART&n=13y1.

0.1.1.17#se13.1.121_1201>. Accessed January 18, 2016. 

U.S. Small Business Administration, Office of Advocacy. 2014. Firm Size Data. 

<https://www.sba.gov/advocacy/firm-size-data>. Accessed January 5, 2016. 

U.S. Environmental Protection Agency (U.S. EPA). 2000. EPA Office of Compliance Sector 

Notebook Project: Profile of the Oil and Gas Extraction Industry. EPA/310-R-99-006. 

<http://www.epa.gov/compliance/resources/publications/assistance/sectors/notebooks/oil

gas.pdf> Accessed December 19, 2014. 
2-11 

U.S. Environmental Protection Agency (U.S. EPA). 2004. Impacts to Underground Sources of 

Drinking Water by Hydraulic Fracturing of Coalbed Methane Reservoirs. EPA/816-R-04-

003. 

U.S. Environmental Protection Agency (U.S. EPA). 2012. Regulatory Impact Analysis: Final 

New Source Performance Standards and Amendments to the National Emissions 

Standards for Hazardous Air Pollutants for the Oil and Natural Gas Industry. 

<http://www.epa.gov/ttn/ecas/regdata/RIAs/oil_natural_gas_final_neshap_nsps_ria.pdf> 

Accessed December 19, 2014.
3-1 

3 EMISSIONS AND ENGINEERING COSTS 

3.1 Introduction 

This chapter describes the emissions and engineering cost analysis for the final NSPS. 

The first section discusses the emissions points and control options. The following section 

describes each step in the emissions and engineering cost analysis and presents an overview of 

results. Detailed tables describing the impacts for each source and option can be found at the end 

of the chapter. We provide reference to the detailed Technical Support Document (TSD) 

prepared by the EPA for the reader interested in a greater level of detail.14

3.2 Sector Emissions Overview 

This section provides estimates of overall emissions from the crude oil and natural gas 

industry to provide context for estimated reductions as a result of the rule. Crude oil and natural 

gas production sector VOC emissions are approximately 2.8 million tons, according to the 2011 

EPA National Emissions Inventory (NEI). The Inventory of U.S. Greenhouse Gas Emissions and 

Sinks: 1990-2014 (to be published April 15, 2016) estimates 2014 methane emissions from 

Petroleum and Natural Gas Systems (not including petroleum refineries and petroleum 

transportation) to be 232 MMt CO2 Eq. In 2014, total methane emissions from the oil and gas 

industry represented 32 percent of the total methane emissions from all sources and account for 

about 3 percent of all CO2 Eq. emissions in the U.S., with the combined petroleum and natural 

gas systems being the largest contributor to U.S. anthropogenic methane emissions (U.S. EPA, 

2016). 

 For the analysis supporting this final action, including this RIA, we used the methane 

100-year global warming potential (GWP) of 25 to be consistent with and comparable to key 

Agency emission quantification programs such as the Inventory of Greenhouse Gas Emissions 

and Sinks (GHG Inventory) and the Greenhouse Gas Reporting Program (GHGRP).15 The use of 

 

14 U.S. EPA. 2016. Oil and Natural Gas Sector: Standards of Performance for Crude Oil and Natural Gas 

Production, Transmission and Distribution. Background Technical Support Document for the Proposed 

Amendments to the New Source Performance Standards.

15 See, for example Table A-1 to subpart A of 40 C.F.R. part 98. 
3-2 

the 100-year GWP of 25 for methane value is currently required by the UNFCCC for reporting 

of national inventories, such as the GHG Inventory. Updated estimates for methane GWP have 

been developed by IPCC (2013).16 The most recent 100-year GWP estimates for methane, which 

are presented in the IPCC Fifth Assessment Report (AR5, 2013), range from 28-36. In 

discussing the science and impacts of methane emissions generally, we use the GWP range of 

28-36. When presenting emissions estimates, we use the GWP of 25 for consistency and 

comparability with other emissions estimates in the U.S. and internationally. 

3.3 Emissions Points and Pollution Controls assessed in the RIA 

A series of emissions controls were evaluated as part of the NSPS review. This section 

provides a basic description of emissions sources and the controls evaluated for each source to 

facilitate the reader’s understanding of the economic impact and benefit analyses. Additional 

technical details on the engineering and cost basis of the analysis is presented in the TSD. 

Completions of Hydraulically Fractured and Re-fractured Oil Wells: Well 

completion activities include multiple steps after the well bore hole has reached the target depth. 

The highest emissions are from venting of natural gas to the atmosphere during flowback. 

Flowback emissions are short-term in nature and occur as a specific event during completion of a 

new well or during activities that involve re-drilling or re-fracturing an existing well. The TSD 

separately considers developmental wells and exploratory wells. Developmental wells are wells 

drilled within known boundaries of a proven oil or gas field, while exploratory or “wildcat” wells 

are wells drilled in areas of new or unknown potential. 

The EPA considered techniques that have been proven to reduce emissions from well 

completions: reduced emissions completions (RECs) and completion combustion, as well as reinjecting the natural gas back into the well or another well, using the gas as an on-site fuel 

source, or use for another beneficial purpose. The use of a REC not only reduces emissions but 

delivers natural gas product that would typically be vented to the sales meter. Completion 

combustion destroys the organic compounds. Technical barriers to the operation of a separator 

 

16 IPCC, 2013: Climate Change 2013: The Physical Science Basis. Contribution of Working Group I to the Fifth 

Assessment Report of the Intergovernmental Panel on Climate Change [Stocker, T.F., D. Qin, G.-K. Plattner, M. 

Tignor, S.K. Allen, J. Boschung, A. Nauels, Y. Xia, V. Bex and P.M. Midgley (eds.)]. Cambridge University 

Press, Cambridge, United Kingdom and New York, NY, USA, 1535 pp. 
3-3 

such as well pressure and flowback composition can limit the feasibility of RECs in some 

situations. Other barriers, such as proximity of pipelines, may prevent recovered gas from being 

routed to a sales line, but do not necessarily prevent reinjection or on-site use. 

Fugitive Emissions: There are several potential sources of fugitive emissions throughout 

the oil and natural gas sector. Fugitive emissions occur when connection points are not fitted 

properly or when seals and gaskets start to deteriorate. Changes in pressure and pressure or 

mechanical stresses can also cause components or equipment to leak. Potential sources of 

fugitive emissions include valves, connectors, pressure relief devices, open-ended lines, flanges, 

closed vent systems, and thief hatches or other openings on a controlled storage unit. These 

fugitive emissions do not include devices that vent as part of normal operations. 

The TSD considers fugitive emissions from production wellsites and compressor stations. 

The EPA considered two options for reducing methane and VOC emissions from leaking 

components: a leak monitoring program based on individual component monitoring using EPA 

Method 21 for leak detection combined with a leak correction, and a leak monitoring program 

based on the use of OGI leak detection combined with leak correction. In addition, alternative 

frequencies for fugitive emissions surveys were considered: annual, semiannual, and quarterly. 

Pneumatic Controllers: Pneumatic controllers are automated instruments used for 

maintaining a process condition such as liquid level, pressure, pressure differential, and 

temperature. In many situations across all segments of the oil and natural gas industry, pneumatic 

controllers make use of the available high-pressure natural gas to operate or control a valve. In 

these “gas-driven” pneumatic controllers, natural gas may be released with every valve 

movement and/or continuously from the valve control pilot. Not all pneumatic controllers are gas 

driven. These “non-gas driven” pneumatic controllers use sources of power other than 

pressurized natural gas. Examples include solar, electric, and instrument air. At oil and gas 

locations with electrical service, non-gas-driven controllers are typically used. Continuous bleed 

pneumatic controllers can be classified into two types based on their emissions rates: (1) highbleed controllers and (2) low-bleed controllers. The EPA evaluated the impact of replacing highbleed controllers with low-bleed controllers. 

Pneumatic Pumps: Pneumatic pumps are devices that use gas pressure to drive a fluid 
3-4 

by raising or reducing the pressure of the fluid by means of a positive displacement, a piston or a 

set of rotating impellers. Gas powered pneumatic pumps are generally used at oil and natural gas 

production sites where electricity is not readily available (GRI/EPA, 1996) and can be a 

significant source of methane and VOC emissions. Pneumatic chemical and methanol injection 

pumps are generally used to pump small volumes of chemicals or methanol into well bores, 

surface equipment, and pipelines. Typically, these pumps include plunger pumps with a 

diaphragm or large piston on the gas end and a smaller piston on the liquid end to enable a high 

discharge pressure with a varied but much lower pneumatic supply gas pressure. They are 

typically used semi-continuously with some seasonal variation. Pneumatic diaphragm pumps are 

used widely in the onshore oil and gas sector to move larger volumes of liquids per unit of time 

at lower discharge pressures than chemical and methanol injection pumps. The usage of these 

pumps is episodic including transferring bulk liquids such as motor oil, pumping out sumps, and 

circulation of heat trace medium at wellsites in cold climates during winter months. 

For both of these types of pumps, emissions occur when the gas used in the pump stroke 

is exhausted to enable liquid filling of the liquid chamber side of the diaphragm. Emissions are a 

function of the amount of fluid pumped, the pressure of the pneumatic supply gas, the number of 

pressure ratio’s between the pneumatic supply gas pressure and the fluid discharge pressure, and 

the mechanical inefficiency of the pump. As discussed in the white papers, several options for 

reducing methane and VOC emissions were identified: replace a natural gas-assisted pump with 

an instrument air pump, replace a natural gas-assisted pump with a solar-charged direct current 

pump (solar pumps), replace a natural gas-assisted pump with an electric pump, and route 

pneumatic pump emissions to a control device. The EPA evaluated the impact of routing pump 

emissions to a pre-existing on-site control device.

Centrifugal and Reciprocating Compressors: Compressors are mechanical devices that 

increase the pressure of natural gas and allow the natural gas to be transported from the 

production site, through the supply chain, and to the consumer. The types of compressors that are 

used by the oil and gas industry as prime movers are reciprocating and centrifugal compressors. 

Centrifugal compressors use either wet or dry seals. 

Emissions from compressors occur when natural gas leaks around moving parts in the 
3-5 

compressor. In a reciprocating compressor, emissions occur when natural gas leaks around the 

piston rod when pressurized natural gas is in the cylinder. Over time, during operation of the 

compressor, the rod packing system becomes worn and will need to be replaced to prevent 

excessive leaking from the compression cylinder. The control options reviewed for reducing 

emissions from reciprocating compressors include control techniques that limit the leaking of 

natural gas past the piston rod packing. This includes replacement of the compressor rod 

packing, replacement of the piston rod, and the refitting or realignment of the piston rod. 

Emissions from centrifugal compressors depend on the type of seal used: either “wet”, 

which use oil circulated at high pressure, or “dry”, which use a thin gap of high pressure gas. The 

use of dry gas seals substantially reduces emissions. In addition, they significantly reduce 

operating costs and enhance compressor efficiency. Limiting or reducing the emission from the 

rotating shaft of a centrifugal compressor using a mechanical dry seal system was evaluated. For 

centrifugal compressors equipped with wet seals, a flare was evaluated as an option for reducing 

emissions from centrifugal compressors. 

3.4 Engineering Cost Analysis 

In this section, we provide an overview of the engineering cost analysis used to estimate 

the additional private expenditures industry may make to comply with the NSPS. A detailed 

discussion of the methodology used to estimate cost impacts is presented in the TSD. 

The following sections describe each step in the engineering cost analysis. First, 

representative facilities are established for each source category, including baseline emissions 

and control options. Second, the number of incrementally affected facilities for each type of 

equipment or facility are projected. National emissions reductions and cost estimates are 

calculated by multiplying representative factors, from the first step, by the estimated number of 

affected facilities in each projection year, from the second step. In addition to emissions 

reductions, some control options result in natural gas recovery, which can then be combusted for 

useful processes or sold. The national cost estimates include estimated revenue from product 

recovery where applicable. 
3-6 

3.4.1 Regulatory Options 

For each emissions source, point, and control option, the TSD develops a representative 

facility. The characteristics of this facility include typical equipment, operating characteristics, 

and representative factors including baseline emissions and the costs, emissions reductions, and 

product recovery resulting from each control option. In this RIA, we examine three broad 

regulatory options. Table 3-1 shows the emissions sources, points, and controls for the three 

NSPS regulatory options analyzed in this RIA, which we term Option 1, Option 2, and Option 3. 

Option 2 was selected for promulgation. 

 
3-7 

Table 3-1 Emissions Sources and Controls Evaluated for the NSPS 

Emissions Point Emissions Control Option 1 Option 2 

(final) Option 3 

Well Completions and Recompletions 

Hydraulically Fractured 

Development Oil Wells REC / Combustion X X X 

Hydraulically Fractured Wildcat 

and Delineation Oil Wells Combustion X X X 

Fugitive Emissions 

Well Sites 

Planning, 

Monitoring and 

Maintenance 

Annual Semiannual Quarterly 

Gathering and Boosting Stations 

Planning, 

Monitoring and 

Maintenance 

Semiannual Quarterly Quarterly 

Transmission Compressor Stations 

Planning, 

Monitoring and 

Maintenance 

Semiannual Quarterly Quarterly 

Pneumatic Pumps 

Well Sites Route to control X X X 

Pneumatic Controllers 

Natural Gas Transmission and 

Storage Emissions limit X X X 

Reciprocating Compressors 

Natural Gas Transmission and 

Storage Maintenance X X X 

Centrifugal Compressors 

 Natural Gas Transmission and 

Storage Route to control X X X 

The selected Option 2 contains reduced emission completion (REC) and completion 

combustion requirements for a subset of newly completed oil wells that are hydraulically 

fractured or refractured. Option 2 requires fugitive emissions survey and repair programs be 

semiannually (twice per year) at the affected newly drilled or refractured oil and natural gas well 

sites, and quarterly at new or modified gathering and boosting stations and new or modified 

transmission and storage compressor stations. Option 2 also requires reductions from centrifugal 

compressors, reciprocating compressors, and pneumatic controllers throughout the oil and 

natural gas source category. 

The unselected Options 1 and 3 differ from the selected Option 2 with respect to the 

requirements for fugitive emissions. Option 1 requires fugitive emissions survey and repair 
3-8 

programs be performed annually at the affected newly drilled or refractured oil and natural gas 

well sites, and semiannually at new or modified gathering and boosting stations and new or 

modified transmission and storage compressor stations. Fewer surveys being performed leads to 

lower costs and emissions reductions than under the selected Option 2. Finally, the more 

stringent Option 3 requires quarterly monitoring for all sites under the fugitive emissions 

program. More frequent surveys result in higher costs and higher emissions reductions than 

Option 2.

3.4.2 Projection of Incrementally Affected Facilities 

The second step in estimating national costs and emissions impacts of the final rule is 

projecting the number of incrementally affected facilities. Incrementally affected facilities are 

facilities that would be expected to change their emissions control activities as a result of the 

NSPS. Facilities in states with similar state-level requirements and facilities with only 

recordkeeping requirements are not included within incrementally affected facilities. 

The years of analysis are 2020, to represent the near-term impacts of the rule, and 2025, 

to represent impacts of the rule over a longer period. Therefore, the emissions reductions, 

benefits, and costs by 2020 and 2025 (i.e., including all emissions reductions, costs, and benefits 

in all years from 2016 to 2025) would be potentially significantly greater than the estimated 

emissions reductions, benefits, and costs provided within this rule. Affected facilities are 

facilities that are new or modified since the proposal in September 2015. In 2020, affected 

facilities are those that are newly established or modified in 2020, as well as those that have 

accumulated between 2016 and 2019. Over time, more facilities are newly established or 

modified in each year, and to the extent the facilities remain in operation in future years, the total

number of facilities subject to the NSPS accumulates. In 2025, affected facilities include 

facilities newly established or modified in 2025, and also facilities which were newly established 

or modified from 2016 through 2024 and are still operating in 2025. The analysis has assumed 

that all new equipment and facilities established from 2016 through 2024 are still in operation in 

2025. This approach differs from the way affected facilities were estimated in the proposal RIA. 

At proposal, 2020 was assumed to represent a single year of potential impacts, and 2025 

included newly established or modified facilities from 2020 through 2024. This methodological 
3-9 

change results in a higher estimate of the number of affected facilities than at proposal and better 

represents the impacts of the rule. 

The EPA has projected affected facilities using a combination of historical data from the 

U.S. GHG Inventory, and projected activity levels taken from the Energy Information 

Administration (EIA) Annual Energy Outlook (AEO). The EPA derived typical counts for new 

compressors, pneumatic controllers, and pneumatic pumps by averaging the year-to-year changes 

over the past ten years in the GHG Inventory. New and modified hydraulically fractured oil well 

completions and wellsites are based on projections and growth rates consistent with the drilling 

activity in the Annual Energy Outlook. For the final RIA, the projections have been updated to 

reflect the projections in the 2015 Annual Energy Outlook. In addition, while the projections 

used in the proposal RIA were based on the long-term growth trajectory from 2012 to 2025, the 

current analysis is based on the full times series in the 2015 AEO reference scenario. 

The 2015 Annual Energy Outlook was the most recent projection available at the time the 

analysis underlying this RIA was being prepared. The 2015 AEO includes the growth in U.S. 

crude oil production over the last two years, along with the late-2014 drop in global crude oil 

prices, and reflects how these factors have altered the economics of the oil market. In 

comparison to the 2014 AEO reference case, the 2015 AEO reference case shows higher crude 

oil production (18 percent higher for 2025 in the 2015 AEO), slightly lower natural gas 

production (about 4 percent lower for 2025 in the 2015 AEO), lower Brent spot and West Texas 

Intermediate crude oil prices, and lower total wells drilled in the lower 48 states (about 20 

percent lower for 2025 in the 2015 AEO). 

While it is desirable to analyze impacts beyond 2025 in this RIA, the EPA has chosen not 

to largely because of the limited information available on the turnover rate of emissions sources 

and controls. For this RIA, we have used the U.S. EIA’s National Energy Modelling System 

(NEMS) to generate a limited set of future year projections to inform impact estimates for subset 

of affected sources. We also used the model to estimate key market impacts of the rules, based 

upon EPA’s parameterization of regulatory costs and natural gas capture in the model. While 

NEMS produces highly regarded projections of production and well drilling, and is useful to 

estimate market impacts of the NSPS, it is not a compliance model and does not directly model 
3-10 

affected units. In addition, in a dynamic industry like oil and natural gas, technological progress 

in control technology is also likely to be dynamic. These factors make it reasonable to use 2025 

as the latest year of analysis as extending the analysis beyond 2025 would introduce substantial 

and increasing uncertainties in projected impacts of the NSPS. 

We also reviewed state regulations and permitting requirements which require mitigation 

measures for many emission sources in the oil and natural gas sector. State regulations in 

Colorado and Wyoming both require RECs for hydraulically fractured oil and gas wells, and 

North Dakota requires combustion of completion emissions. Sources in Colorado, Wyoming, 

Utah, and Ohio are subject to fugitive emissions requirements. Applicable facilities in these 

states are not included in the estimates of incrementally affected facilities presented in the RIA, 

as sources in those states are already subject to similar requirements to the federal standards. 

This means that any additional costs and benefits incurred by facilities in these states to comply 

with the federal standards beyond the state requirements (e.g., to comply with the on-site 

separator requirement) are not reflected in this RIA. A more detailed discussion on the derivation 

of the baseline for this rule is presented for each emissions source in the TSD. In section 4.3.1 of 

the TSD, Table 4-3 provides a detailed breakout of affected oil well completions. 

Table 3-2 Incrementally Affected Sources under Final NSPS, 2016 to 2025 on an 

Annual Basis

Emissions Sources 

Incrementally Affected Sources1

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 

Oil Well Completions 

and Recompletions 13,000 13,000 13,000 13,000 13,000 13,000 13,000 13,000 14,000 14,000 

Fugitive Emissions 19,000 19,000 19,000 19,000 19,000 19,000 19,000 20,000 20,000 21,000 

Pneumatic Pumps 790 790 790 790 790 790 790 790 790 790 

Compressors 33 33 33 33 33 33 33 33 33 33 

Pneumatic Controllers 96 96 96 96 96 96 96 96 96 96 

Total 32,000 32,000 33,000 33,000 33,000 33,000 33,000 34,000 35,000 35,000 

1 Incrementally affected sources includes sources that have to change their control activity as a result of the rule. 

The table does not include estimate counts of a) affected facilities in states with similar state-level requirements to 

the NSPS, b) facilities with only recordkeeping requirements, or c) replacement or modification of existing sources 

except in the case of oil well completions and fugitive emissions at wellsites. 

 Table 3-2 presents the number of affected sources for each year of analysis after 

generally accounting for state regulations. In addition to the caveats regarding facilities affected 

by state regulations described above, facilities with only recordkeeping requirements are also not 
3-11 

included within incrementally affected facilities (e.g., wells with low GOR are not included in 

the estimate of facilities affected by the oil well completion requirements). 

Table 3-3 Total Number of Affected Sources for the NSPS in 2020 and 2025 

Emissions Sources 

Affected Sources1

2020 2025 

Hydraulically Fractured and Re-fractured Oil Well Completions 13,0003 14,0003 

Fugitive Emissions 94,000 190,000 

Pneumatic Pumps 3,900 7,900 

Compressors 170 330 

Pneumatic Controllers 480 960 

Total2 110,000 220,000 

1 In addition to newly affected sources in 2020, total affected sources in 2020 include sources that become affected 

in the 2016-2019 period and are assumed to be in continued operation in 2020. Similarly, affected sources in 2025 

reflect sources newly constructed or modified from 2016 to 2025, assumed to still be in operation in 2025. The table 

does not include estimate counts of: a) affected facilities in states already regulating those sources, b) facilities with 

only recordkeeping requirements, or c) replacement or modification of existing sources except for oil well 

completions and fugitive emissions at wellsites. Estimates are rounded to two significant digits. 

2 Totals may not sum due to independent rounding. 

3

 Affected oil well completions include a mix of RECs and flaring based on subcategory and technical infeasibility 

criteria. Exploratory and delineation wells are required to combust emissions. Of development oil well completions, 

50% are estimated to be feasible to perform a REC; the remainder would combust emissions (either because they are 

unable to implement a REC due to low pressure or other technical infeasibility reasons). See section 4.3.1 of the 

TSD for a detailed breakout of affected oil well completions

Table 3-3 presents estimates of the total number of affected sources for this final rule. 

Note that hydraulically fractured and re-fractured oil well completions do not grow significantly 

from 2020 to 2025, while other sources do. This is a result of completions being a one-time 

activity in a given year, while other sources are affected and remain affected as they continue to 

operate, thus these sources accumulate over time. The estimates for hydraulically fractured and 

re-fractured oil well completions and fugitive emissions at wellsites (a large fraction of the 

incrementally affected sources under the fugitive emissions provisions) include both new and 

modified sources. 

The estimates for other sources are based upon projections of new sources alone, and do 

not include replacement or modification of existing sources. While some of these sources are 

unlikely to be modified, particularly pneumatic pumps and controllers, the impact estimates may 

be under-estimated due to the focus on new sources. In the proposal, the EPA solicited 

comments on these projection methods as well as solicits information that would improve our 
3-12 

estimate of the turnover rates or rates of modification of relevant sources, as well as the number 

of wells on wellsites. While the EPA received comments on the projection methods used in the 

proposal RIA, we did not receive comments with sufficient information to further incorporate 

modification and turnover in the projection methodologies. The EPA has modified its 

methodology for using historical inventory information to estimate new sources reflecting 

comments received, resulting in lower estimates of the number of new compressor stations, 

pumps, compressors, and pneumatic controllers constructed each year. Newly constructed 

affected facilities are estimated based on averaging the year-to-year changes in the past 10 years 

of activity data in the Greenhouse Gas Inventory for compressor stations, pneumatic pumps, 

compressors, and pneumatic controllers. At proposal, this was done by averaging the increasing 

years only. The approach was modified to average the number of newly constructed units in all 

years. In years when the total count of equipment decreased, there were assumed to be no newly 

constructed units. 

3.4.3 Emissions Reductions 

Table 3-4 summarizes the national emissions reductions for the evaluated NSPS 

emissions sources and points for 2020 and 2025. These reductions are estimated by multiplying 

the unit-level emissions reductions associated with each applicable control and facility type by 

the number of incrementally affected sources. The detailed description of emissions controls is 

provided in the TSD. Please note that all results have been rounded to two significant digits. 
3-13 

Table 3-4 Emissions Reductions for Final NSPS Option 2, 2020 and 2025 

Source/Emissions 

Point 

Emissions Reductions, 2020 

Methane 

(short tons) 

VOC 

(short tons) 

HAP 

(short tons) 

Methane 

(metric tons CO2 Eq.) 

Oil Well Completions 

and Recompletions 120,000 97,000 12 2,600,000 

Fugitive Emissions 170,000 46,000 1,700 3,800,000 

Pneumatic Pumps 13,000 3,600 140 290,000 

Compressors 4,000 110 3 92,000 

Pneumatic Controllers 1,300 37 1 30,000 

Total 300,000 150,000 1,900 6,900,000 

Source/Emissions 

Point 

Emissions Reductions, 2025 

Methane 

(short tons) 

VOC 

(short tons) 

HAP 

(short tons) 

Methane 

(metric tons CO2 Eq.) 

Oil Well Completions 

and Recompletions 120,000 100,000 12 2,800,000 

Fugitive Emissions 350,000 94,000 3,600 7,900,000 

Pneumatic Pumps 26,000 7,200 270 590,000 

Compressors 8,100 220 7 180,000 

Pneumatic Controllers 2,700 74 2 61,000 

Total 510,000 210,000 3,900 11,000,000 

3.4.4 Product Recovery 

The annualized cost estimates presented below include revenue from additional natural 

gas recovery. Several emission controls for the NSPS capture methane and VOC emissions that 

would otherwise be vented to the atmosphere. A large proportion of the averted methane 

emissions can be directed into natural gas production streams and sold. For the environmental 

controls that avert the emission of saleable natural gas, we base the estimated revenues from 
3-14 

averted natural gas emissions on an estimate of the amount of natural gas that would not be 

emitted during one year. 

The controls that result in natural gas recovery are: RECs at hydraulically fractured oil 

wells, fugitive emissions monitoring and repair, rod packing replacement in reciprocating 

compressors, and the use of low-bleed pneumatic devices. The requirements for completions at 

exploration and delineation wells, pneumatic pumps, and centrifugal compressors do not result in 

natural gas recovery. In some of these cases, alternative control strategies do result in natural gas 

recovery, but these alternative controls were not assumed as part of this analysis. For example, 

alternatives to routing pneumatic pump emissions to a control device include substituting a solar 

or electric pump where a gas-driven pump would have otherwise been used. 

Table 3-5 summarizes natural gas recovery and revenue included in annualized cost 

calculations. When including the additional natural gas recovery in the cost analysis, we assume 

that producers are paid $4 per thousand cubic feet (Mcf) for the recovered gas at the wellhead. 

The EIA’s 2015 Annual Energy Outlook reference case projects Henry Hub natural gas prices to 

be $4.88/MMBtu in 2020 and $5.46/MMBtu in 2025 in 2013 dollars.17 After adjusting to $/Mcf 

(using the conversion of 1 MMBtu = 1.028 Mcf) in 2012 dollars (using the GDP-Implicit Price 

Deflator), these prices are $4.94/Mcf in 2020 and $5.52 in 2025. When including the additional 

natural gas recovery in the main cost analysis, we assume that producers are paid $4 per 

thousand cubic feet (Mcf) for the recovered gas at the wellhead. The $4/Mcf price assumed in 

this RIA is intended to reflect the AEO estimate but simultaneously be conservatively low and 

also account for markup on the natural gas between the wellhead and the Henry Hub for 

processing and transportation.18

Operators in the gathering and boosting, and transmission and storage parts of the 

industry do not typically own the natural gas they transport; rather, the operators receive 

payment for the transportation service they provide. As a result, the unit-level cost and emission 

reduction analyses supporting BSER decisions in the preamble (and presented in Volume 1 of 

 

17 Available at: http://www.eia.gov/forecasts/aeo/tables_ref.cfm. 

18 An EIA study indicated that the Henry Hub price is, on average, about 11 percent higher than the wellhead price. 

See http://www.eia.gov/oiaf/analysispaper/henryhub/. 
3-15 

the TSD) do not include estimates of revenue from natural gas recovery as offsets to compliance 

costs. From a social perspective, however, the increased financial returns from natural gas 

recovery accrues to entities somewhere along the natural gas supply chain and should be 

accounted for in the national impacts analysis. An economic argument can be made that, in the 

long run, no single entity is going to bear the entire burden of the compliance costs or fully 

receive the financial gain of the additional revenues associated with natural gas recovery. The 

change in economic surplus resulting from natural gas recovery is going to be spread out 

amongst different agents via price mechanisms. Therefore, the most simple and transparent 

option for allocating these revenues would be to keep the compliance costs and associated 

revenues together in a given source category and not add assumptions regarding the allocation of 

these revenues across agents. This is the approach followed in Volume 2 of the TSD, as well as 

in the RIA. 

Table 3-5 Estimated Natural Gas Recovery (Mcf) for selected Option 2 in 2020 and 

2025 

Source/Emissions Point 

2020 2025 

Gas recovery 

(Mcf) 

Value of 

recovery 

Gas recovery 

(Mcf) 

Value of 

recovery 

Oil Well Completions and Recompletions 5,700,000 $23,000,000 6,100,000 $24,000,000 

Fugitive Emissions 9,800,000 $39,000,000 20,000,000 $80,000,000 

Pneumatic Pumps 0 $0 0 $0 

Compressors 180,000 $720,000 360,000 $1,400,000 

Pneumatic Controllers 69,000 $280,000 140,000 $550,000 

Total 16,000,000 $63,000,000 27,000,000 $110,000,000 

As natural gas prices can increase or decrease rapidly, the estimated engineering 

compliance costs can vary when revenue from additional natural gas recovery is included. In 

addition, there is geographic variability in wellhead prices, which can also influence estimated 

engineering costs. For Option 2, a $1/Mcf change in the wellhead price causes a change in 

estimated engineering compliance costs of about 5 percent. Section 3.5.2 further examines the 

sensitivity of national compliance costs to natural gas prices. 

3.4.5 Engineering Compliance Costs 
3-16 

Table 3-6 summarizes the capital and annualized costs and revenue from product 

recovery for the evaluated emissions sources and points. The capital costs represent total capital 

cost expenditures associated with affected units in 2020 and 2025, including capital cost 

expenditures made prior to the analysis year. The detailed description of cost estimates is 

provided in TSD. To estimate total annualized engineering compliance costs, we added the 

annualized costs of each item without accounting for different expected lifetimes. This approach 

is mathematically equivalent to establishing an overall, representative project time horizon and 

annualizing costs after consideration of control options that would need to be replaced 

periodically within the given time horizon. 

Table 3-6 Engineering Compliance Cost Estimates for Final NSPS Option 2 in 2020 

and 2025 (millions 2012$) 

Source/Emissions Point 

Compliance Costs, 2020 

Capital 

Costs1

Annualized 

Costs (without 

savings) 

Revenue 

from 

Product 

Recovery 

Nationwide 

Annualized Costs 

with Addl. Revenue 

(2012$) 

Oil Well Completions and Recompletions $150 $150 $23 $130 

Fugitive Emissions $77 $230 $39 $190 

Pneumatic Pumps $21 $3 $0 $3.1 

Compressors $1.4 $0.9 $0.7 $0.2 

Pneumatic Controllers $0.1 $0.0 $0.3 -$0.27 

Reporting and Recordkeeping $0 $6.3 $0 $6.3 

Total $250 $390 $63 $320 

Source/Emissions Point 

Compliance Costs, 2025 

Capital 

Costs1

Annualized 

Costs (without 

savings) 

Revenue 

from 

Product 

Recovery 

Nationwide 

Annualized Costs 

with Addl. Revenue 

(2012$) 

Oil Well Completions and Recompletions $160 $160 $24 $130 

Fugitive Emissions $160 $460 $80 $380 

Pneumatic Pumps $43 $6 $0 $6 

Compressors $2.9 $1.8 $1.4 $0.3 

Pneumatic Controllers $0.2 $0.0 $0.6 -$0.5 

Reporting and Recordkeeping $0.0 $6.3 $0 $6.3 

Total $360 $640 $110 $530 

1 Capital costs represent total capital costs associated with control of affected sources in 2020 and 2025, including 

expenditures made in previous years. Sums may not total due to independent rounding. 

Engineering capital costs were annualized using a 7 percent interest rate. Section 3.4 
3-17 

provides a comparison to using a 3 percent interest rate. Different emissions control options were 

annualized using expected lifetimes that were determined to be most appropriate for individual 

options. For control options evaluated for the NSPS, the following lifetimes were used to 

annualize capital costs of emissions controls: 

• Reduced emissions completions and combustion devices: 1 year 

• Fugitive emissions monitoring program design: 8 years 

• Reciprocating compressors rod packing: 3.8 – 4.4 years 

• Centrifugal compressors and pneumatic pumps: 10 years 

• Pneumatic controllers: 15 years 

Note the large majority of capital costs are required for the completions fugitive emissions 

requirements. Alternative assumptions of the lifetimes of these expenditures are most likely 

influence estimates of total compliance costs, where alternative assumptions for compressors, 

pumps, and controllers would likely to have relatively small effects. 

Reporting and recordkeeping costs were drawn from the information collection 

requirements (ICR) in this final rule that have been submitted for approval to the Office of 

Management and Budget (OMB) under the Paperwork Reduction Act (see Preamble for more 

detail). The 2020 and 2025 reporting and recordkeeping costs in this RIA are assumed to be 

equal to the third year cost reporting in the ICR cost estimates ($6.3 million). These 

recordkeeping and recordkeeping costs are estimated for the selected Option 2 for all new and 

modified facilities regardless of whether they implement additional controls as a result of the 

NSPS. While these costs may differ across regulatory options as a result of the varying frequency 

of the fugitives program across the options, we do not have the information to estimate the ICR 

burden for the unselected Option 1 and 3. As a result, we assume all options have the same 

recordkeeping and reporting cost burden. Note also that reporting and recordkeeping costs are 

included for all affected entities, regardless of whether they are in states with regulatory 

requirements similar to the final NSPS. 

3.4.6 Comparison of Regulatory Alternatives 
3-18 

Table 3-7 presents a comparison of the regulatory alternatives through each step of the 

emissions analysis in 2020 and 2025. The requirements between the options vary with respect to 

the fugitive emissions requirements. The less stringent Option 1 requires annual monitoring for 

well sites under the fugitive emissions program and semi-annual for compressor stations. The 

more stringent Option 3 requires quarterly monitoring for all sites under the fugitive emissions 

program. Annual, semi-annual, and quarterly fugitive emissions surveys are assumed to result in 

reductions in emissions of 40 percent, 60 percent and 80 percent, respectively.19 For more 

information on these assumptions, please see Section 4.3.2.2 of the TSD. Natural gas recovery 

also varies as a result of survey frequency. Variation in natural gas recovery, capital and 

annualized costs reflect these differences in the number of affected facilities and frequency of 

fugitive emissions surveys. In addition, the ratio between national compliance costs and national 

emissions reductions is presented using both the single pollutant and multipollutant approach. 

Table 3-7 Comparison of Regulatory Alternatives 

 

Regulatory Alternative 

Option 1 

Option 2

(final) Option 3 

Impacts in 2020 

Affected Sources 110,000 110,000 110,000 

Emissions Reductions 

 Methane Emissions Reduction (short tons/year) 250,000 300,000 350,000 

 VOC Emissions Reduction (short tons/year) 130,000 150,000 160,000 

Natural Gas Recovery (Mcf) 13,000,000 16,000,000 19,000,000 

Compliance Costs 

 Capital Costs (2012$) $240,000,000 $250,000,000 $260,000,000 

 Annualized Costs Without Addl. Revenue (2012$) $290,000,000 $390,000,000 $570,000,000 

 Annualized Costs With Addl. Revenue (2012$) $240,000,000 $320,000,000 $490,000,000 

 

Impacts in 2025 

Affected Sources 220,000 220,000 220,000 

Emissions Reductions 

 Methane Emissions Reduction (short tons/year) 390,000 510,000 610,000 

 VOC Emissions Reduction (short tons/year) 170,000 210,000 230,000 

 

19 The EPA performed a sensitivity analysis based on the midpoints of the Method 21 emission reduction efficiency 

percentages, which were determined to be 55, 65, and 75 percent for annual, semiannual and quarterly 

monitoring, respectively. Even based on this conservative analysis, the EPA finds that the chosen monitoring 

frequencies are the BSER for these sources. The EPA additionally concluded that the 40, 60, and 80 percent 

emission reduction efficiency percentages are reasonable and accurate. See section 4.3.2.2 of the final TSD for 

further information. 
3-19 

Natural Gas Recovery (Mcf) 20,000,000 27,000,000 33,000,000 

Compliance Costs 

 Capital Costs (2012$) $350,000,000 $360,000,000 $380,000,000 

 Annualized Costs Without Addl. Revenue (2012$) $440,000,000 $640,000,000 $1,000,000,000 

 Annualized Costs With Addl. Revenue (2012$) $360,000,000 $530,000,000 $880,000,000 

3.5 Engineering Cost Sensitivity Analysis 

This section illustrates the sensitivity of engineering cost and emissions analysis results 

of Option 2 to choice of discount rate and natural gas prices. 

3.5.1 Compliance Costs Estimated Using 3 and 7 Percent Discount Rates 

Table 3-8 shows that the choice of discount rate has minor effects on the nationwide 

annualized costs of the final rule. 

Table 3-8 Annualized Costs using 3 and 7 Percent Discount Rates for Final NSPS 

Option 2 in 2020 and 2025 (millions 2012$) 

 

Nationwide Annualized 

Costs, 2020 

 

Nationwide Annualized 

Costs, 2025 

7 percent 3 percent 7 percent 3 percent 

Oil Well Completions and 

Recompletions $130 $130 $130 $130 

Fugitive Emissions $190 $190 $380 $380 

Pneumatic Pumps $3.1 $2.5 $6.1 $5 

Compressors $0.16 $0.12 $0.31 $0.24 

Pneumatic Controllers -$0.27 -$0.27 -$0.53 -$0.54 

Reporting and Recordkeeping $6.3 $6.3 $6.3 $6.3 

Total $320 $320 $530 $520 

The choice of discount rate has a small effect on nationwide annualized costs. Discount 

rate generally affects estimates of annualized costs for controls with high capital costs relative to 

annual costs. The compliance costs related to oil well completions and fugitive emissions 

surveys occur in each year, so the interest rate has little impact on annualized costs for these 

sources. The annualized costs for pneumatic pumps, compressors, and pneumatic controllers are 
3-20 

sensitive to interest rate, but these constitute a relatively small part of the total compliance cost 

estimates for the rule. 

3.5.2 Sensitivity of Compliance Costs to Natural Gas Prices 

The annualized compliance cost estimates presented in this RIA include revenue from 

additional natural gas recovery, and therefore national compliance costs depend the price of 

natural gas. This section examines the sensitivity of national compliance costs to varying natural 

gas prices. When including the additional natural gas recovery in the main cost analysis, we 

assume that producers are paid $4 per thousand cubic feet (Mcf) for the recovered gas at the 

wellhead. As discussed earlier, the $4/Mcf price assumed in this RIA is intended to reflect the 

AEO estimate but simultaneously be conservatively low and also account for markup on the 

natural gas between the wellhead and the Henry Hub for processing and transportation. 

EPA recognizes that current natural gas prices are below $4/Mcf. In 2015, the Henry Hub 

Natural Gas Spot Price ranged between about $2 and $3 dollars per MMBtu (about $1.94/Mcf 

and $2.91/Mcf, respectively). 20 The models used to forecast natural gas prices in the Annual 

Energy Outlook are deterministic. A deterministic model does not incorporate potential 

stochastic influences and and will therefore producs the same result for each model run using all 

else equal. While the Annual Energy Outlook is a commonly referenced publication that 

provides mid-term forecasts, the U.S. EIA also produces the Short-Term Energy Outlook 

(STEO), which provides confidence intervals for some energy prices over a shorter time frame 

based on the prices paid for financial derivatives (e.g., options) based on natural gas. To better 

understand the uncertainty associated with the 2020 and 2025 natural gas price assumed in this 

analysis, EPA reviewed the March 2016 STEO, which includes monthly forecasted natural gas 

prices through 2017.21 While the STEO analysis only extends to the end of 2017, the published 

 

20 Assuming the average heat context of natual gas is 1,028 Btu per cubic foot, 1 Mcf = 1.028 MMBtu. Based on this 

assumption, to convert natural gas prices denominated in MMbtu to Mcf, the $/MMbtu is multiplied by 1/1.028 

or 0.973. 

21 U.S. Energy Information Administration (U.S. EIA). 2016. Short-Term Energy Outlook, March 8, 2016. 

<http://www.eia.gov/forecasts/steo/report/natgas.cfm> March 8, 2016.
3-21 

confidence intervals for future natural gas prices can provide some basis for understanding the 

potential uncertainty around slightly longer-term forecasts. 

In the STEO, forecasted prices are traded futures contracts. Based on this information the 

STEO also presents a 95% confidence interval for the price of natural gas through 2017. 

However, that the probability analysis uses the Henry Hub spot price, rather than the wellhead 

price paid to producer. The EIA analysis projects an expected December 2017 Henry Hub price 

of $3.31 per MMBtu ($3.22/Mcf) with a 95 percent confidence interval of $1.45 to $5.25 per 

MMBtu ($1.41/Mcf to $5.10/Mcf). While this confidence interval is not for wellhead natural gas 

prices, it is relevant for understating the challenges associated with precisely predicting future 

natural gas prices. 

To analyze the sensitivity of the engineering costs of the rule to assumed natural gas 

prices, Table 3-12 presents nationwide annualized costs for each source category assuming 

natural gas prices of $2, $3, $4, and $5 per Mcf. 

Table 3-9 Annualized Costs Using Natural Gas Prices from $2 to $5 per Mcf 

Source/Emissions Point 

Nationwide Annualized Costs (million 

2012$), 2020 

Nationwide Annualized Costs 

(million 2012$), 2025 

$2/Mcf $3/Mcf $4/Mcf $5/Mcf $2/Mcf $3/Mcf $4/Mcf $5/Mcf 

Oil Well Completions 

and Recompletions $140 $130 $130 $120 $150 $140 $130 $130 

Fugitive Emissions $210 $200 $190 $180 $420 $400 $380 $360 

Pneumatic Pumps $3.1 $3.1 $3.1 $3.1 $6.1 $6.1 $6.1 $6.1 

Compressors $0.52 $0.34 $0.16 -$0.023 $1 $0.68 $0.31 -$0.046 

Pneumatic Controllers -$0.13 -$0.20 -$0.27 -$0.33 -$0.25 -$0.39 -$0.53 -$0.67 

Reporting and 

Recordkeeping $6.3 $6.3 $6.3 $6.3 $6.3 $6.3 $6.3 $6.3 

Total $350 $340 $320 $310 $580 $560 $530 $500 

Note that all figures are rounded to two significant digits. Annualized costs are estimated using a 7 percent discount 

rate. Totals may not sum due to independent rounding.

For Option 2, a $1/Mcf change in the wellhead price causes a change in estimated 

engineering compliance costs of about $16 million in 2020 and $27 million in 2025, in 2012 

dollars. In percentage terms, a $1/Mcf reduction in the wellhead price causes about a 5 percent 

increase in national compliance costs in either 2020 or 2025. These amounts include revenue 

from product recovery in all segments. As decribed above, this approach differs with respect to 
3-22 

the gathering and boosting and transmission segments between the unit-level cost and emissions 

reduction analysis supporting BSER decisions (which is focused on control costs borne by 

regulated sources) and this RIA (which is focused on societal costs). Operators in the gathering 

and boosting and transmission and storage segments may not own the natural gas they transport, 

and so may not be able to offset compliance costs with revenue from product recovery in the 

short term. Changes in costs are affected for the oil well completions, fugitive emissions sources, 

reciprocating compressors, and pneumatic controllers because control of these sources results in 

product recovery. Costs for pumps and centrifugal compressors are not affected because routing 

emissions to a control does not result in product recovery. Valued at $4/Mcf, estimated national 

gas recovery as a result of the NSPS in the gathering and boosting segment would be about $3 

million in 2020 and $6 million in 2025 and in the transmission and storage segment would be 

about $2 million in 2020 and $4 million in 2025. 

3.6 Detailed Impacts Tables 

The following tables show the full details of the costs and emissions reductions by 

emissions sources for each regulatory option in 2020 and 2025.
3-23 

Table 3-10 Incrementally Affected Units, Emissions Reductions and Costs, Option 1, 2020 

Source/Emissions Point 

Projected No. of 

Affected Units 

For Which 

Federal 

Regulations 

Require Further 

Action 

 Nationwide Emissions Reductions 

Methane 

(short 

tons/year) 

VOC (short 

tons/year) 

HAP (short 

tons/year) 

Methane 

(metric tons 

CO2e) 

Well Completions and Recompletions 

Hydraulically Fractured Development Oil Wells 12,000 110,000 89,000 11 2,400,00

 Hydraulically Fractured Wildcat and 

Dilineation Oil Wells 990 9,100 7,600 1 210,00

Fugitive Emissions 

Well Pads 94,000 100,000 28,000 1,100 2,300,00

 Gathering and Boosting Stations 480 10,000 2,800 110 230,00 Tranmission Compressor Stations 45 2,600 73 2 59,00

Pneumatic Pumps  Well Pads 3,900 13,000 3,600 140 290,00Pneumatic Controllers -  Natural Gas Transmission and 

Storage Stations 160 3,500 96 3 79,00

Reciprocating Compressors  Natural Gas Transmission and 

Storage Stations 5 560 15 0 13,00

Centrifigal Compressors  Natural Gas Transmission and 

Storage Stations 480 1,300 37 1 30,00

Reporting and Recordkeeping All 0 0 0 TOTAL 110,000 250,000 130,000 1,300 5,600,00
3-24 

Table 3-11 Incrementally Affected Units, Emissions Reductions and Costs, Option 1, 2025 

Source/Emissions Point 

Projected No. of 

Affected Units 

For Which 

Federal 

Regulations 

Require Further 

Action 

 Nationwide Emissions Reductions 

Methane 

(short 

tons/year) 

VOC (short 

tons/year) 

HAP (short 

tons/year) 

Methane 

(metric tons 

CO2e) 

Well Completions and Recompletions 

Hydraulically Fractured Development Oil Wells 13,000 110,000 95,000 11 2,600,00

 Hydraulically Fractured Wildcat and 

Dilineation Oil Wells 1,100 10,000 8,400 1 230,00

Fugitive Emissions 

Well Pads 190,000 210,000 58,000 2,200 4,700,00

 Gathering and Boosting Stations 960 20,000 5,600 210 460,00 Tranmission Compressor Stations 90 5,200 150 4 120,00

Pneumatic Pumps  Well Pads 7,900 26,000 7,200 270 590,00Pneumatic Controllers -  Natural Gas Transmission and 

Storage Stations 320 7,000 190 6 160,00

Reciprocating Compressors  Natural Gas Transmission and 

Storage Stations 10 1,100 31 1 25,00

Centrifigal Compressors  Natural Gas Transmission and 

Storage Stations 960 2,700 74 2 61,00

Reporting and Recordkeeping All 0 0 0 TOTAL 220,000 390,000 170,000 2,700 8,900,00
3-25 

Table 3-12 Incrementally Affected Units, Emissions Reductions and Costs, Selected Option 2, 2020 

Source/Emissions Point 

Projected No. of 

Affected Units 

For Which 

Federal 

Regulations 

Require Further 

Action 

 Nationwide Emissions Reductions 

Methane 

(short 

tons/year) 

VOC (short 

tons/year) 

HAP (short 

tons/year) 

Methane 

(metric tons 

CO2e) 

Well Completions and Recompletions 

Hydraulically Fractured Development Oil Wells 12,000 110,000 89,000 11 2,400,00

 Hydraulically Fractured Wildcat and 

Dilineation Oil Wells 990 9,100 7,600 1 210,00

Fugitive Emissions 

Well Pads 94,000 150,000 42,000 1,600 3,500,00

 Gathering and Boosting Stations 480 13,000 3,800 140 310,00 Tranmission Compressor Stations 45 3,500 97 3 79,00

Pneumatic Pumps  Well Pads 3,900 13,000 3,600 140 290,00Pneumatic Controllers -  Natural Gas Transmission and 

Storage Stations 160 3,500 96 3 79,00

Reciprocating Compressors  Natural Gas Transmission and 

Storage Stations 5 560 15 0 13,00

Centrifigal Compressors  Natural Gas Transmission and 

Storage Stations 480 1,300 37 1 30,00

Reporting and Recordkeeping 0 0 0 0 TOTAL 110,000 300,000 150,000 1,900 6,900,00
3-26 

Table 3-13 Incrementally Affected Units, Emissions Reductions and Costs, Selected Option 2, 2025 

Source/Emissions Point 

Projected No. of 

Affected Units 

For Which 

Federal 

Regulations 

Require Further 

Action 

 Nationwide Emissions Reductions 

Methane 

(short 

tons/year) 

VOC (short 

tons/year) 

HAP (short 

tons/year) 

Methane 

(metric tons 

CO2e) 

Well Completions and Recompletions 

Hydraulically Fractured Development Oil Wells 13,000 110,000 95,000 11 2,600,00

 Hydraulically Fractured Wildcat and 

Dilineation Oil Wells 1,100 10,000 8,400 1 230,00

Fugitive Emissions 

Well Pads 190,000 310,000 87,000 3,300 7,100,00

 Gathering and Boosting Stations 960 27,000 7,500 280 610,00 Tranmission Compressor Stations 90 7,000 190 6 160,00

Pneumatic Pumps  Well Pads 7,900 26,000 7,200 270 590,00Pneumatic Controllers -  Natural Gas Transmission and 

Storage Stations 320 7,000 190 6 160,00

Reciprocating Compressors  Natural Gas Transmission and 

Storage Stations 10 1,100 31 1 25,00

Centrifigal Compressors  Natural Gas Transmission and 

Storage Stations 960 2,700 74 2 61,00

Reporting and Recordkeeping 0 0 0 0 TOTAL 220,000 510,000 210,000 3,900 11,000,00
3-27 

Table 3-14 Incrementally Affected Units, Emissions Reductions and Costs, Option 3, 2020 

Source/Emissions Point 

Projected No. of 

Affected Units 

For Which 

Federal 

Regulations 

Require Further 

Action 

 Nationwide Emissions Reductions 

Methane 

(short 

tons/year) 

VOC (short 

tons/year) 

HAP (short 

tons/year) 

Methane 

(metric tons 

CO2e) 

Well Completions and Recompletions 

Hydraulically Fractured Development Oil Wells 12,000 110,000 89,000 11 2,400,00

 Hydraulically Fractured Wildcat and 

Dilineation Oil Wells 990 9,100 7,600 1 210,00

Fugitive Emissions 

Well Pads 94,000 200,000 57,000 2,100 4,600,00

 Gathering and Boosting Stations 480 13,000 3,800 140 310,00 Tranmission Compressor Stations 45 3,500 97 3 79,00

Pneumatic Pumps  Well Pads 3,900 13,000 3,600 140 290,00Pneumatic Controllers -  Natural Gas Transmission and 

Storage Stations 160 3,500 96 3 79,00

Reciprocating Compressors  Natural Gas Transmission and 

Storage Stations 5 560 15 0 13,00

Centrifigal Compressors  Natural Gas Transmission and 

Storage Stations 480 1,300 37 1 30,00

Reporting and Recordkeeping 0 0 0 0 TOTAL 110,000 350,000 160,000 2,400 8,000,00
3-28 

Table 3-15 Incrementally Affected Units, Emissions Reductions and Costs, Option 3, 2025 

Source/Emissions Point 

Projected No. of 

Affected Units 

For Which 

Federal 

Regulations 

Require Further 

Action 

 Nationwide Emissions Reductions 

Methane 

(short 

tons/year) 

VOC (short 

tons/year) 

HAP (short 

tons/year) 

Methane 

(metric tons 

CO2e) 

Well Completions and Recompletions 

Hydraulically Fractured Development Oil Wells 13,000 110,000 95,000 11 2,600,00

 Hydraulically Fractured Wildcat and 

Dilineation Oil Wells 1,100 10,000 8,400 1 230,00

Fugitive Emissions 

Well Pads 190,000 420,000 120,000 4,400 9,400,00

 Gathering and Boosting Stations 960 27,000 7,500 280 610,00 Tranmission Compressor Stations 90 7,000 190 6 160,00

Pneumatic Pumps  Well Pads 7,900 26,000 7,200 270 590,00Pneumatic Controllers -  Natural Gas Transmission and 

Storage Stations 320 7,000 190 6 160,00

Reciprocating Compressors  Natural Gas Transmission and 

Storage Stations 10 1,100 31 1 25,00

Centrifigal Compressors  Natural Gas Transmission and 

Storage Stations 960 2,700 74 2 61,00

Reporting and Recordkeeping 0 0 0 0 TOTAL 220,000 610,000 230,000 5,000 14,000,00
4-1 

4 BENEFITS OF EMISSIONS REDUCTIONS 

4.1 Introduction 

The final NSPS is designed to prevent new emissions from the oil and gas sector. For the 

NSPS, we predict that there will be climate and ozone benefits from methane reductions, ozone 

and PM2.5 health benefits from VOC reductions, and HAP “co-benefits”. These co-benefits would 

occur because the control techniques to meet the standards simultaneously reduce methane, 

VOC, and HAP emissions. The NSPS is anticipated to prevent 300,000 tons of methane, 150,000 

tons of VOC, and 1,900 tons of HAP from new sources in 2020. In 2025, the NSPS is estimated 

to prevent 510,000 tons of methane, 210,000 tons of VOC, and 3,900 tons of HAP. The CO2-

equivalent (CO2 Eq.) methane emission reductions are estimated to be 6.9 million metric tons in 

2020 and 11 million metric tons in 2025. As described in the subsequent sections, these 

pollutants are associated with substantial climate, health, and welfare effects. The only benefits 

monetized in this RIA are methane-related climate benefits. The methane-related climate effects 

are estimated to be $360 million and $690 million using a 3 percent discount rate in 2020 and 

2025, respectively.22 The specific control techniques for the NSPS are anticipated to have minor 

emissions disbenefits (e.g., increases in emissions of carbon dioxide (CO2), nitrogen oxides 

(NOX), PM, carbon monoxide (CO), and total hydrocarbons (THC)) and emission changes 

associated with the energy markets impacts. 

While we expect that the avoided VOC emissions will also result in improvements in air 

quality and reduce health and welfare effects associated with exposure to ozone, fine particulate 

matter (PM2.5), and HAP, we have determined that quantification of the VOC-related health 

benefits cannot be accomplished for this rule in a defensible way. This is not to imply that these 

benefits do not exist; rather, it is a reflection of the difficulties in modeling the direct and indirect 

impacts of the reductions in emissions for this industrial sector with the data currently available. 

With the data available, we are not able to provide credible health benefits estimates for this rule, 

due to the differences in the locations of oil and natural gas emission points relative to existing 

information and the highly localized nature of air quality responses associated with HAP and 

 

22 Table 4-3 presents the methane-related climate effects based on SC-CH4 at discount rates of 2.5, 3, and 5 percent. 
4-2 

VOC reductions.23 In this chapter, we provide a qualitative assessment of the health benefits 

associated with reducing exposure to these pollutants, as well as visibility impairment and 

ecosystem benefits. Table 4-1 summarizes the quantified and unquantified benefits in this 

analysis. 

Table 4-1 Climate and Human Health Effects of Emission Reductions from this Rule 

Category Specific Effect 

Effect Has 

Been 

Quantified 

Effect Has 

Been 

Monetized 

More 

Information 

Improved Environment 

Reduced climate 

effects 

Global climate impacts from methane and 

carbon dioxide (CO2) —1 

Marten et al.

(2014), SC-CO2

TSDs 

Other climate impacts (e.g., ozone, black 

carbon, aerosols, other impacts) — — 

IPCC, Ozone ISA, 

PM ISA2

Improved Human Health 

Reduced incidence of 

premature mortality 

from exposure to 

PM2.5

Adult premature mortality based on cohort 

study estimates and expert elicitation estimates 

(age >25 or age >30) 

— — PM ISA3

Infant mortality (age <1) — — PM ISA3

Reduced incidence of 

morbidity from 

exposure to PM2.5

Non-fatal heart attacks (age > 18) — — PM ISA3

Hospital admissions—respiratory (all ages) — — PM ISA3

Hospital admissions—cardiovascular (age >20) — — PM ISA3

Emergency room visits for asthma (all ages) — — PM ISA3

Acute bronchitis (age 8-12) — — PM ISA3

Lower respiratory symptoms (age 7-14) — — PM ISA3

Upper respiratory symptoms (asthmatics age 9-

11) — — PM ISA3

Asthma exacerbation (asthmatics age 6-18) — — PM ISA3

Lost work days (age 18-65) — — PM ISA3

Minor restricted-activity days (age 18-65) — — PM ISA3

Chronic Bronchitis (age >26) — — PM ISA3

Emergency room visits for cardiovascular 

effects (all ages) — — PM ISA3

Strokes and cerebrovascular disease (age 50-

79) — — PM ISA3

Other cardiovascular effects (e.g., other ages) — — PM ISA2

Other respiratory effects (e.g., pulmonary 

function, non-asthma ER visits, non-bronchitis 

chronic diseases, other ages and populations) 

— — PM ISA2

 

23 Previous studies have estimated the monetized benefits-per-ton of reducing VOC emissions associated with the 

effect those emissions have on ambient PM2.5 levels and the health effects associated with PM2.5 exposure (Fann, 

Fulcher, and Hubbell, 2009). While these ranges of benefit-per-ton estimates provide useful context, the 

geographic distribution of VOC emissions from the oil and gas sector are not consistent with emissions modeled 

in Fann, Fulcher, and Hubbell (2009). In addition, the benefit-per-ton estimates for VOC emission reductions in 

that study are derived from total VOC emissions across all sectors. Coupled with the larger uncertainties about 

the relationship between VOC emissions and PM2.5 and the highly localized nature of air quality responses 

associated with VOC reductions, these factors lead us to conclude that the available VOC benefit-per-ton 

estimates are not appropriate to calculate monetized benefits of these rules, even as a bounding exercise. 
4-3 

Category Specific Effect 

Effect Has 

Been 

Quantified 

Effect Has 

Been 

Monetized 

More 

Information 

Reproductive and developmental effects (e.g., 

low birth weight, pre-term births, etc) — — PM ISA2,4

Cancer, mutagenicity, and genotoxicity effects — — PM ISA2,4

Reduced incidence of 

mortality from 

exposure to ozone 

Premature mortality based on short-term study 

estimates (all ages) — — Ozone ISA3

Premature mortality based on long-term study 

estimates (age 30–99) — — Ozone ISA3

Reduced incidence of 

morbidity from 

exposure to ozone 

Hospital admissions—respiratory causes (age > 

65) — — Ozone ISA3

Hospital admissions—respiratory causes (age 

<2) — — Ozone ISA3

Emergency department visits for asthma (all 

ages) — — Ozone ISA3

Minor restricted-activity days (age 18–65) — — Ozone ISA3

School absence days (age 5–17) — — Ozone ISA3

Decreased outdoor worker productivity (age 

18–65) — — Ozone ISA3

Other respiratory effects (e.g., premature aging 

of lungs) — — Ozone ISA2

Cardiovascular and nervous system effects — — Ozone ISA2

Reproductive and developmental effects — — Ozone ISA2,4

Reduced incidence of 

morbidity from 

exposure to HAP 

Effects associated with exposure to hazardous 

air pollutants such as benzene — — ATSDR, IRIS2,3

Improved Environment 

Reduced visibility 

impairment 

Visibility in Class 1 areas — — PM ISA3

Visibility in residential areas — — PM ISA3

Reduced effects from 

PM deposition 

(organics) 

Effects on Individual organisms and 

ecosystems — — PM ISA2

Reduced vegetation 

and ecosystem effects 

from exposure to 

ozone 

Visible foliar injury on vegetation — — Ozone ISA3

Reduced vegetation growth and reproduction — — Ozone ISA3

Yield and quality of commercial forest 

products and crops — — Ozone ISA3

Damage to urban ornamental plants — — Ozone ISA2

Carbon sequestration in terrestrial ecosystems — — Ozone ISA3

Recreational demand associated with forest 

aesthetics — — Ozone ISA2

Other non-use effects Ozone ISA2

Ecosystem functions (e.g., water cycling, 

biogeochemical cycles, net primary 

productivity, leaf-gas exchange, community 

composition) 

— — Ozone ISA2

1 The global climate and related impacts of CO2 and CH4 emissions changes, such as sea level rise, are estimated within each 

integrated assessment model as part of the calculation of the SC-CO2 and SC-CH4. The resulting monetized damages, which 

are relevant for conducting the benefit-cost analysis, are used in this RIA to estimate the welfare effects of quantified changes 

in CO2 emissions.

2

 We assess these benefits qualitatively because we do not have sufficient confidence in available data or methods. 

3

 We assess these benefits qualitatively due to data limitations for this analysis, but we have quantified them in other analyses. 

4 We assess these benefits qualitatively because current evidence is only suggestive of causality or there are other significant 

concerns over the strength of the association. 
4-4 

4.2 Emission Reductions from the Final NSPS 

As described in Section 2 of this RIA, oil and natural gas operations in the U.S. include a 

variety of emission points for methane, VOC, and HAP, including wells, wellsites, processing 

plants, compressor stations, storage equipment, and transmission and distribution lines. These 

emission points are located throughout much of the country with significant concentrations in 

particular regions. For example, wells and processing plants are largely concentrated in the South 

Central, Midwest, and Southern California regions of the U.S., whereas gas compression stations 

are located all over the country. Distribution lines to customers are frequently located within 

areas of high population density. 

In implementing this rule, emission controls may lead to reductions in ambient PM2.5 and 

ozone below the National Ambient Air Quality Standards (NAAQS) in some areas and assist 

other areas with attaining the NAAQS. Due to the high degree of variability in the 

responsiveness of ozone and PM2.5 formation to VOC emission reductions, we are unable to 

determine how this rule might affect attainment status without air quality modeling data.24

Because the NAAQS RIAs also calculate ozone and PM benefits, there are important differences 

worth noting in the design and analytical objectives of each RIA. The NAAQS RIAs illustrate 

the potential costs and benefits of attaining a new air quality standard nationwide based on an 

array of emission control strategies for different sources.25 By contrast, the emission reductions 

for implementation rules, including this rule, are generally from a specific class of wellcharacterized sources. In general, the EPA is more confident in the magnitude and location of the 

emission reductions for implementation rules rather than illustrative NAAQS analyses. Emission 

reductions achieved under these and other promulgated rules will ultimately be reflected in the 

baseline of future NAAQS analyses, which would reduce the incremental costs and benefits 

associated with attaining future NAAQS. 

 

24 The responsiveness of ozone and PM2.5 formation is discussed in greater detail in sections 4.4.1 and 4.5.1 of this 

RIA. 

25 NAAQS RIAs hypothesize, but do not predict, the control strategies States may choose to enact when 

implementing a NAAQS. The setting of a NAAQS does not directly result in costs or benefits, and as such, the 

NAAQS RIAs are merely illustrative and are not intended to be added to the costs and benefits of other

regulations that result in specific costs of control and emission reductions. However, some costs and benefits 

estimated in this RIA may account for the same air quality improvements as estimated in an illustrative NAAQS 

RIA. 
4-5 

Table 4-2 shows the direct emissions reductions anticipated for this rule, across the 

regulatory options examined. It is important to note that these benefits accrue at different spatial 

scales. HAP emission reductions reduce exposure to carcinogens and other toxic pollutants 

primarily near the emission source. VOC emissions are precursors to secondary formation of 

PM2.5 and ozone and reducing these emissions would reduce exposure to these secondary 

pollutants on a regional scale. Climate effects associated with long-lived greenhouse gases like 

methane generally do not depend on the location of the emission of the gas, and have global 

impacts. Methane is also a precursor to global background concentrations of ozone. 

Table 4-2 Direct Emission Reductions across NSPS Regulatory Options in 2020 and 

2025 

Pollutant Option 1 

Option 2 

 (Final) Option 3 

 2020 

Methane (short tons/year) 250,000 300,000 350,000 

VOC (short tons/year) 130,000 150,000 160,00 

HAP (short tons/year) 1,300 1,900 2,400 

Methane (metric tons) 230,000 280,000 320,000 

Methane (million metric tons CO2 Eq.) 5.6 6.9 8.0 

 2025 

Methane (short tons/year) 390,000 510,000 610,000 

VOC (short tons/year) 170,000 210,000 230,000 

HAP (short tons/year) 2,700 3,900 5,000 

Methane (metric tons) 360,000 460,000 550,000 

Methane (million metric tons CO2 Eq.) 8.9 11 14 

4.3 Methane Climate Effects and Valuation 

Methane is the principal component of natural gas. Methane is also a potent greenhouse 

gas (GHG) that, once emitted into the atmosphere, absorbs terrestrial infrared radiation, which in 

turn contributes to increased global warming and continuing climate change. Methane reacts in 

the atmosphere to form ozone, which also impacts global temperatures. Methane, in addition to 

other GHG emissions, contributes to warming of the atmosphere, which over time leads to 

increased air and ocean temperatures, changes in precipitation patterns, melting and thawing of 

global glaciers and ice, increasingly severe weather events, such as hurricanes of greater 

intensity, and sea level rise, among other impacts. 
4-6 

According to the Intergovernmental Panel on Climate Change (IPCC) Fifth Assessment 

Report (AR5, 2013), changes in methane concentrations since 1750 contributed 0.48 W/m2 of 

forcing, which is about 17 percent of all global forcing due to increases in anthropogenic GHG 

concentrations, and which makes methane the second leading long-lived climate forcer after 

CO2. However, after accounting for changes in other greenhouse substances such as ozone and 

stratospheric water vapor due to chemical reactions of methane in the atmosphere, historical 

methane emissions were estimated to have contributed to 0.97 W/m2 of forcing today, which is 

about 30 percent of the contemporaneous forcing due to historical greenhouse gas emissions. 

The oil and gas category emits significant amounts of methane. The public Inventory of 

U.S. Greenhouse Gas Emissions and Sinks: 1990-2014 (to be published April 15, 2016) 

estimates 2014 methane emissions from Petroleum and Natural Gas Systems (not including 

petroleum refineries and petroleum transportation) to be 232 MMt CO2 Eq. In 2014, total 

methane emissions from the oil and gas industry represented 32 percent of the total methane 

emissions from all sources and account for about 3 percent of all CO2 Eq. emissions in the U.S., 

with the combined petroleum and natural gas systems being the largest contributor to U.S. 

anthropogenic methane emissions (U.S. EPA, 2016c). 

Actions taken to comply with the NSPS are anticipated to significantly decrease methane 

emissions from the oil and natural gas sector in the United States. The final standards are 

expected to reduce methane emissions annually by about 6.9 million metric tons CO2 Eq. in 2020 

and by about 12 million metric tons CO2 Eq. in 2025. It is important to note that the emission 

reductions are based upon predicted activities in 2020 and 2025; however, the EPA did not 

forecast sector-level emissions in 2020 and 2025 for this rulemaking. To give a sense of the 

magnitude of the reductions, the methane reductions estimated for 2020 are equivalent to about 

2.8 percent of the methane emissions for this sector reported in the U.S. GHG Inventory for 2014 

(about 232 million metric tons CO2 Eq. are from petroleum and natural gas production and gas 

processing, transmission, and storage). Expected reductions in 2025 are equivalent to around 4.7 

percent of 2014 emissions. As it is expected that emissions from this sector would increase over 

time, the estimates compared against the 2014 emissions would likely overestimate the percent 

of reductions from total emissions in 2020 and 2025. 
4-7 

We calculated the global social benefits of methane emissions reductions expected from 

the NSPS using estimates of the social cost of methane (SC-CH4), a metric that estimates the 

monetary value of impacts associated with marginal changes in methane emissions in a given 

year. It includes a wide range of anticipated climate impacts, such as net changes in agricultural 

productivity and human health, property damage from increased flood risk, and changes in 

energy system costs, such as reduced costs for heating and increased costs for air conditioning. 

The SC-CH4 estimates applied in this analysis were developed by Marten et al. (2014) and are 

discussed in greater detail below. 

A similar metric, the social cost of CO2 (SC-CO2), provides important context for 

understanding the Marten et al. SC-CH4 estimates. Estimates of the SC-CO2 have been used by 

the EPA and other federal agencies to value the impacts of CO2 emissions changes in benefit cost 

analysis for GHG-related rulemakings since 2008. The SC-CO2 is a metric that estimates the 

monetary value of impacts associated with marginal changes in CO2 emissions in a given year. 

Similar the SC-CH4 includes a wide range of anticipated climate impacts, such as net changes in 

agricultural productivity, property damage from increased flood risk, and changes in energy 

system costs, such as reduced costs for heating and increased costs for air conditioning. 

The SC-CO2 estimates were developed over many years, using the best science available, 

and with input from the public. Specifically, an interagency working group (IWG) that included 

the EPA and other executive branch agencies and offices used three integrated assessment 

models (IAMs) to develop the SC-CO2 estimates and recommended four global values for use in 

regulatory analyses. The SC-CO2 estimates were first released in February 2010 and updated in 

2013 using new versions of each IAM. The 2013 update did not revisit the 2010 modeling 

decisions with regards to the discount rate, reference case socioeconomic and emission scenarios, 

and equilibrium climate sensitivity distribution. Rather, improvements in the way damages are 

modeled are confined to those that have been incorporated into the latest versions of the models 

by the developers themselves and published in the peer-reviewed literature. The 2010 SC-CO2

Technical Support Document (2010 SC-CO2 TSD) provides a complete discussion of the 
4-8 

methods used to develop these estimates and the current SC-CO2 TSD presents and discusses the 

2013 update (including recent minor technical corrections to the estimates).26

One key methodological aspect discussed in the SC-CO2 TSDs is the global scope of the 

estimates. The SC-CO2 estimates represent global measures because of the distinctive nature of 

the climate change, which is highly unusual in at least three respects. First, emissions of most 

GHGs contribute to damages around the world independent of the country in which they are 

emitted. The SC-CO2 must therefore incorporate the full (global) damages caused by GHG 

emissions to address the global nature of the problem. Second, the U.S. operates in a global and 

highly interconnected economy, such that impacts on the other side of the world can affect our 

economy. This means that the true costs of climate change to the U.S. are larger than the direct 

impacts that simply occur within the U.S. Third, climate change represents a classic public goods 

problem because each country’s reductions benefit everyone else and no country can be excluded 

from enjoying the benefits of other countries’ reductions, even if it provides no reductions itself. 

In this situation, the only way to achieve an economically efficient level of emissions reductions 

is for countries to cooperate in providing mutually beneficial reductions beyond the level that 

would be justified only by their own domestic benefits. In reference to the public good nature of 

mitigation and its role in foreign relations, thirteen prominent academics noted that these “are 

compelling reasons to focus on a global SCC” (Pizer et al., 2014). In addition, the IWG recently 

noted that there is no bright line between domestic and global damages. Adverse impacts on 

other countries can have spillover effects on the United States, particularly in the areas of 

national security, international trade, public health and humanitarian concerns.27

The 2010 SC-CO2 TSD also noted a number of limitations to the SC-CO2 analysis, 

including the incomplete way in which the IAMs capture catastrophic and non-catastrophic 

impacts, their incomplete treatment of adaptation and technological change, uncertainty in the 

extrapolation of damages to high temperatures, and assumptions regarding risk aversion. 

Currently IAMs do not assign value to all of the important physical, ecological, and economic 

 

26 Both the 2010 SC-CO2 TSD and the current SC-CO2 TSD are available at: 

<https://www.whitehouse.gov/omb/oira/social-cost-of-carbon> 

27 See Response to Comments: Social Cost of Carbon For Regulatory Impact Analysis Under Executive Order 

12866, July 2015, page 31, at <https://www.whitehouse.gov/sites/default/files/omb/inforeg/scc-response-tocomments-final-july-2015.pdf> 
4-9 

impacts of climate change recognized in the climate change literature due to a lack of precise 

information on the nature of damages and because the science incorporated into these models 

understandably lags behind the most recent research.

28 The limited amount of research linking 

climate impacts to economic damages makes the modeling exercise even more difficult. These 

individual limitations do not all work in the same direction in terms of their influence on the SCCO2 estimates, though taken together they suggest that the SC-CO2 estimates are likely 

conservative. In particular, the IPCC Fourth Assessment Report (2007), which was the most 

current IPCC assessment available at the time of the IWG’s 2009-2010 review, concluded that 

“It is very likely that [SC-CO2 estimates] underestimate the damage costs because they cannot 

include many non-quantifiable impacts.” Since then, the peer-reviewed literature has continued 

to support this conclusion. For example, the IPCC Fifth Assessment report (2014) observed that 

SC-CO2 estimates continue to omit various impacts, such as “the effects of the loss of 

biodiversity among pollinators and wild crops on agriculture.”29 Nonetheless, these estimates and 

the discussion of their limitations represent the best available information about the social 

benefits of CO2 reductions to inform benefit-cost analysis. The new versions of the models offer 

some improvements in these areas, although further work is warranted. 

Accordingly, the EPA and other agencies continue to engage in research on modeling and 

valuation of climate impacts with the goal to improve these estimates. The EPA and other 

agencies also continue to consider feedback on the SC-CO2 estimates from stakeholders through 

a range of channels, including public comments on Agency rulemakings that use the SC-CO2 in 

supporting analyses and through regular interactions with stakeholders and research analysts 

implementing the SC-CO2 methodology used by the IWG. In addition, OMB sought public 

 

28 Climate change impacts and social cost of greenhouse gases modeling is an area of active research. For example, 

see: (1) Howard, Peter, “Omitted Damages: What’s Missing from the Social Cost of Carbon.” March 13, 2014, 

http://costofcarbon.org/files/Omitted_Damages_Whats_Missing_From_the_Social_Cost_of_Carbon.pdf; and (2) 

Electric Power Research Institute, “Understanding the Social Cost of carbon: A Technical Assessment,” October 

2014, www.epri.com. 

29 Oppenheimer, M., M. Campos, R.Warren, J. Birkmann, G. Luber, B. O’Neill, and K. Takahashi, 2014: Emergent 

risks and key vulnerabilities. In: Climate Change 2014: Impacts, Adaptation, and Vulnerability. Part A: Global 

and Sectoral Aspects. Contribution of Working Group II to the Fifth Assessment Report of the 

Intergovernmental Panel on Climate Change [Field, C.B., V.R. Barros, D.J. Dokken, K.J. Mach, M.D. 

Mastrandrea, T.E. Bilir, M. Chatterjee, K.L. Ebi, Y.O. Estrada, R.C. Genova, B. Girma, E.S. Kissel, A.N. Levy, 

S. MacCracken, P.R. Mastrandrea, and L.L.White (eds.)]. Cambridge University Press, Cambridge, United 

Kingdom and New York, NY, USA, pp. 1039-1099. 
4-10 

comment on the approach used to develop the SC-CO2 estimates through a separate comment 

period and published a response to those comments in 2015.30 

After careful evaluation of the full range of comments submitted to OMB, the IWG 

continues to recommend the use of the SC-CO2 estimates in regulatory impact analysis. With the 

release of the response to comments, the IWG announced plans in July 2015 to obtain expert 

independent advice from the National Academies of Sciences, Engineering and Medicine to 

ensure that the SC-CO2 estimates continue to reflect the best available scientific and economic 

information on climate change.31 The Academies then convened a committee, “Assessing 

Approaches to Updating the Social Cost of Carbon,” (Committee) that is reviewing the state of 

the science on estimating the SC-CO2, and will provide expert, independent advice on the merits 

of different technical approaches for modeling and highlight research priorities going forward. 

While the Committee’s review focuses on the SC-CO2 methodology, recommendations on how 

to update many of the underlying modeling assumptions will also likely pertain to the SC-CH4

estimates. EPA will evaluate its approach based upon any feedback received from the 

Academies’ panel. 

To date, the Committee has released an interim report, which recommended against doing 

a near term update of the SC-CO2 estimates. For future revisions, the Committee recommended 

the IWG move efforts towards a broader update of the climate system module consistent with the 

most recent, best available science, and also offered recommendations for how to enhance the 

discussion and presentation of uncertainty in the SC-CO2 estimates. Specifically, the Committee 

recommended that “the IWG provide guidance in their technical support documents about how 

[SC-CO2] uncertainty should be represented and discussed in individual regulatory impact 

analyses that use the [SC-CO2]” and that the technical support document for each update of the 

estimates present a section discussing the uncertainty in the overall approach, in the models used, 

and uncertainty that may not be included in the estimates.32 At the time of this writing, the IWG 

 

30 See <https://www.whitehouse.gov/sites/default/files/omb/inforeg/scc-response-to-comments-final-july-2015.pdf>. 

31 The Academies’ review will be informed by public comments and focus on the technical merits and challenges of 

potential approaches to improving the SC-CO2 estimates in future updates.See 

<https://www.whitehouse.gov/blog/2015/07/02/estimating-benefits-carbon-dioxide-emissions-reductions>. 

32 National Academies of Sciences, Engineering, and Medicine. (2016). Assessment of Approaches to Updating the 

Social Cost of Carbon: Phase 1 Report on a Near-Term Update. Committee on Assessing Approaches to 

Updating the Social Cost of Carbon, Board on Environmental Change and Society. Washington, DC: The 

National Academies Press. doi: 10.17226/21898. See Executive Summary, page 1, for quoted text. 
4-11 

is reviewing the interim report and considering the recommendations. EPA looks forward to 

working with the IWG to respond to the recommendations and will continue to follow IWG 

guidance on SC-CO2. 

The four SC-CO2 estimates are: $13, $45, $67, and $130 per metric ton of CO2 emissions 

in the year 2020 (2012 dollars).33 The first three values are based on the average SC-CO2 from 

the three IAMs, at discount rates of 5, 3, and 2.5 percent, respectively. Estimates of the SC-CO2

for several discount rates are included because the literature shows that the SC-CO2 is sensitive 

to assumptions about the discount rate, and because no consensus exists on the appropriate rate 

to use in an intergenerational context (where costs and benefits are incurred by different 

generations). The fourth value is the 95th percentile of the SC-CO2 across all three models at a 3 

percent discount rate. It is included to represent lower probability but higher -impact outcomes 

from climate change, which are captured further out in the tail of the SC-CO2 distribution, and 

while less likely than those reflected by the average SC-CO2 estimates, would be much more 

harmful to society and therefore, are relevant to policy makers. The SC-CO2 increases over time 

because future emissions are expected to produce larger incremental damages as economies grow 

and physical and economic systems become more stressed in response to greater climate change. 

A challenge particularly relevant to this analysis is that the IWG did not estimate the 

social costs of non-CO2 GHG emissions at the time the SC-CO2 estimates were developed. One 

alternative approach to value methane impacts is to use the global warming potential (GWP) to 

convert the emissions to CO2 equivalents which are then valued using the SC-CO2 estimates. 

The GWP measures the cumulative radiative forcing from a perturbation of a non-CO2

GHG relative to a perturbation of CO2 over a fixed time horizon, often 100 years. The GWP 

mainly reflects differences in the radiative efficiency of gases and differences in their 

atmospheric lifetimes. While the GWP is a simple, transparent, and well-established metric for 

 

33 The current version of the SC-CO2 TSD is available at: 

<https://www.whitehouse.gov/sites/default/files/omb/inforeg/scc-tsd-final-july-2015.pdf>. The TSDs present 

SC-CO2 in $2007. The estimates were adjusted to 2012$ using the GDP Implicit Price Deflator (1.0804). Also 

available at: <http://www.bea.gov/iTable/index_nipa.cfm>. The SC-CO2 values have been rounded to two 

significant digits. Unrounded numbers from the 2013 SCC TSD were adjusted to 2012$ and used to calculate the 

CO2 benefits. 
4-12 

assessing the relative impacts of non-CO2 emissions compared to CO2 on a purely physical basis, 

there are several well-documented limitations in using it to value non-CO2 GHG benefits, as 

discussed in the 2010 SC-CO2 TSD and previous rulemakings (e.g., U.S. EPA 2012b, 2012d).34

In particular, several recent studies found that GWP-weighted benefit estimates for methane are 

likely to be lower than the estimates derived using directly modeled social cost estimates for 

these gases (Marten and Newbold, 2012; Marten et al. 2014; and Waldhoff et al al. 2014). Gas 

comparison metrics, such as the GWP, are designed to measure the impact of non-CO2 GHG 

emissions relative to CO2 at a specific point along the pathway from emissions to monetized 

damages (depicted in Figure 4-1), and this point may differ across measures. 

Source: Marten et al. 2014 

Figure 4-1 Path from GHG Emissions to Monetized Damages 

The GWP is not ideally suited for use in benefit-cost analyses to approximate the social 

cost of non-CO2 GHGs because it ignores important nonlinear relationships beyond radiative 

forcing in the chain between emissions and damages. These can become relevant because gases 

have different lifetimes and the SC-CO2 takes into account the fact that marginal damages from 

an increase in temperature are a function of existing temperature levels. Another limitation of gas 

comparison metrics for this purpose is that some environmental and socioeconomic impacts are 

not linked to all of the gases under consideration, or radiative forcing for that matter, and will 

therefore be incorrectly allocated. For example, the economic impacts associated with increased 

agricultural productivity due to higher atmospheric CO2 concentrations included in the SC-CO2

would be incorrectly allocated to methane emissions with the GWP-based valuation approach. 

Also of concern is the fact that the assumptions made in estimating the GWP are not 

consistent with the assumptions underlying SC-CO2 estimates in general, and the SC-CO2

estimates developed by the IWG more specifically. For example, the 100-year time horizon 

usually used in estimating the GWP is less than the approximately 300-year horizon the IWG 

 

34 See also Reilly and Richards, 1993; Schmalensee, 1993; Fankhauser, 1994; Marten and Newbold, 2012. 
4-13 

used in developing the SC-CO2 estimates. The GWP approach also treats all impacts within the 

time horizon equally, independent of the time at which they occur. This is inconsistent with the 

role of discounting in economic analysis, which accounts for a basic preference for earlier over 

later gains in utility and expectations regarding future levels of economic growth. In the case of 

methane, which has a relatively short lifetime compared to CO2, the temporal independence of 

the GWP could lead the GWP approach to underestimate the SC-CH4 with a larger downward 

bias under higher discount rates (Marten and Newbold, 2012).35

 

The EPA sought public comments on the valuation of non-CO2 GHG impacts in previous 

rulemakings (e.g., U.S. EPA 2012b, 2012d). In general, the commenters strongly encouraged the 

EPA to incorporate the monetized value of non-CO2 GHG impacts into the benefit cost analysis, 

however they noted the challenges associated with the GWP-approach, as discussed above, and 

encouraged the use of directly-modeled estimates of the SC-CH4 to overcome those challenges. 

The EPA had cited several researchers that had directly estimated the social cost of nonCO2 emissions using IAMs but noted that the number of such estimates was small compared to 

the large number of SC-CO2 estimates available in the literature. The EPA found considerable 

variation among these published estimates in terms of the models and input assumptions they 

employ (U.S. EPA, 2012d)36. These studies differed in the emissions perturbation year, employed 

a wide range of constant and variable discount rate specifications, and considered a range of 

baseline socioeconomic and emissions scenarios that have been developed over the last 20 years. 

Furthermore, at the time, none of the other published estimates of the social cost of non-CO2

GHG were consistent with the SC-CO2 estimates developed by the IWG, and most were likely 

underestimates due to changes in the underlying science since their publication. 

Therefore, the EPA concluded in those rulemaking analyses that the GWP approach 

would serve as an interim method of analysis until directly modeled social cost estimates for 

non-CO2 GHGs, consistent with the SC-CO2 estimates developed by the IWG, were developed. 

 

35 We note that the truncation of the time period in the GWP calculation could lead to an overestimate of SC-CH4 for 

near term perturbation years when the SC-CO2 is based on a sufficiently low or steeply declining discount rate. 

36 The researchers cited U.S. EPA 2012d include: Fankhauser (1994); Kandlikar (1995); Hammitt et al. (1996); Tol 

et al. (2003); Tol (2004); and Hope and Newberry (2006). 
4-14 

The EPA presented GWP-weighted estimates in sensitivity analyses rather than the main benefitcost analyses.37

Since then, a paper by Marten et al. (2014) provided the first set of published SC-CH4

estimates in the peer-reviewed literature that are consistent with the modeling assumptions 

underlying the SC-CO2 estimates.38 Specifically, the estimation approach Marten et al. used 

incorporated the same set of three IAMs, five socioeconomic and emissions scenarios, 

equilibrium climate sensitivity distribution, three constant discount rates, and aggregation 

approach used by the IWG to develop the SC-CO2 estimates. The aggregation method involved 

distilling the 45 distributions of the SC-CH4 produced for each emissions year into four 

estimates: the mean across all models and scenarios using a 2.5 percent, 3 percent, and 5 percent 

discount rate, and the 95th percentile of the pooled estimates from all models and scenarios using 

a 3 percent discount rate. Marten et al. also used the same rationale as the IWG to develop global 

estimates of the SC-CH4, given that methane is a global pollutant. 

In addition, the atmospheric lifetime and radiative efficacy of methane used by Marten et 

al. is based on the estimates reported by the IPCC in their Fourth Assessment Report (AR4, 

2007), including an adjustment in the radiative efficacy of methane to account for its role as a 

precursor for tropospheric ozone and stratospheric water. These values represent the same ones 

used by the IPCC in AR4 for calculating GWPs. At the time Marten et al. developed their 

estimates of the SC-CH4, AR4 was the latest assessment report by the IPCC. The IPCC updates 

GWP estimates with each new assessment, and in the most recent assessment, AR5, the latest 

estimate of the methane GWP ranged from 28-36, compared to a GWP of 25 in AR4. The 

updated values reflect a number of changes: changes in the lifetime and radiative efficiency 

estimates for CO2, changes in the lifetime estimate for methane, and changes in the correction 

 

37 For example, the 2012 New Source Performance Standards and Amendments to the National Emissions Standards 

for Hazardous Air Pollutants for the Oil and Natural Gas Industry are expected to reduce methane emissions by 

900,000 metric tons annually, see <http://www.gpo.gov/fdsys/pkg/FR-2012-08-16/pdf/2012-16806.pdf>. 

Additionally, the 2017-2025 Light-duty Vehicle Greenhouse Gas Emission Standards and Corporate Average

Fuel Economy Standards, promulgated jointly with the National Highway Traffic Safety Administration, is 

expected to reduce methane emissions by over 100,000 metric tons in 2025 increasing to nearly 500,000 metric 

tons in 2050, see <http://www.gpo.gov/fdsys/pkg/FR-2012-10-15/pdf/2012-21972.pdf>. 

38 Marten et al. (2014) also provided the first set of SC-N2O estimates that are consistent with the assumptions 

underlying the SC-CO2 estimates. 
4-15 

factor applied to methane’s GWP to reflect the effect of methane emissions on other climatically 

important substances such as tropospheric ozone and stratospheric water vapor. In addition, the 

range presented in the latest IPCC report reflects different choices regarding whether to account 

for climate feedbacks on the carbon cycle for both methane and CO2 (rather than just for CO2 as 

was done in AR4).39,40

 

Marten et al. (2014) discuss these estimates, (SC-CH4 estimates presented below in Table 

4-3), and compare them with other recent estimates in the literature.41 The authors noted that a 

direct comparison of their estimates with all of the other published estimates is difficult, given 

the differences in the models and socioeconomic and emissions scenarios, but results from three 

relatively recent studies offer a better basis for comparison (see Hope (2006), Marten and 

Newbold (2012), Waldhoff et al. (2014)). Marten et al. found that, in general, the SC-CH4

estimates from their 2014 paper are higher than previous estimates. The higher SC-CH4 estimates 

are partially driven by the higher effective radiative forcing due to the inclusion of indirect 

effects from methane emissions in their modeling. Marten et al., similar to other recent studies, 

also find that their directly modeled SC-CH4 estimates are higher than the GWP-weighted 

estimates. More detailed discussion of the SC-CH4 estimation methodology, results and a 

comparison to other published estimates can be found in Marten et al.

 

39 Climate Change 2013: The Physical Science Basis. Contribution of Working Group I to the Fifth Assessment 

Report of the Intergovernmental Panel on Climate Change [Stocker, T.F., D. Qin, G.-K. Plattner, M. Tignor,

S.K. Allen, J. Boschung, A. Nauels, Y. Xia, V. Bex and P.M. Midgley (eds.)]. Cambridge University Press, 

Cambridge, United Kingdom and New York, NY, USA. 

40 Note that this analysis uses a GWP value for methane of 25 for CO2 equivalency calculations, consistent with the 

GHG emissions inventories and the IPCC Fourth Assessment Report (AR4). 

41 Marten et al. (2014) estimates are presented in 2007 dollars. These estimates were adjusted for inflation using 

National Income and Product Accounts Tables, Table 1.1.9, Implicit Price Deflators for Gross Domestic Product 

(US Department of Commerce, Bureau of Economic Analysis), <http://www.bea.gov/iTable/index_nipa.cfm> 

(1.0804) Accessed 3/3/15. 
4-16 

Table 4-3 Social Cost of Methane (SC-CH4), 2012 – 2050a [in 2012$ per metric ton] 

(Source: Marten et al., 2014b

)

Year 

SC-CH4

5 Percent 

Average 

3 Percent 

Average 

2.5 Percent 

Average 

3 Percent 

95th percentile 

2012 $430 $1,000 $1,400 $2,800 

2015 $490 $1,100 $1,500 $3,000 

2020 $580 $1,300 $1,700 $3,500 

2025 $700 $1,500 $1,900 $4,000 

2030 $820 $1,700 $2,200 $4,500 

2035 $970 $1,900 $2,500 $5,300 

2040 $1,100 $2,200 $2,800 $5,900 

2045 $1,300 $2,500 $3,000 $6,600 

2050 $1,400 $2,700 $3,300 $7,200 

a

 The values are emissions-year specific and are defined in real terms, i.e., adjusted for inflation using the GDP 

implicit price deflator. 

b

 The estimates in this table have been adjusted to reflect the minor technical corrections to the SC-CO2 estimates 

described above. See Corrigendum to Marten et al. (2014) for more details 

<http://www.tandfonline.com/doi/abs/10.1080/14693062.2015.1070550 >. 

The application of directly modeled estimates from Marten et al. (2014) to benefit-cost 

analysis of a regulatory action is analogous to the use of the SC-CO2 estimates. Specifically, the 

SC-CH4 estimates in Table 4-3 are used to monetize the benefits of reductions in methane 

emissions expected as a result of the rulemaking. Forecasted changes in methane emissions in a 

given year, expected as a result of the regulatory action, are multiplied by the SC-CH4 estimate 

for that year. To obtain a present value estimate, the monetized stream of future non-CO2

benefits are discounted back to the analysis year using the same discount rate used to estimate 

the social cost of the non-CO2 GHG emission changes. In addition, the limitations for the SCCO2 estimates discussed above likewise apply to the SC-CH4 estimates, given the consistency in 

the methodology. 

In early 2015, the EPA conducted a peer review of the application of the Marten et al.

(2014) non-CO2 social cost estimates in regulatory analysis and received responses that 

supported this application.42 Three reviewers considered seven charge questions that covered 

 

42 For a copy of the peer review responses, see Docket ID EPA-HQ-OAR-2010-0505-5016. Also available at 

<https://cfpub.epa.gov/si/si_public_pra_view.cfm?dirEntryID=291976> (see “SCCH4 EPA PEER REVIEW 

FILES.PDF”). 
4-17 

issues such as the EPA’s interpretation of the Marten et al. estimates, the consistency of the 

estimates with the SC-CO2 estimates, the EPA’s characterization of the limits of the GWPapproach to value non-CO2 GHG impacts, and the appropriateness of using the Marten et al.

estimates in regulatory impact analyses. The reviewers agreed with the EPA’s interpretation of 

Marten et al.’s estimates, generally found the estimates to be consistent with the SC-CO2

estimates, and concurred with the limitations of the GWP approach, finding directly modeled 

estimates to be more appropriate. While outside of the scope of the review, the reviewers briefly 

considered the limitations in the SC-CO2 methodology (e.g., those discussed earlier in this

section) and noted that because the SC-CO2 and SC-CH4 methodologies are similar, the 

limitations also apply to the resulting SC-CH4 estimates. Two of the reviewers concluded that 

use of the SC-CH4 estimates developed by Marten et al. and published in the peer-reviewed 

literature is appropriate in RIAs, provided that the Agency discuss the limitations, similar to the 

discussion provided for SC-CO2 and other economic analyses. All three reviewers encouraged 

continued improvements in the SC-CO2 estimates and suggested that as those improvements are 

realized they should also be reflected in the SC-CH4 estimates, with one reviewer suggesting the 

SC-CH4 estimates lag this process. The EPA supports continued improvement in the SC-CO2

estimates developed by the U.S. government and agrees that improvements in the SC-CO2

estimates should also be reflected in the SC-CH4 estimates. The fact that the reviewers agree that 

the SC-CH4 estimates are generally consistent with the SC-CO2 estimates that are recommended 

by OMB’s guidance on valuing CO2 emissions reductions, leads the EPA to conclude that use of 

the SC-CH4 estimates is an analytical improvement over excluding methane emissions from the 

monetized portion of the benefit cost analysis. 

The EPA also carefully considered the full range of public comments and associated 

technical issues on the Marten et al. SC-CH4 estimates received through this rulemaking and 

determined that it would continue to use the estimates in the final rulemaking analysis. Based on 

the evaluation of the public comments on this rulemaking, the favorable peer review of the 

Marten et al. application, and past comments urging the EPA to value non-CO2 GHG impacts in 

its rulemakings, the EPA concluded that the estimates represent the best scientific information on 

the impacts of climate change available in a form appropriate for incorporating the damages from 

incremental methane emissions changes into regulatory analysis. The Agency has valued the 

methane benefits expected from this rulemaking using the Marten et al. (2014) SC-CH4 estimates 
4-18 

and has included those benefits in the main benefits analysis. Please see the Response to 

Comments document, section XIII-H-4, for EPA’s detailed responses to the comments on 

methane valuation. 

The estimated methane benefits are presented in Table 4-4 below for years 2020 and 

2025 across regulatory options. Applying this approach to the methane reductions estimated for 

the final NSPS option (Option 2), the 2020 methane benefits vary by discount rate and range 

from about $160 million to approximately $950 million; the mean SC-CH4 at the 3 percent 

discount rate results in an estimate of about $360 million in 2020. The methane benefits increase 

for Option 2 in 2025 and likewise vary by discount rate, ranging from about $320 million to 

approximately $1.8 billion in that year; the mean SC-CH4 at the 3-percent discount rate results in 

an estimate of about $690 million in 2025. 

Table 4-4 Estimated Global Benefits of Methane Reductions* (in millions, 2012$) 

Discount rate and statistic 

Option 1 Option 2 (final) Option 3 

2020 2025 2020 2025 2020 2025 

Million metric tonnes of 

methane reduced 0.23 0.36 0.28 0.46 0.32 0.55 

Million metric tonnes of 

CO2 Eq. 5.6 8.9 6.9 11 8.0 14 

5% (average) $130 $250 $160 $320 $190 $390 

3% (average) $290 $540 $360 $690 $420 $840 

2.5% (average) $390 $690 $480 $890 $560 $1,100 

3% (95th percentile) $780 $1,400 $950 $1,800 $1,100 $2,200 

*The SC-CH4 values are dollar-year and emissions-year specific. SC-CH4 values represent only a partial accounting 

of climate impacts. 

The vast majority of this rule’s climate-related benefits are associated with methane 

reductions, but some climate-related impacts are expected from the rule’s secondary air impacts. 

The secondary impacts are discussed in Section 4.7. 

Methane is also a precursor to ozone. In remote areas, methane is a dominant precursor to

tropospheric ozone formation (U.S. EPA, 2013). Approximately 40 percent of the global annual 

mean ozone increase since preindustrial times is believed to be due to anthropogenic methane 

(HTAP, 2010). Projections of future emissions also indicate that methane is likely to be a key 

contributor to ozone concentrations in the future (HTAP, 2010). Unlike NOX and VOCs, which 

affect ozone concentrations regionally and at time scales of hours to days, methane emissions 
4-19 

affect ozone concentrations globally and on decadal time scales given methane’s relatively long 

atmospheric lifetime (HTAP, 2010). Reducing methane emissions, therefore, can reduce global 

background ozone concentrations, human exposure to ozone, and the incidence of ozone-related 

health effects (West et al., 2006, Anenberg et al., 2009). These benefits are global and occur in 

both urban and rural areas. Reductions in background ozone concentrations can also have 

benefits for agriculture and ecosystems (UNEP/WMO, 2011). Studies show that controlling 

methane emissions can reduce global ozone concentrations and climate change simultaneously. 

But, controlling other shorter-lived ozone precursors such as NOX, carbon monoxide, or nonmethane VOCs have larger local health benefits from greater reductions in local ozone 

concentrations (West and Fiore, 2005; West et al., 2006; Fiore et al., 2008; Dentener et al., 2005; 

Shindell et al., 2005, 2012; UNEP/WMO, 2011). The health, welfare, and climate effects 

associated with ozone are described in the preceding sections. 

A paper was published in the peer-reviewed scientific literature that presented a range of 

estimates of the monetized ozone-related mortality benefits of reducing methane emissions 

(Sarofim et al. 2015). For example, under their base case assumptions using a 3% discount rate, 

Sarofim et al. find global ozone-related mortality benefits of methane emissions reductions to be 

$790 per tonne of methane in 2020, with 10.6%, or $80, of this amount resulting from mortality 

reductions in the United States. The methodology used in this study is consistent in some (but 

not all) aspects with the modeling underlying the SC-CO2 and SC-CH4 estimates discussed 

above, and required a number of additional assumptions such as baseline mortality rates and 

mortality response to ozone concentrations. The proposal requested comment on the application 

of the Sarofim et al. (2015) for this benefits analysis as an approach to estimating the ozone 

related mortality benefits resulting from the methane reductions expected from this rulemaking. 

Some commenters objected to the inclusion of these benefits because they argue that methane is 

not a VOC, whereas one commenter agreed that there is a connection between methane 

emissions, higher ozone levels, and therefore human mortality. While the EPA does consider the 

methane impacts on ozone to be important, there remain unresolved questions regarding several 

methodological choices involved in applying the Sarofim et al. (2015) approach in the context of 

an EPA benefits analysis, and therefore the EPA is not including a quantitative analysis of this 

effect in this rule at this time. 
4-20 

4.4 VOC as a PM2.5 Precursor 

This rulemaking would reduce emissions of VOC, which are a precursor to PM2.5. Most 

VOC emitted are oxidized to CO2 rather than to PM, but a portion of VOC emission contributes 

to ambient PM2.5 levels as organic carbon aerosols (U.S. EPA, 2009a). Therefore, reducing these 

emissions would reduce PM2.5 formation, human exposure to PM2.5, and the incidence of PM2.5-

related health effects. However, we have not quantified the PM2.5-related benefits in this analysis. 

Analysis of organic carbon measurements suggest only a fraction of secondarily formed organic 

carbon aerosols are of anthropogenic origin. The current state of the science of secondary 

organic carbon aerosol formation indicates that anthropogenic VOC contribution to secondary 

organic carbon aerosol is often lower than the biogenic (natural) contribution. Given that a 

fraction of secondarily formed organic carbon aerosols is from anthropogenic VOC emissions 

and the extremely small amount of VOC emissions from this sector relative to the entire VOC 

inventory, it is unlikely this sector has a large contribution to ambient secondary organic carbon 

aerosols. Photochemical models typically estimate secondary organic carbon from anthropogenic 

VOC emissions to be less than 0.1 μg/m3

. 

Due to data limitations regarding potential locations of new and modified sources 

affected by this rulemaking, we did not perform the air quality modeling needed to quantify 

PM2.5 benefits associated with reducing VOC emissions for this rule. Due to the high degree of 

variability in the responsiveness of PM2.5 formation to VOC emission reductions, we are unable

to estimate the effect that reducing VOC will have on ambient PM2.5 levels without air quality 

modeling. However, we provide the discussion below for context regarding findings from 

previous modeling. 

4.4.1 PM2.5 Health Effects and Valuation 

Reducing VOC emissions would reduce PM2.5 formation, human exposure, and the 

incidence of PM2.5-related health effects. Reducing exposure to PM2.5 is associated with 

significant human health benefits, including avoiding mortality and respiratory morbidity. 

Researchers have associated PM2.5- exposure with adverse health effects in numerous 

toxicological, clinical and epidemiological studies (U.S. EPA, 2009a). When adequate data and 

resources are available, the EPA generally quantifies several health effects associated with 
4-21 

exposure to PM2.5 (e.g., U.S. EPA (2011g)). These health effects include premature mortality for 

adults and infants; cardiovascular morbidity, such as heart attacks; respiratory morbidity, such as 

asthma attacks and acute and chronic bronchitis; which result in hospital and ER visits, lost work 

days, restricted activity days, and respiratory symptoms. Although the EPA has not quantified 

these effects in previous benefits analyses, the scientific literature suggests that exposure to 

PM2.5 is also associated with adverse effects on birth weight, pre-term births, pulmonary 

function, other cardiovascular effects, and other respiratory effects (U.S. EPA, 2009a). 

When the EPA quantifies PM2.5-related benefits, the agency assumes that all fine

particles, regardless of their chemical composition, are equally potent in causing premature 

mortality because the scientific evidence is not yet sufficient to allow differentiation of effect 

estimates by particle type (U.S. EPA, 2009a). Based on our review of the current body of 

scientific literature, the EPA estimates PM-related premature mortality without applying an 

assumed concentration threshold. This decision is supported by the data, which are quite 

consistent in showing effects down to the lowest measured levels of PM2.5 in the underlying 

epidemiology studies. 

Fann, Fulcher, and Hubbell (2009) examined how the monetized benefit-per-ton 

estimates of reducing ambient PM2.5 varies by the location of the emission reduction, the type of 

source emitting the precursor, and the specific precursor controlled. This study employed a 

reduced form air quality model to estimate changes in ambient PM2.5 from reducing 12 different 

combinations of precursor emissions and emission sources, including reducing directly emitted 

carbonanecous particles, nitrogen oxides, sulfur oxides, ammonia, and VOCs for nine urban 

areas and nationwide. For each precursor/source combination in each location, the study authors 

then estimated the total monetized health benefits associated with the PM2.5 change and divided 

these benefits by the corresponding emissions changes to generate benefit-per-ton estimates.The 

estimates from this study can provide general context for the unquantified VOC benefits in this 

rulemaking. Specifically, Fann, Fulcher, and Hubbell (2009) found that the monetized benefitper-ton of reducing VOC emissions ranged from $560 in Seattle, WA to $5,700 in San Joaquin, 

CA, with a national average of $2,400. These estimates assume a 50 percent reduction in VOC, 

from the Laden et al. (2006) mortality function (based on the Harvard Six Cities study, a large 

cohort epidemiology study in the Eastern U.S., an analysis year of 2015, a 3 percent discount 
4-22 

rate, and 2006$). Additional benefit-per-ton estimates are available from this dataset using 

alternate assumptions regarding the relationship between PM2.5 exposure and premature mortality 

from empirical studies and those supplied by experts (e.g., Pope et al., 2002; Laden et al., 2006; 

Roman et al., 2008). The EPA generally presents a range of benefits estimates derived from the 

American Cancer Society cohort (e.g., Pope et al., 2002; Krewski et al., 2009) to the Harvard Six 

Cities cohort (e.g., Laden et al., 2006; Lepuele et al., 2012) because the studies are both welldesigned and extensively peer reviewed. The EPA provides the benefit estimates derived from 

expert opinions in Roman et al. (2008) as a characterization of uncertainty. As shown in Table 

4-5, the range of VOC benefits that reflect the range of epidemiology studies and the range of the 

urban areas is $300 to $7,500 per ton of VOC reduced (2012$).43 Since these estimates were 

presented in the 2012 Oil and Gas NSPS RIA (U.S. EPA, 2012b), we updated our methods to 

apply more recent epidemiological studies for these cohorts (i.e., Krewski et al., 2009; Lepuele 

et al., 2012) as well as additional updates to the morbidity studies and population data.44 Because 

these updates would not lead to significant changes in the benefit-per-ton estimates for VOC, we 

have not updated them here. 

While these ranges of benefit-per-ton estimates provide general context, the geographic 

distribution of VOC emissions from the oil and gas sector are not consistent with emissions 

modeled in Fann, Fulcher, and Hubbell (2009). In addition, the benefit-per-ton estimates for 

VOC emission reductions in that study are derived from total VOC emissions across all sectors. 

Coupled with the larger uncertainties about the relationship between VOC emissions and PM2.5, 

these factors lead the EPA to conclude that the available VOC benefit per ton estimates are not 

appropriate to calculate monetized benefits of this rule, even as a bounding exercise. 

 

43 We also converted the estimates from Fann, Fulcher, and Hubbell (2009) to 2012$ and applied EPA’s current 

value of a statistical life (VSL) estimate. For more information regarding EPA’s current VSL estimate, please see 

Section 5.6.5.1 of the RIA for the PM NAAQS RIA (U.S. EPA, 2012c). EPA continues to work to update its

guidance on valuing mortality risk reductions. 

44 For more information regarding these updates, please see Section 5.3 of the RIA for the final PM NAAQS (U.S. 

EPA, 2012c). 
4-23 

Table 4-5 Monetized Benefits-per-Ton Estimates for VOC in 9 Urban Areas and Nationwide based on 

Hubbell (2009) in (2012$) 

Area Pope et al. (2002) Laden et al. (2006) Expert A Expert B Expert C Expert D Expert E Expert F Expert G Expert H Expert I 

Atlanta $660 $1,600 $1,700 $1,300 $1,300 $920 $2,100 $1,200 $780 $980 $1,300 

Chicago $1,600 $4,000 $4,200 $3,300 $3,200 $2,300 $5,300 $3,000 $1,900 $2,400 $3,200 

Dallas $320 $790 $830 $650 $630 $450 $1,000 $580 $380 $480 $630 

Denver $770 $1,900 $2,000 $1,500 $1,500 $1,100 $2,400 $1,400 $910 $1,100 $1,500 

NYC/ Philadelphia $2,300 $5,600 $5,900 $4,600 $4,500 $3,200 $7,300 $4,100 $2,700 $3,400 $4,500 

Phoenix $1,100 $2,700 $2,800 $2,200 $2,100 $1,500 $3,500 $2,000 $1,300 $1,600 $2,100 

Salt Lake $1,400 $3,300 $3,500 $2,700 $2,700 $1,900 $4,400 $2,500 $1,600 $2,000 $2,700 

San Joaquin $3,100 $7,500 $7,900 $6,100 $6,000 $4,300 $9,700 $5,500 $3,600 $4,500 $6,000 

Seattle $300 $730 $770 $570 $590 $420 $950 $540 $350 $440 $580 

National average $1,300 $3,200 $3,400 $2,600 $2,600 $1,800 $4,200 $2,300 $1,500 $1,900 $2,500 

* The estimates in this table provide general context regarding the potential magnitude of monetized benefits from reducing VOC emis

areas were not chosen based on the locations of VOC emissions from the oil and gas sector. Coupled with other uncertainties, these Vestimates are not appropriate to calculate monetized benefits of this rule. These estimates assumed a 50 percent reduction in VOC emof 2015, and a 3 percent discount rate. All estimates are rounded to two significant digits. These estimates have been adjusted from F

(2009) to reflect a more recent currency year and the EPA’s current VSL estimate. However, these estimates have not been updated t

epidemiological studies for mortality studies, morbidity studies, or population data. Using a discount rate of 7 percent, the benefit-per

approximately 9 percent lower. Assuming a 75 percent reduction in VOC emissions would increase theVOC benefit-per-ton estimate

percent. Assuming a 25 percent reduction in VOC emissions would decrease the VOC benefit-per-ton estimates by 13 percent. The Erange of benefits estimates derived from the expert functions from Roman et al. (2008) as a characterization of uncertainty. 
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4.4.2 Organic PM Welfare Effects 

According to the previous residual risk assessment for this sector (U.S. EPA, 2012a), 

persistent and bioaccumulative HAP reported as emissions from oil and gas operations include 

polycyclic organic matter (POM). POM defines a broad class of compounds that includes 

polycyclic aromatic hydrocarbon compounds (PAHs). Several significant ecological effects are 

associated with deposition of organic particles, including persistent organic pollutants, and PAHs 

(U.S. EPA, 2009a). This summary is from section 6.6.1 of the 2012 PM NAAQS RIA (U.S. 

EPA, 2012c). 

PAHs can accumulate in sediments and bioaccumulate in freshwater, flora, and fauna. 

The uptake of organics depends on the plant species, site of deposition, physical and chemical 

properties of the organic compound and prevailing environmental conditions (U.S. EPA, 2009a). 

PAHs can accumulate to high enough concentrations in some coastal environments to pose an 

environmental health threat that includes cancer in fish populations, toxicity to organisms living 

in the sediment and risks to those (e.g., migratory birds) that consume these organisms. 

Atmospheric deposition of particles is thought to be the major source of PAHs to the sediments 

of coastal areas of the U.S. Deposition of PM to surfaces in urban settings increases the metal 

and organic component of storm water runoff. This atmospherically-associated pollutant burden 

can then be toxic to aquatic biota. The contribution of atmospherically deposited PAHs to 

aquatic food webs was demonstrated in high elevation mountain lakes with no other 

anthropogenic contaminant sources. 

The Western Airborne Contaminants Assessment Project (WACAP) is the most 

comprehensive database on contaminant transport and PM depositional effects on sensitive 

ecosystems in the Western U.S. (Landers et al., 2008). In this project, the transport, fate, and 

ecological impacts of anthropogenic contaminants from atmospheric sources were assessed from 

2002 to 2007 in seven ecosystem components (air, snow, water, sediment, lichen, conifer 

needles, and fish) in eight core national parks. The study concluded that bioaccumulation of 

semi-volatile organic compounds occurred throughout park ecosystems, an elevational gradient 

in PM deposition exists with greater accumulation in higher altitude areas, and contaminants 

accumulate in proximity to individual agriculture and industry sources, which is counter to the 
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original working hypothesis that most of the contaminants would originate from Eastern Europe 

and Asia. 

4.4.3 Visibility Effects 

Reducing secondary formation of PM2.5 from VOC emissions would improve visibility 

throughout the U.S. Fine particles with significant light-extinction efficiencies include sulfates, 

nitrates, organic carbon, elemental carbon, and soil (Sisler, 1996). Suspended particles and gases 

degrade visibility by scattering and absorbing light. Higher visibility impairment levels in the 

East are due to generally higher concentrations of fine particles, particularly sulfates, and higher 

average relative humidity levels. Visibility has direct significance to people’s enjoyment of daily 

activities and their overall sense of wellbeing. Good visibility increases the quality of life where 

individuals live and work, and where they engage in recreational activities. Previous analyses 

(U.S. EPA, 2006b; U.S. EPA, 2011a; U.S. EPA, 2011g; U.S. EPA, 2012c) show that visibility 

benefits are a significant welfare benefit category. Without air quality modeling, we are unable to 

estimate visibility related benefits, nor are we able to determine whether VOC emission 

reductions would be likely to have a significant impact on visibility in urban areas or Class I 

areas. 

4.5 VOC as an Ozone Precursor 

This rulemaking would reduce emissions of VOC, which are also precursors to secondary 

formation of ozone. Ozone is not emitted directly into the air, but is created when its two primary 

components, volatile organic compounds (VOC) and oxides of nitrogen (NOX), react in the 

presence of sunlight. In urban areas, compounds representing all classes of VOC are important 

for ozone formation, but biogenic VOC emitted from vegetation tend to be more important 

compounds in non-urban vegetated areas (U.S. EPA, 2013). Therefore, reducing these emissions 

would reduce ozone formation, human exposure to ozone, and the incidence of ozone-related 

health effects. However, we have not quantified the ozone-related benefits in this analysis for 

several reasons. First, previous rules have shown that the monetized benefits associated with 

reducing ozone exposure are generally smaller than PM-related benefits, even when ozone is the 

pollutant targeted for control (U.S. EPA, 2010a, 2014b). Second, the complex non-linear 

chemistry of ozone formation introduces uncertainty to the development and application of a 
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benefit-per-ton estimate, particularly for sectors with substantial new growth. Third, the impact 

of reducing VOC emissions is spatially heterogeneous depending on local air chemistry. Urban 

areas with a high population concentration are often VOC-limited, which means that ozone is 

most effectively reduced by lowering VOC. Rural areas and downwind suburban areas are often 

NOX-limited, which means that ozone concentrations are most effectively reduced by lowering 

NOX emissions, rather than lowering emissions of VOC. Between these areas, ozone is relatively 

insensitive to marginal changes in both NOX and VOC. 

Due to data limitations regarding potential locations of new and modified sources 

affected by this rulemaking, we did not perform air quality modeling for this rule needed to 

quantify the ozone benefits associated with reducing VOC emissions. Due to the high degree of 

variability in the responsiveness of ozone formation to VOC emission reductions and data 

limitations regarding the location of new and modified wellsites, we are unable to estimate the 

effect that reducing VOC will have on ambient ozone concentrations without air quality 

modeling. 

4.5.1 Ozone Health Effects and Valuation 

Reducing ambient ozone concentrations is associated with significant human health 

benefits, including mortality and respiratory morbidity (U.S. EPA, 2010a). Researchers have 

associated ozone exposure with adverse health effects in numerous toxicological, clinical and 

epidemiological studies (U.S. EPA, 2013). When adequate data and resources are available, EPA 

generally quantifies several health effects associated with exposure to ozone (e.g., U.S. EPA, 

2010a; U.S. EPA, 2011a). These health effects include respiratory morbidity such as asthma 

attacks, hospital and emergency department visits, school loss days, as well as premature 

mortality. The scientific literature is also suggestive that exposure to ozone is also associated 

with chronic respiratory damage and premature aging of the lungs. 

In a recent EPA analysis, EPA estimated that reducing 15,000 tons of VOC from 

industrial boilers resulted in $3.6 to $15 million (2008$) of monetized benefits from reduced 

ozone exposure (U.S. EPA, 2011b).45 After updating the currency year to 2012$, this implies a 

 

45 While EPA has estimated the ozone benefits for many scenarios, most of these scenarios also reduce NOX

emissions, which make it difficult to isolate the benefits attributable to VOC reductions. 
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benefit-per-ton for ozone of $260 to $1,100 per ton of VOC reduced. Since EPA conducted the 

analysis of industrial boilers, EPA published the Integrated Science Assessment for Ozone (U.S. 

EPA, 2013), the Health Risk and Exposure Assessment for Ozone (U.S. EPA, 2014a), and the 

RIA for the proposed Ozone NAAQS (U.S. EPA, 2014b). Therefore, the ozone mortality studies 

applied in the boiler analysis, while current at that time, do not reflect the most updated literature

available. The selection of ozone mortality studies used to estimate benefits in RIAs was 

revisited in the RIA for the proposed Ozone NAAQS. Applying the more recent studies would 

lead to benefit-per-ton estimates for ozone within the range shown here. While these ranges of 

benefit-per-ton estimates provide useful context, the geographic distribution of VOC emissions 

from the oil and gas sector are not consistent with emissions modeled in the boiler analysis. 

Therefore, we do not believe that those estimates to provide useful estimates of the monetized 

benefits of this rule, even as a bounding exercise. 

4.5.2 Ozone Vegetation Effects 

Exposure to ozone has been associated with a wide array of vegetation and ecosystem 

effects in the published literature (U.S. EPA, 2013). Sensitivity to ozone is highly variable across 

species, with over 66 vegetation species identified as “ozone-sensitive”, many of which occur in 

state and national parks and forests. These effects include those that damage or impair the 

intended use of the plant or ecosystem. Such effects are considered adverse to the public welfare 

and can include reduced growth and/or biomass production in sensitive trees, reduced yield and 

quality of crops, visible foliar injury, species composition shift, and changes in ecosystems and 

associated ecosystem services. 

4.5.3 Ozone Climate Effects 

Ozone is a well-known short-lived climate forcing greenhouse gas (GHG) (U.S. EPA, 

2013). Stratospheric ozone (the upper ozone layer) is beneficial because it protects life on Earth 

from the sun’s harmful ultraviolet (UV) radiation. In contrast, tropospheric ozone (ozone in the 

lower atmosphere) is a harmful air pollutant that adversely affects human health and the 

environment and contributes significantly to regional and global climate change. Due to its short 

atmospheric lifetime, tropospheric ozone concentrations exhibit large spatial and temporal 

variability (U.S. EPA, 2009b). The IPCC AR5 estimated that the contribution to current warming 
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levels of increased tropospheric ozone concentrations resulting from human methane, NOx, and 

VOC emissions was 0.5 W/m2, or about 30 percent as large a warming influence as elevated CO2

concentrations. This quantifiable influence of ground level ozone on climate leads to increases in 

global surface temperature and changes in hydrological cycles. 

4.6 Hazardous Air Pollutant (HAP) Benefits 

When looking at exposures from all air toxic sources of outdoor origin across the U.S., we 

see that emissions declined by approximately 60 percent since 1990. However, despite this 

decline, the 2011 National-Scale Air Toxics Assessment (NATA) predicts that most Americans 

are exposed to ambient concentrations of air toxics at levels that have the potential to cause 

adverse health effects (U.S. EPA, 2015).46 The levels of air toxics to which people are exposed 

vary depending on where they live and work and the kinds of activities in which they engage. In 

order to identify and prioritize air toxics, emission source types and locations that are of greatest 

potential concern, the EPA conducts the NATA.47 The most recent NATA was conducted for 

calendar year 2011 and was released in December 2015. NATA includes four steps: 

1) Compiling a national emissions inventory of air toxics emissions from outdoor sources 

2) Estimating ambient concentrations of air toxics across the U.S. utilizing dispersion 

models 

3) Estimating population exposures across the U.S. utilizing exposure models 

4) Characterizing potential public health risk due to inhalation of air toxics including both 

cancer and noncancer effects 

Based on the 2011 NATA, the EPA estimates that less than 1 percent of census tracts 

nationwide have increased cancer risks greater than 100 in a million. The average national cancer 

risk is about 40 in a million. Nationwide, the key pollutants that contribute most to the overall 

 

46 The 2011 NATA is available on the Internet at http://www.epa.gov/national-air-toxics-assessment/2011-nationalair-toxics-assessment.

47 The NATA modeling framework has a number of limitations that prevent its use as the sole basis for setting 

regulatory standards. These limitations and uncertainties are discussed on the 2011 NATA website. Even so, this 

modeling framework is very useful in identifying air toxic pollutants and sources of greatest concern, setting 

regulatory priorities, and informing the decision making process. U.S. EPA. (2015) 2011 National-Scale Air 

Toxics Assessment. <http://www.epa.gov/national-air-toxics-assessment/2011-national-air-toxics-assessment>. 
4-29 

cancer risks are formaldehyde and benzene. 48,49 Secondary formation (e.g., formaldehyde 

forming from other emitted pollutants) was the largest contributor to cancer risks, while 

stationary, mobile, biogenics, and background sources contribute lesser amounts to the remaining 

cancer risk. 

Noncancer health effects can result from chronic,50 subchronic,51 or acute52 inhalation 

exposure to air toxics, and include neurological, cardiovascular, liver, kidney, and respiratory 

effects as well as effects on the immune and reproductive systems. According to the 2011 

NATA, about 80 percent of the U.S. population was exposed to an average chronic concentration 

of air toxics that has the potential for adverse noncancer respiratory health effects.Results from 

the 2011 NATA indicate that acrolein is the primary driver for noncancer respiratory risk. 

Figure 4-2 and Figure 4-3 depict the 2011 NATA estimated census tract-level 

carcinogenic risk and noncancer respiratory hazard from the assessment. It is important to note 

that large reductions in HAP emissions may not necessarily translate into significant reductions 

in health risk because toxicity varies by pollutant, and exposures may or may not exceed levels 

of concern. For example, acetaldehyde mass emissions were more than seventeen times acrolein 

emissions on a national basis in the EPA’s 2011 National Emissions Inventory (NEI). However, 

the Integrated Risk Information System (IRIS) reference concentration (RfC) for acrolein is 

considerably lower than that for acetaldehyde, this results in 2011 NATA estimates of 

nationwide chronic respiratory noncancer risks from acrolein being over three times that of 

 

48 Details on EPA’s approach to characterization of cancer risks and uncertainties associated with the 2011 NATA 

risk estimates can be found at <http://www.epa.gov/national-air-toxics-assessment/nata-limitations>. 

49 Details about the overall confidence of certainty ranking of the individual pieces of NATA assessments including 

both quantitative (e.g., model-to-monitor ratios) and qualitative (e.g., quality of data, review of emission 

inventories) judgments can be found at <http://www.epa.gov/national-air-toxics-assessment/nata-limitations>. 

50 Chronic exposure is defined in the glossary of the Integrated Risk Information System (IRIS) database

(<http://www.epa.gov/iris>) as repeated exposure by the oral, dermal, or inhalation route for more than 

approximately 10 of the life span in humans (more than approximately 90 days to 2 years in typically used 

laboratory animal species).

51 Defined in the IRIS database as repeated exposure by the oral, dermal, or inhalation route for more than 30 days, 

up to approximately 10 of the life span in humans (more than 30 days up to approximately 90 days in typically 

used laboratory animal species).

52 Defined in the IRIS database as exposure by the oral, dermal, or inhalation route for 24 hours or less. 
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acetaldehyde. 53 Thus, it is important to account for the toxicity and exposure, as well as the mass 

of the targeted emissions. 

Figure 4-2 2011 NATA Model Estimated Census Tract Carcinogenic Risk from HAP 

Exposure from All Outdoor Sources based on the 2011 National Emissions Inventory 

 

 

53 Details on the derivation of IRIS values and available supporting documentation for individual chemicals (as well 

as chemical values comparisons) can be found at <http://www.epa.gov/iris>. 
4-31 

Figure 4-3 2011 NATA Model Estimated Census Tract Noncancer (Respiratory) Risk 

from HAP Exposure from All Outdoor Sources based on the 2011 National Emissions 

Inventory 

Due to methodology and data limitations, we were unable to estimate the benefits 

associated with the hazardous air pollutants that would be reduced as a result of this rule. In a 

few previous analyses of the benefits of reductions in HAP, EPA has quantified the benefits of 

potential reductions in the incidences of cancer and noncancer risk (e.g., U.S. EPA, 1995). In 

those analyses, EPA relied on unit risk factors (URF) and reference concentrations (RfC) 

developed through risk assessment procedures. The URF is a quantitative estimate of the 

carcinogenic potency of a pollutant, often expressed as the probability of contracting cancer from 

a 70-year lifetime continuous exposure to a concentration of one μg/m3

 of a pollutant. These 

URFs are designed to be conservative, and as such, are more likely to represent the high end of 
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the distribution of risk rather than a best or most likely estimate of risk. An RfC is an estimate 

(with uncertainty spanning perhaps an order of magnitude) of a continuous inhalation exposure 

to the human population (including sensitive subgroups) that is likely to be without an 

appreciable risk of deleterious noncancer health effects during a lifetime. As the purpose of a 

benefit analysis is to describe the benefits most likely to occur from a reduction in pollution, use 

of high-end, conservative risk estimates would overestimate the benefits of the regulation. While 

we used high-end risk estimates in past analyses, advice from the EPA’s Science Advisory Board 

(SAB) recommended that we avoid using high-end estimates in benefit analyses (U.S. EPASAB, 2002). Since this time, EPA has continued to develop better methods for analyzing the 

benefits of reductions in HAP. 

As part of the second prospective analysis of the benefits and costs of the Clean Air Act 

(U.S. EPA, 2011a), EPA conducted a case study analysis of the health effects associated with 

reducing exposure to benzene in Houston from implementation of the Clean Air Act (IEc, 2009). 

While reviewing the draft report, EPA’s Advisory Council on Clean Air Compliance Analysis 

concluded that “the challenges for assessing progress in health improvement as a result of 

reductions in emissions of hazardous air pollutants (HAP) are daunting...due to a lack of 

exposure-response functions, uncertainties in emissions inventories and background levels, the 

difficulty of extrapolating risk estimates to low doses and the challenges of tracking health 

progress for diseases, such as cancer, that have long latency periods” (U.S. EPA-SAB, 2008). 

In 2009, EPA convened a workshop to address the inherent complexities, limitations, and 

uncertainties in current methods to quantify the benefits of reducing HAP. Recommendations 

from this workshop included identifying research priorities, focusing on susceptible and 

vulnerable populations, and improving dose-response relationships (Gwinn et al., 2011). 

In summary, monetization of the benefits of reductions in cancer incidences requires 

several important inputs, including central estimates of cancer risks, estimates of exposure to 

carcinogenic HAP, and estimates of the value of an avoided case of cancer (fatal and non-fatal). 

Due to methodology and data limitations, we did not attempt to monetize the health benefits of 

reductions in HAP in this analysis. Instead, we provide a qualitative analysis of the health effects 

associated with the HAP anticipated to be reduced by this rule. EPA remains committed to 
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improving methods for estimating HAP benefits by continuing to explore additional concepts of 

benefits, including changes in the distribution of risk. 

Available emissions data show that several different HAP are emitted from oil and 

natural gas operations, either from equipment leaks, processing, compressing, transmission and 

distribution, or storage tanks. Emissions of eight HAP make up a large percentage of the total 

HAP emissions by mass from the oil and gas sector: toluene, hexane, benzene, xylenes (mixed), 

ethylene glycol, methanol, ethyl benzene, and 2,2,4-trimethylpentane (U.S. EPA, 2012a). In the 

subsequent sections, we describe the health effects associated with the main HAP of concern 

from the oil and natural gas sector: benzene, toluene, carbonyl sulfide, ethyl benzene, mixed 

xylenes, and n-hexane. This rule is anticipated to avoid or reduce 3,400 tons of HAP in 2025. 

With the data available, it was not possible to estimate the tons of each individual HAP that 

would be reduced. 

4.6.1 Benzene 

The EPA’s IRIS database lists benzene as a known human carcinogen (causing leukemia) 

by all routes of exposure, and concludes that exposure is associated with additional health 

effects, including genetic changes in both humans and animals and increased proliferation of 

bone marrow cells in mice.54,55,56 EPA states in its IRIS database that data indicate a causal 

relationship between benzene exposure and acute lymphocytic leukemia and suggest a 

relationship between benzene exposure and chronic non-lymphocytic leukemia and chronic 

lymphocytic leukemia. The International Agency for Research on Carcinogens (IARC) has 

determined that benzene is a human carcinogen and the U.S. Department of Health and Human 

 

54 U.S. Environmental Protection Agency (U.S. EPA). 2000. Integrated Risk Information System File for Benzene. 

Research and Development, National Center for Environmental Assessment, Washington, DC. This material is 

available electronically at: <http://www.epa.gov/iris/subst/0276.htm>.

55 International Agency for Research on Cancer, IARC monographs on the evaluation of carcinogenic risk of

chemicals to humans, Volume 29, Some industrial chemicals and dyestuffs, International Agency for Research 

on Cancer, World Health Organization, Lyon, France, p. 345-389, 1982. 

56 Irons, R.D.; Stillman, W.S.; Colagiovanni, D.B.; Henry, V.A. (1992) Synergistic action of the benzene metabolite 

hydroquinone on myelopoietic stimulating activity of granulocyte/macrophage colony-stimulating factor in vitro, 

Proc. Natl. Acad. Sci. 89:3691-3695. 
4-34 

Services has characterized benzene as a known human carcinogen.57,58 A number of adverse 

noncancer health effects including blood disorders, such as preleukemia and aplastic anemia, 

have also been associated with long-term exposure to benzene.59,60

4.6.2 Toluene61

Under the 2005 Guidelines for Carcinogen Risk Assessment, there is inadequate 

information to assess the carcinogenic potential of toluene because studies of humans chronically 

exposed to toluene are inconclusive, toluene was not carcinogenic in adequate inhalation cancer 

bioassays of rats and mice exposed for life, and increased incidences of mammary cancer and 

leukemia were reported in a lifetime rat oral bioassay. 

The central nervous system (CNS) is the primary target for toluene toxicity in both 

humans and animals for acute and chronic exposures. CNS dysfunction (which is often 

reversible) and narcosis have been frequently observed in humans acutely exposed to low or 

moderate levels of toluene by inhalation: symptoms include fatigue, sleepiness, headaches, and 

nausea. Central nervous system depression has been reported to occur in chronic abusers exposed 

to high levels of toluene. Symptoms include ataxia, tremors, cerebral atrophy, nystagmus 

(involuntary eye movements), and impaired speech, hearing, and vision. Chronic inhalation 

exposure of humans to toluene also causes irritation of the upper respiratory tract, eye irritation, 

dizziness, headaches, and difficulty with sleep. 

Human studies have also reported developmental effects, such as CNS dysfunction, 

attention deficits, and minor craniofacial and limb anomalies, in the children of women who 

abused toluene during pregnancy. A substantial database examining the effects of toluene in 

 

57 International Agency for Research on Cancer (IARC). 1987. Monographs on the evaluation of carcinogenic risk 

of chemicals to humans, Volume 29, Supplement 7, Some industrial chemicals and dyestuffs, World Health

Organization, Lyon, France. 

58 U.S. Department of Health and Human Services National Toxicology Program 11th Report on Carcinogens 

available at: <http://ntp.niehs.nih.gov/go/16183>. 

59 Aksoy, M. (1989). Hematotoxicity and carcinogenicity of benzene. Environ. Health Perspect. 82: 193-197. 

60 Goldstein, B.D. (1988). Benzene toxicity. Occupational medicine. State of the Art Reviews. 3: 541-554.

61 All health effects language for this section came from: U.S. EPA. 2005. “Full IRIS Summary for Toluene 

(CASRN 108-88-3)” Environmental Protection Agency, Integrated Risk Information System (IRIS), Office of 

Health and Environmental Assessment, Environmental Criteria and Assessment Office, Cincinnati, OH. 

Available on the Internet at <http://www.epa.gov/iris/subst/0118.htm>.
4-35 

subchronic and chronic occupationally exposed humans exists. The weight of evidence from 

these studies indicates neurological effects (i.e., impaired color vision, impaired hearing, 

decreased performance in neurobehavioral analysis, changes in motor and sensory nerve 

conduction velocity, headache, and dizziness) as the most sensitive endpoint. 

4.6.3 Carbonyl Sulfide 

Limited information is available on the health effects of carbonyl sulfide. Acute (shortterm) inhalation of high concentrations of carbonyl sulfide may cause narcotic effects and irritate 

the eyes and skin in humans.62 No information is available on the chronic (long-term), 

reproductive, developmental, or carcinogenic effects of carbonyl sulfide in humans. Carbonyl 

sulfide has not undergone a complete evaluation and determination under U.S. EPA's IRIS 

program for evidence of human carcinogenic potential.63

4.6.4 Ethylbenzene 

Ethylbenzene is a major industrial chemical produced by alkylation of benzene. The pure 

chemical is used almost exclusively for styrene production. It is also a constituent of crude 

petroleum and is found in gasoline and diesel fuels. Acute (short-term) exposure to ethylbenzene 

in humans results in respiratory effects such as throat irritation and chest constriction, and 

irritation of the eyes, and neurological effects such as dizziness. Chronic (long-term) exposure of 

humans to ethylbenzene may cause eye and lung irritation, with possible adverse effects on the 

blood. Animal studies have reported effects on the blood, liver, and kidneys and endocrine 

system from chronic inhalation exposure to ethylbenzene. No information is available on the 

developmental or reproductive effects of ethylbenzene in humans, but animal studies have 

reported developmental effects, including birth defects in animals exposed via inhalation. Studies 

in rodents reported increases in the percentage of animals with tumors of the nasal and oral 

 

62 Hazardous Substances Data Bank (HSDB), online database. US National Library of Medicine, Toxicology Data 

Network, available online at http://toxnet.nlm.nih.gov/. Carbonyl health effects summary available at 

<http://toxnet.nlm.nih.gov/cgi-bin/sis/search/r?dbs+hsdb:@term+@rn+@rel+463-58-1>.

63 U.S. Environmental Protection Agency (U.S. EPA). 2000. Integrated Risk Information System File for Carbonyl 

Sulfide. Research and Development, National Center for Environmental Assessment, Washington, DC. This 

material is available electronically at <http://www.epa.gov/iris/subst/0617.htm>.
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cavities in male and female rats exposed to ethylbenzene via the oral route.64,65 The reports of 

these studies lacked detailed information on the incidence of specific tumors, statistical analysis, 

survival data, and information on historical controls, thus the results of these studies were 

considered inconclusive by the International Agency for Research on Cancer (IARC, 2000) and 

the National Toxicology Program (NTP).66,67 The NTP (1999) carried out a chronic inhalation 

bioassay in mice and rats and found clear evidence of carcinogenic activity in male rats and some 

evidence in female rats, based on increased incidences of renal tubule adenoma or carcinoma in 

male rats and renal tubule adenoma in females. NTP (1999) also noted increases in the incidence 

of testicular adenoma in male rats. Increased incidences of lung alveolar/bronchiolar adenoma or 

carcinoma were observed in male mice and liver hepatocellular adenoma or carcinoma in female 

mice, which provided some evidence of carcinogenic activity in male and female mice (NTP, 

1999). IARC (2000) classified ethylbenzene as Group 2B, possibly carcinogenic to humans, 

based on the NTP studies. 

4.6.5 Mixed Xylenes 

Short-term inhalation of mixed xylenes (a mixture of three closely-related compounds) in 

humans may cause irritation of the nose and throat, nausea, vomiting, gastric irritation, mild 

transient eye irritation, and neurological effects.68 Other reported effects include labored 

breathing, heart palpitation, impaired function of the lungs, and possible effects in the liver and 

kidneys.69 Long-term inhalation exposure to xylenes in humans has been associated with a 

 

64 Maltoni C, Conti B, Giuliano C and Belpoggi F, 1985. Experimental studies on benzene carcinogenicity at the 

Bologna Institute of Oncology: Current results and ongoing research. Am J Ind Med 7:415-446.

65 Maltoni C, Ciliberti A, Pinto C, Soffritti M, Belpoggi F and Menarini L, 1997. Results of long-term experimental 

carcinogenicity studies of the effects of gasoline, correlated fuels, and major gasoline aromatics on rats. Annals 

NY Acad Sci 837:15-52.

66 International Agency for Research on Cancer (IARC), 2000. Monographs on the Evaluation of Carcinogenic 

Risks to Humans. Some Industrial Chemicals. Vol. 77, p. 227-266. IARC, Lyon, France.

67 National Toxicology Program (NTP), 1999. Toxicology and Carcinogenesis Studies of Ethylbenzene (CAS No. 

100-41-4) in F344/N Rats and in B6C3F1 Mice (Inhalation Studies). Technical Report Series No. 466. NIH

Publication No. 99-3956. U.S. Department of Health and Human Services, Public Health Service, National

Institutes of Health. NTP, Research Triangle Park, NC.

68 U.S. Environmental Protection Agency (U.S. EPA). 2003. Integrated Risk Information System File for Mixed 

Xylenes. Research and Development, National Center for Environmental Assessment, Washington, DC. This 

material is available electronically at <http://www.epa.gov/iris/subst/0270.htm>.

69 Agency for Toxic Substances and Disease Registry (ATSDR), 2007. The Toxicological Profile for xylene is 

available electronically at <http://www.atsdr.cdc.gov/ToxProfiles/TP.asp?id=296&tid=53>.
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number of effects in the nervous system including headaches, dizziness, fatigue, tremors, and 

impaired motor coordination.70 EPA has classified mixed xylenes in Category D, not classifiable 

with respect to human carcinogenicity. 

4.6.6 n-Hexane 

The studies available in both humans and animals indicate that the nervous system is the 

primary target of toxicity upon exposure of n-hexane via inhalation. There are no data in humans 

and very limited information in animals about the potential effects of n-hexane via the oral route. 

Acute (short-term) inhalation exposure of humans to high levels of hexane causes mild central 

nervous system effects, including dizziness, giddiness, slight nausea, and headache. Chronic 

(long-term) exposure to hexane in air causes numbness in the extremities, muscular weakness, 

blurred vision, headache, and fatigue. Inhalation studies in rodents have reported behavioral 

effects, neurophysiological changes and neuropathological effects upon inhalation exposure to nhexane. Under the Guidelines for Carcinogen Risk Assessment (U.S. EPA, 2005), the database 

for n-hexane is considered inadequate to assess human carcinogenic potential, therefore the EPA 

has classified hexane in Group D, not classifiable as to human carcinogenicity.71

4.6.7 Other Air Toxics 

In addition to the compounds described above, other toxic compounds might be affected 

by this rule, including hydrogen sulfide (H2S). Information regarding the health effects of those 

compounds can be found in EPA’s IRIS database.72

4.7 Secondary Air Emissions Impacts 

The control techniques to meet the standards are associated with several types of secondary 

emissions impacts, which may partially offset the direct benefits of this rule. Table 4-6 shows the 

estimated secondary emissions associated with combustion of emissions as a result of the rule. In 

 

70 Agency for Toxic Substances and Disease Registry (ATSDR), 2007. The Toxicological Profile for xylene is 

available electronically at <http://www.atsdr.cdc.gov/ToxProfiles/TP.asp?id=296&tid=53>.

71 U.S. EPA. 2005. Guidelines for Carcinogen Risk Assessment. EPA/630/P-03/001B. Risk Assessment Forum, 

Washington, DC. March. Available on the Internet at <http://www.epa.gov/ttn/atw/cancer_guidelines_final_3-

25-05.pdf>. 

72 U.S. EPA Integrated Risk Information System (IRIS) database is available at: <www.epa.gov/iris>. 
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particular, combustion-related emissions result from the control of oil well completions (i.e., 

exploratory and delineation wells and development wells where RECs are infeasible and 

pneumatic pumps and centrifugal compressors (because the requirement for these sources is to 

route to control). More details on the estimation of secondary impacts for each emissions 

category are presented in the TSD. Relative to the direct emission reductions anticipated from 

this rule, the magnitude of these secondary air pollutant increases is small. 

Table 4-6 Increases in Secondary Air Pollutant Emissions (short tons per year)

 2020 

Emissions Category CO2 NOX PM CO THC 

Total Hydraulically Fractured and Refractured Oil Well Completions 890,000 460 17 2,500 940 

Fugitive Emissions minimal minimal minimal minimal minimal 

Pneumatic Pumps 100,000 52 2 290 110 

Pneumatic Controllers 3,900 2 0 11 4 

Compressors 0 0 0 0 0 

Total 2020 1,000,000 510 19 2,800 1,100 

 

2025 

Emissions Category CO2 NOX PM CO THC 

Total Hydraulically Fractured and Refractured Oil Well Completions 950,000 490 18 2,700 1,000 

Fugitive Emissions minimal minimal minimal minimal minimal

Pneumatic Pumps 200,000 100 4 570 220 

Pneumatic Controllers 7,800 4 0 22 8 

Compressors 0 0 0 0 0 

Total in 2025 1,200,000 600 22 3,200 1,200 

The secondary emission impacts for regulatory options are equal across the options. This 

result holds because the only requirements varied across the options is the frequency of survey 

and repair requirements. Moving from Option 1 to Option 3 increases the frequency of survey 

and repair under the fugitive emissions requirement, and secondary emissions from the fugitive 

emissions requirements are expected to be minimal. 

The CO2 impacts in Table 4-6 are the emissions that are expected to occur from natural 

gas emissions that are captured by emissions controls and combusted. However, because of the 

atmospheric chemistry associated with the natural gas emissions, most of the carbon in the VOCs 
4-39 

and CH4 emissions expected in the absence of combustion-related emissions controls would have 

eventually oxidized forming CO2 in the atmosphere and led to approximately the same long-run 

CO2 concentrations as with controls.73 Therefore, most of the impact of these CO2 contribution to 

atmospheric concentrations from the flaring of CH4 and VOC versus future oxidization is not 

additional to the impacts that otherwise would have occurred through the oxidation process. 

However, there is a shift in the timing of the contribution of atmospheric CO2 concentration 

under the policy case (in which case natural gas emissions that are captured by emissions 

controls are combusted). In the case of VOCs, the oxidization time in the atmosphere is 

relatively short, on the order of hours to months, so from a climate perspective the difference 

between emitting the carbon immediately as CO2 during combustion or as VOCs is expected to 

be negligible. In the case of CH4, the oxidization time is on the order of a decade, so the timing 

of the contribution to atmospheric CO2 concertation will differ between the baseline and policy 

case. Because the growth rate of the SC-CO2 estimates are lower than their associated discount

rates, the estimated impact of CO2 produced in the future via oxidized methane from these fossilbased emissions may be less than the estimated impact of CO2 released immediately from 

combusting emissions, which would imply a small disbenefit associated with the earlier release 

of CO2 during combustion of the CH4 emissions. 

In the proposal RIA, the EPA solicited comment on the appropriateness of monetizing the 

impact of the earlier release of CO2 due to combusting methane and VOC emissions from oil and 

gas sites and a new potential approach for approximating this value using the SC-CO2. This 

illustrative analysis provides a method for evaluating the estimated emissions outcomes 

associated with destroying one metric ton of methane by combusting fossil-based emissions at 

oil and gas sites (flaring) and releasing the CO2 emissions immediately versus releasing them in 

the future via the methane oxidation process. This illustrative analysis as provided in the 

proposal demonstrated that the potential disbenefits of flaring—i.e., an earlier contribution of 

CO2 emissions to atmospheric concentrations –are minor compared to the benefits of flaring—

i.e., avoiding the release of and associated climate impacts from CH4 emissions. EPA did not 

receive any comments regarding the appropriate methodology for conducting such an analysis, 

 

73 The social cost of methane (SC-CH4) used previously in this chapter to monetize the benefits of the CH4

emissions reductions does not include the impact of the carbon in CH4 emissions after it oxidizes to CO2. 
4-40 

but did receive one comment letter that voiced general support for monetizing the secondary 

impacts. 

In consideration of this comment while recognizing the challenges and uncertainties 

related to estimation of these secondary emissions impacts for this rulemaking, EPA has 

continued to examine this issue in the context of this regulatory analysis—i.e, the combusting of 

fossil-based CH4 at oil and gas sites—and explored ways to improve this illustrative analysis. 

Specifically, EPA has modified the illustrative analysis by updating the oxidization process of 

CH4 to be dynamic and consistent with the modeling that underlies the SC-CH4 estimates. Also 

for this illustrative analysis, EPA assumed an average methane oxidation period of 12 years, 

consistent with the perturbation lifetime-folding time used in IPCC AR4. The estimated 

disbenefits associated with destroying one metric ton of methane through combustion of 

emissions at oil and gas sites and releasing the CO2 emissions in 2020 instead of being released 

in the future via the methane oxidation process are found to be small relative to the benefits of 

flaring. Specifically, the disbenefit is estimated to be about $15 per metric ton CH4 (based on 

average SC-CO2 at 3 percent) or roughly one percent of the SC-CH4 estimate per metric ton for 

2020. The analogous estimate for 2025 is $18 per metric ton CH4 or about one percent of the SCCH4 estimates per metric ton for 2025.74,75

 

 

74 To calculate the CO2 related impacts associated the complete destruction of a ton of CH4 emissions through 

flaring for this illustrative application, EPA took the difference between the SC-CO2 at the time of the flaring and 

the discounted value of the CO2 impacts assuming a geometric decay of CH4 via the oxidation process with a 12 

year e-folding time using the same discount rate as used to estimate the SC-CO2. This value was then scaled by 

44/16 to account for the relative mass of carbon contained in a ton of CH4 versus a ton of CO2. More specifically, 

the impacts of shifting the CO2 impacts are calculated as 

( ) ( ) ( ) 1 12 1 12 44 16 1

SC-CO2 1 SC-CO2

1

t

T

t

t

t

e e

r

τ

τ

τ

τ

−

− − −

=

 

−     +

 

 − 

 

∑ , 

where ττ is the year the CH4 is destroyed, r is the discount rate, and T is the time horizon of the analysis. 

Ideally the time horizon, T, would be sufficiently long to capture the period in which nearly all of the CH4 is 

expected to have been oxidized. In this analysis we use the 2100 as the time horizon, making the assumption that 

the SC-CO2 remains constant after 2050, the last year for which the IWG provides estimates. This methodology 

improves upon the one presented at proposal by updating the oxidization process of CH4 to be dynamic and 

consistent with the modeling that underlies the SC-CH4 estimates. 

75 The EPA also calculated these estimates using additional SC-CO2 values, specifically the average SC-CO2 at 

discount rates of 5 and 2.5 percent and the 95th percentile at 3 percent. Applying these values, the estimates of 

the disbenefit of releasing CO2 emissions in 2020 instead of in the future via methane oxidation ranges from $7 

to $40 per metric ton CH4. The corresponding estimates for 2025 range from $9 to $51 per metric ton CH4. 
4-41 

It is important to note that there are challenges and uncertainties related to this illustrative 

method and estimates, which was developed to analyze secondary fossil-based emissions from 

combustion. For example, these dollar per ton CH4 estimates cannot readily be applied to the 

total CH4 emissions reductions presented in section 3 without additional information about the 

downstream outcomes associated with the recovered gas that is not flared – e.g., whether some of 

that captured gas going to be burned or leaked somewhere down the line. 

The EPA will continue to study this issue and assess the complexities involved in estimating the 

net emissions effects associated with secondary fossil-based emissions, including differences in 

the timing of contributions to atmospheric CO2 concentrations. Given the uncertainties related to

estimating net secondary emissions effects and that the EPA has not yet received appropriate 

input and review on some aspects of these calculations, the EPA is not including monetized 

estimates of the impacts of small changes in the timing of atmospheric CO2 concentration 

increases in the final benefits estimates in this RIA. The EPA will continue to follow the 

scientific literature on this topic and update its methodologies as warranted. 

Table 4-7 provides a summary of the direct and secondary emissions changes. Based on 

the summary and analysis above, the net impact of both the direct and secondary impacts of this 

final rule would be an improvement in ambient air quality, which would reduce potency of 

greenhouse gas emissions, reduce exposure to various harmful pollutants, improve visibility 

impairment, and reduce vegetation damage. 

Table 4-7 Summary of Emissions Changes (short tons per year, except where noted) 

 Option 1 Option 2 (final) Option 3 

 Pollutant 2020 2025 2020 2025 2020 2025 

Change in Direct 

Emissions 

Methane -250,000 -390,000 -300,000 -510,000 -350,000 -610,000 

VOC -130,000 -170,000 -150,000 -210,000 -160,000 -230,000 

HAP -1,300 -2,700 -1,900 -3,900 -2,400 -5,000 

Secondary 

Emissions 

CO2 1,000,000 1,200,000 1,000,000 1,200,000 1,000,000 1,200,000 

NOx 510 600 510 600 510 600 

PM 19 22 19 22 19 22 

CO 2,800 3,200 2,800 3,200 2,800 3,200 

THC 1,100 1,200 1,100 1,200 1,100 1,200 

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5-1 

5 COMPARISON OF BENEFITS AND COSTS 

5.1 Comparison of Benefits and Costs across Regulatory Options 

Tables 5-1 though Table 5-3 present the summary of the benefits, costs, and net benefits 

for the NSPS across regulatory options. Table 5-4 provides a summary of the direct and 

secondary emissions changes for each regulatory option. 

Table 5-1 Summary of the Monetized Benefits, Costs, and Net Benefits for Option 1 in 

2020 and 2025 (2012$) 

 2020 2025 

Total Monetized Benefits1 $290 million $540 million 

Total Costs2 $240 million $360 million 

Net Benefits3

 $54 million $180 million 

Non-monetized Benefits 

Non-monetized climate benefits Non-monetized climate benefits 

Health effects of PM2.5 and ozone 

exposure from 130,000 tons of VOC 

reduced 

Health effects of PM2.5 and ozone 

exposure from 170,000 tons of VOC 

reduced 

Health effects of HAP exposure from 

1,300 tons of HAP reduced 

Health effects of HAP exposure from 

2,700 tons of HAP reduced 

Health effects of ozone exposure from 

250,000 tons of methane 

Health effects of ozone exposure from 

390,000 tons of methane 

Visibility impairment Visibility impairment 

 Vegetation effects Vegetation effects 

1 The benefits estimates are calculated using four different estimates of the social cost of methane (SC-CH4) 

(model average at 2.5 percent discount rate, 3 percent, and 5 percent; 95th percentile at 3 percent). For purposes of 

this table, we show the benefits associated with the model average at a 3 percent discount rate. However, we 

emphasize the importance and value of considering the benefits calculated using all four SC-CH4 estimates; the 

additional benefit estimates range from $130 million to $780 million in 2020 and $250 million to $1.4 billion in 

2025 for Option 1, as shown in Section 4.3. The CO2-equivalent (CO2 Eq.) methane emission reductions are 5.6 

million metric tons in 2020 and 8.9 million metric tons in 2025. Also, the specific control technologies for the 

NSPS are anticipated to have minor secondary disbenefits. See Section 4.7 for details. 

2 The engineering compliance costs are annualized using a 7 percent discount rate and include estimated revenue 

from additional natural gas recovery as a result of the NSPS. As can be seen in section 3.5.1 of the final RIA, the 

national cost estimates in for this rule are not highly sensitive to the use of a 3 percent or 7 percent discount rate 

in this RIA. As a result, the net benefits of the rule are not highly sensitive to choice of discount rate for 

annualizing capital costs. 

3

 Estimates may not sum due to independent rounding.

 
5-2 

Table 5-2 Summary of the Monetized Benefits, Costs, and Net Benefits for Selected 

Option 2 in 2020 and 2025 (2012$) 

 2020 2025 

Total Monetized Benefits1 $360 million $690 million 

Total Costs2 $320 million $530 million 

Net Benefits3

 $35 million $170 million 

Non-monetized Benefits Non-monetized climate benefits Non-monetized climate benefits 

Health effects of PM2.5 and ozone 

exposure from 150,000 tons of VOC 

reduced 

Health effects of HAP exposure from 

1,900 tons of HAP reduced 

Health effects of ozone exposure from 

300,000 tons of methane 

Health effects of PM2.5 and ozone 

exposure from 210,000 tons of VOC 

reduced 

Health effects of HAP exposure from 

3,900 tons of HAP reduced 

Health effects of ozone exposure from 

510,000 tons of methane 

Visibility impairment Visibility impairment 

Vegetation effects Vegetation effects 

1 The benefits estimates are calculated using four different estimates of the social cost of methane (SC-CH4) 

(model average at 2.5 percent, 3 percent, and 5 percent; 95th percentile at 3 percent). For purposes of this table, 

we show the benefits associated with the model average at a 3 percent discount rate. However, we emphasize the 

importance and value of considering the benefits calculated using all four SC-CH4 estimates; the additional 

benefit estimates range from $160 million to $950 million in 2020 and $320 million to $1.8 billion in 2025 for 

Option 2, as shown in Section 4.3. The CO2-equivalent (CO2 Eq.) methane emission reductions are 6.9 million 

metric tons in 2020 and 11 million metric tons in 2025. Also, the specific control technologies for the NSPS are 

anticipated to have minor secondary disbenefits. See Section 4.7 for details. 

2 The engineering compliance costs are annualized using a 7 percent discount rate and include estimated revenue 

from additional natural gas recovery as a result of the NSPS. As can be seen in section 3.5.1 of the final RIA, the 

national cost estimates in for this rule are not highly sensitive to the use of a 3 percent or 7 percent discount rate 

in this RIA. As a result, the net benefits of the rule are not highly sensitive to choice of discount rate for 

annualizing capital costs. 

3

 Estimates may not sum due to independent rounding.

 
5-3 

Table 5-3 Summary of the Monetized Benefits, Costs, and Net Benefits for Option 3 in 

2020 and 2025 (2012$) 

 2020 2025 

Total Monetized Benefits1 $420 million $840 million 

Total Costs2 $490 million $880 million 

Net Benefits3

 -$75 million -$38 million 

Non-monetized Benefits 

Non-monetized climate benefits Non-monetized climate benefits 

Health effects of PM2.5 and ozone 

exposure from 160,00 tons of VOC 

reduced 

Health effects of PM2.5 and ozone 

exposure from 230,000 tons of VOC 

reduced 

Health effects of HAP exposure from 

2,400 tons of HAP reduced 

Health effects of HAP exposure from 

5,000 tons of HAP reduced 

Health effects of ozone exposure from 

350,000 tons of methane 

Health effects of ozone exposure from 

610,000 tons of methane 

 Visibility impairment Visibility impairment 

 Vegetation effects Vegetation effects 

1 The benefits estimates are calculated using four different estimates of the social cost of methane (SC-CH4) 

(model average at 2.5 percent, 3 percent, and 5 percent; 95th percentile at 3 percent). For purposes of this table, 

we show the benefits associated with the model average at a 3 percent discount rate. However, we emphasize the 

importance and value of considering the benefits calculated using all four SC-CH4 estimates; the additional 

benefit estimates range from $190 million to $1.1 billion in 2020 and $390 million to $2.2 billion in 2025 for this 

more stringent option, as shown in Section 4.3. The CO2-equivalent (CO2 Eq.) methane emission reductions are 8 

million metric tons in 2020 and 14 million metric tons in 2025. Also, the specific control technologies for the 

NSPS are anticipated to have minor secondary disbenefits. 

2 The engineering compliance costs are annualized using a 7 percent discount rate and include estimated revenue 

from additional natural gas recovery as a result of the NSPS. As can be seen in section 3.5.1 of the final RIA, the 

national cost estimates in for this rule are not highly sensitive to the use of a 3 percent or 7 percent discount rate 

in this RIA. As a result, the net benefits of the rule are not highly sensitive to choice of discount rate for 

annualizing capital costs. 

3

 Estimates may not sum due to independent rounding.

A break-even analysis answers the question: “What would the benefits need to be for the 

benefits to exceed the costs?” While a break-even approach is not equivalent to a benefits 

analysis or even a net benefits analysis, we feel the results are illustrative, particularly in the 

context of previously modeled benefits. For Options 1 and 2 (final selected option), the 

monetized climate benefits from methane emission reductions already exceed the costs, which 

renders a break-even analysis for these options unnecessary. For Option 3, the monetized net 

benefits are estimated to be -$73 million and -$37 million and the estimated VOC emission 

reductions are 160,000 and 230,000 tons for 2020 and 2025, respectively. Thus, a break-even 

analysis suggests that the VOC emissions would need to be valued at $460 per ton in 2020 and 

$160 per ton in 2025 for the total monetized benefits of Option 3 to exceed costs, assuming that 
5-4 

the health benefits from HAP emission reductions and the ozone health benefits from methane 

emission reductions are zero. Previous assessments have shown that the PM2.5 health benefits 

associated with reducing VOC emissions were valued at $300 to $7,500 per ton of VOC 

emissions reduced in specific urban areas and ozone health benefits from reducing VOC 

emissions were valued at $260 to $1,100 per ton of VOC emissions reduced. These break-even 

estimates assume that all other pollutants have zero value. Of course, it is inappropriate to 

assume that the value of reducing any of these pollutants is zero. Thus, the real break-even point 

is actually lower than the estimates provided above because the other pollutants each have nonzero benefits that should be considered. Furthermore, a single pollutant can have multiple effects 

(e.g., VOCs contribute to both ozone and PM2.5 formation that each have health and welfare 

effects) that would need to be summed in order to develop a comprehensive estimate of the 

monetized benefits associated with reducing that pollutant. 

Table 5-4 Summary of Emissions Changes across Options for the NSPS in 2020 and 

2025 (short tons per year, unless otherwise noted) 

 Option 1 Option 2 (final) Option 3 

 Pollutant 2020 2025 2020 2025 2020 2025 

Reduction in 

Direct 

Emissions 

Methane -250,000 -390,000 -300,000 -510,000 -350,000 -610,000 

VOC -130,000 -170,000 -150,000 -210,000 -160,000 -230,000 

HAP -1,300 -2,700 -1,900 -3,900 -2,400 -5,000 

Secondary 

Emissions 

CO2 1,000,000 1,200,000 1,000,000 1,200,000 1,000,000 1,200,000 

NOx 510 600 510 600 510 600 

PM 19 22 19 22 19 22 

CO 2,800 3,200 2,800 3,200 2,800 3,200 

THC 1,100 1,200 1,100 1,200 1,100 1,200 

5.2 Uncertainties and Limitations 

Throughout the RIA, we considered a number of sources of uncertainty, both 

quantitatively and qualitatively, regarding emissions reductions, benefits, and costs of the rule. 

We summarize the key elements of our discussions of uncertainty here: 

• Projection methods and assumptions: As discussed in Section 3.4.2, over time, more 

facilities are newly established or modified in each year, and to the extent the facilities 

remain in operation in future years, the total number of facilities subject to the NSPS 
5-5 

accumulates. The large majority of impacts of the rule (completion requirements at 

hydraulically fractured oil well completions and fugitive emissions requirements at 

wellsites) are based on projections and growth rates consistent with the drilling activity in 

the 2015 Annual Energy Outlook. To the extent actual drilling activities diverge from the 

Annual Energy Outlook projections, the projected regulatory impacts estimated in this 

document will diverge.

• Years of analysis: The years of analysis are 2020, to represent the near-term impacts of 

the rule, and 2025, to represent impacts of the rule over a longer period, as discussed in 

Section 3.4.2. While it is desirable to analyze impacts beyond 2025 in this RIA, the EPA 

has chosen not to do this largely because of the limited information available on the 

turnover rate of emissions sources and controls. Extending the analysis beyond 2025 

would introduce substantial and increasing uncertainties in projected impacts of the 

NSPS.

• State regulations in baseline: In preparing the impacts analysis, the EPA reviewed state 

regulations and permitting requirements, as discussed in Section 3.4.2. Applicable 

facilities in these states with similar requirements to the final NSPS are not included in 

the estimates of incrementally affected facilities presented in the RIA. This means that 

any additional costs and benefits incurred by facilities in these states to comply with the 

federal standards beyond the state requirements are not reflected in this RIA.

• Wellhead natural gas prices used to estimate revenues from natural gas recovery:

The annualized compliance cost estimates presented in this RIA include revenue from 

natural gas recovery resulting from emissions reductions. As a result, national 

compliance costs depend the price of natural gas. The sensitivity of national compliance 

costs to assumptions about wellhead natural gas prices are examined in Section 3.5.2. 

• Monetized methane-related climate benefits: The EPA considered the uncertainty 

associated with the social cost of methane (SC-CH4) estimates, which were used to 

calculate the global social benefits of methane emissions reductions expected from the 

NSPS. The modeling underlying the development of the SC-CH4 estimates, which is 

consistent with the modeling assumptions underlying the interagency working group’s 

SC-CO2 estimates, addressed uncertainty in several ways. For example, the analysis 

addressed uncertainty in following areas: differences in model structure through an 
5-6 

ensemble of three integrated assessment models; sensitivity of the SC-CH4 estimates to 

key exogenous projections by using five different socioeconomic and emissions 

forecasts; and three discount rates to reflect some uncertainty about how interest rates 

may change over time and the possibility that climate damages are positively correlated 

with uncertain future economic activity. The application of four point estimates also 

helps reflect uncertainty. Chapter 4 of this RIA provides a comprehensive discussion 

about the methodology and application of the SC-CH4 as well as consideration of several 

types of secondary emissions impacts, which may partially offset the direct benefits of 

this rule. 

• Non-monetized benefits: Numerous categories of health, welfare, and climate benefits 

are not quantified and monetized in this RIA. These unquantified benefits, including 

benefits from reducing emissions of methane, VOCs and HAP, are described in detail in 

Chapter 4. 
6-1 

6 ECONOMIC IMPACT ANALYSIS AND DISTRIBUTIONAL ASSESSMENTS 

6.1 Introduction 

This section includes three sets of analyses for the final NSPS: 

• Energy Markets Impacts 

• Final Regulatory Flexibility Analysis 

• Employment Impacts 

6.2 Energy Markets Impacts Analysis 

We use the National Energy Modeling System (NEMS) to estimate the impacts of the 

final NSPS on U.S. energy markets. The impacts we estimate include changes in drilling activity, 

price and quantity changes in the production and consumption of crude oil and natural gas, and 

changes in international trade of crude oil and natural gas. 

A brief conceptual discussion about our energy markets impacts modeling approach is 

necessary before going into detail on NEMS, how we implemented the regulatory impacts, and 

presenting results. Economically, it is possible to view the recovered natural gas as an explicit 

output or as contributing to an efficiency gain in production at the producer level for a given 

cost. For example, the analysis for the rule shows that performing reduced emissions 

completions on hydraulically-fractured oil wells would account for about 36 percent of the 

natural gas captured by emissions controls in 2020 and about 23 percent of captured natural gas 

in 2025. The fugitive emissions program at well sites is expected to account for about 62 percent 

of the natural gas captured by emissions controls in 2020 and about 75 percent of captured 

natural gas in 2025. The assumed $4/Mcf price for natural gas is the price paid to producers at 

the wellhead. In the natural gas industry, production is metered at or very near to the wellhead, 

and producers are paid based upon this metered production. 

In the engineering cost analysis, it is necessary to estimate the expected costs and 

revenues from implementing emissions controls at the unit level. Because of this, we estimate the 

net costs as expected costs minus expected revenues for representative units. On the other hand, 

NEMS models the profit maximizing behavior of representative project developers at a drilling 

project level. The net costs of the regulation alter the expected discounted cash flow of drilling 

and implementing oil and gas projects, and the behavior of the representative drillers adjusts 
6-2 

accordingly. While in the regulatory case natural gas drilling has become more efficient because 

of the gas recovery, project developers still interact with markets for which supply and demand 

are simultaneously adjusting. Consequently, project development adjusts to a new equilibrium. 

While we believe the cost savings as measured by revenues from selling recovered gas 

(engineering costs) and measured by cost savings from averted production through efficiency 

gains (energy economic modeling) are approximately the same, it is important to note that the 

engineering cost analysis and the national-level cost estimates do not incorporate economic 

feedbacks such as supply and demand adjustments. 

6.2.1 Description of the Department of Energy National Energy Modeling System 

NEMS is a model of the U.S. energy economy developed and maintained by the Energy 

Information Administration of the U.S. Department of Energy (DOE). NEMS is used to produce 

the Annual Energy Outlook, a reference publication that provides detailed forecasts of the energy 

economy from the current year to 2040. DOE first developed NEMS in the 1980s, and the model 

has undergone frequent updates and significant expansion since. DOE uses the modeling system 

extensively to produce issue reports, legislative analyses, and respond to Congressional inquiries. 

The EIA is legally required to make the NEMS system source code available and fully 

documented for the public. The source code and accompanying documentation is released 

annually when a new Annual Energy Outlook is produced. Because of the availability of the 

NEMS model, numerous agencies, national laboratories, research institutes, and academic and 

private sector researchers have used NEMS to analyze a variety of issues. 

NEMS models the dynamics of energy markets and their interactions with the broader 

U.S. economy. The system projects the production of energy resources such as oil, natural gas, 

coal, and renewable fuels, the conversion of resources through processes such as refining and 

electricity generation, and the quantity and prices for final consumption across sectors and 

regions. The dynamics of the energy system are governed by assumptions about energy and 

environmental policies, technological developments, resource supplies, demography, and 

macroeconomic conditions. An overview of the model and complete documentation of NEMS 

can be found at the website: http://www.eia.gov/forecasts/aeo/. 
6-3 

NEMS is a large-scale, deterministic mathematical programming model. NEMS 

iteratively solves multiple models, linear and non-linear, using nonlinear Gauss-Seidel methods 

(Gabriel et al. 2001). What this means is that NEMS solves a single module, holding all else 

constant at provisional solutions, then moves to the next module after establishing an updated 

provisional solution. 

NEMS provides what EIA refers to as “mid-term” projections to the year 2040. For this 

RIA, we draw upon the same assumptions and model used in the Annual Energy Outlook 2015.76

The RIA baseline is consistent with that of the Annual Energy Outlook 2015, which is used 

extensively in Section 2 in the Industry Profile. 

6.2.2 Inputs to National Energy Modeling System 

To model potential impacts associated with the final rule, we modified oil and gas 

production costs within the Oil and Gas Supply Module (OGSM) of NEMS and domestic and 

Canadian natural gas production within the Natural Gas Transmission and Distribution Module 

(NGTDM). The OGSM projects domestic oil and gas production from onshore, offshore and 

Alaskan wells, as well as having a smaller-scale treatment of Canadian oil and gas production 

(U.S. EIA, 2014). The treatment of oil and gas resources is detailed in that oil, shale oil, 

conventional gas, shale gas, tight sands gas, and coalbed methane (CBM) are explicitly modeled. 

New exploration and development is pursued in the OGSM if the expected net present value of 

extracted resources exceeds expected costs, including costs associated with capital, exploration, 

development, production, and taxes. Detailed technology and reservoir-level production 

economics govern findings and success rates and costs. 

The structure of the OGSM is amenable to analyzing potential impacts of the NSPS. We 

are able to target additional expenditures for environmental controls required by the NSPS on 

new exploratory and developmental oil and gas production activities. We model the impacts of 

additional environmental costs, as well as the impacts of additional product recovery. We 

explicitly model the additional natural gas recovered when implementing the rule. 

 

76 Assumptions for the 2015 Annual Energy Outlook can be found at 

<http://www.eia.gov/forecasts/aeo/assumptions/>. 
6-4 

While the oil production simulated by the OGSM is sent to the refining module (the 

Liquid Fuels Market Module), simulated natural gas production is sent to a transmission and 

distribution network captured in the NGTDM. The NGTDM balances gas supplies and prices 

and “negotiates” supply and consumption to determine a regional equilibrium between supply, 

demand and prices, including imports and exports via pipeline or LNG. Natural gas is 

transported through a simplified arc-node representation of pipeline infrastructure based upon 

pipeline economics. 

6.2.2.1 Compliance Costs for Oil and Gas Exploration and Production 

As the NSPS affects new emissions sources, we chose to estimate impacts on new 

exploration and development projects by adding costs of environmental regulation to the 

algorithm that evaluates the profitability of new projects. Regulatory costs associated with 

reduced emission completions for hydraulically fractured oil well completions are added to the 

drilling and completion costs of oil wells in the OGSM. Other regulatory costs are operations and 

maintenance-type costs and are added to fixed operation and maintenance (O&M) expenses 

associated with new projects. The additional expenses are estimated and entered on a per well 

basis, depending on whether the costs would apply to oil wells or natural gas wells. We base the 

per well cost estimates on the engineering costs. Because we model natural gas recovery, we do 

not include revenues from additional product recovery in these costs. This approach is 

appropriate given the structure of the NEMS algorithm that estimates the net present value of 

drilling projects. 

In general, the cost of capital in the model will implicitly capture potential barriers to 

obtaining additional capital financing for the industry on average. However, the model may not 

fully capture heterogeneity in the cost of capital across the industry, and therefore, may not fully 

capture distributional impacts across the industry as a result of firm specific characterisitics that 

cause them to have varying access to additional capital. An additional caveat to this analysis is 

that the modeling does not attempt to represent potential constraints on the supply of specific 

capital equipment, which may or may not be binding in practice. 

Table 6-1 shows the incremental compliance that accrue to new drilling projects as a 

result of producers having to comply with the NSPS, across sources anticipated in 2020 and 
6-5 

2025. We estimate those costs as a function of new wells anticipated to be drilled in a 

representative year. To arrive at estimates of the per well costs, we first identify whether costs 

will apply primarily to crude oil wells, to natural gas wells, or to both crude oil and natural gas 

wells. 

We divide the estimated compliance costs for the given emissions point by the 

appropriate number of expected new crude oil and natural gas wells in the year of analysis. The 

result yields an approximation of per well compliance costs. We assume this approximation is 

representative of the incremental cost faced by a producer when evaluating a prospective drilling 

project. 

Hydraulically fractured oil well completions and fugitives at oil and natural gas well sites 

differ slightly from this approach. Drilling and completion costs of new hydraulically fractured 

oil wells are incremented by the weighted average of the cost of performing a REC with 

completion combustion and completion combustion alone. The resulting cost is itself weighted 

by the proportion of new hydraulically fractured oil wells estimated to be affected by the 

regulation. Meanwhile, assuming there is an average of two wells per wells site (see TSD for 

more details), new oil and gas wells face an increased annual cost of one-half of implementing 

the well site fugitive emission requirements. 
6-6 

Table 6-1 Per Well Costs for Environmental Controls Entered into NEMS (2012$) 

 Emissions Sources/Points 

Wells Applied 

To in NEMS 

Annualized 

Cost per 

Unit 

(2012$) 

Per Well 

Costs 

Applied 

in NEMS 

(2012$) 

Natural 

Gas 

Recovery 

per Unit 

(Mcf) 

Per Well 

Natural 

Gas 

Recovery 

Applied 

in NEMS 

(Mcf) 

Well Completions 

Hydraulically Fractured Oil 

 Well Completions 

New 

Hydraulically 

Fractured Oil 

Wells 

Variesa

 $4,590 0 0 

Fugitive Emissions 

Oil Production Well Sites New Oil Wells $2,285 $905 191c

 38 

Natural Gas Production Well Sites New Gas Wells $2,285 $1,101 73 18 

Gathering and Boosting Stations New Gas Wells $25,050 $284 1,629 18 

Transmission Stations New Gas Wells $27,370 $13 1,673 1 

Storage Facilities New Gas Wells $42,093 $25 5,899 3 

Reciprocating Compressors 

Transmission Stations New Gas Wells $1,748 $3 1,122 2 

Storage Facilities New Gas Wells $2,077 $4 1,130 2 

Centrifugal Compressors 

Storage Facilities New Gas Wells $114,146 $0 0 0 

Pneumatic Controllers - 

Transmission and Storage Stations New Gas Wells $25 $0 144 2 

Pneumatic Pumps 

Well Sites New Wells $774 $15 0 0 

Reporting and Recordkeeping New Wells $6,200,000b

 $154 0 0 

a

 Since compliance costs vary across hydraulically fractured oil well completions, this table uses the weighted 

average costs by completion cost type. 

b Reporting and recordkeeping costs are assumed to be equally allocated across all new wells. 

c

 Natural gas recovery at oil well sites is the weighted average of the recovery expected from oil well sites and oil 

well (associated gas) sites. See TSD for detailed description of these model well sites. 

6.2.2.2 Adding Averted Methane Emissions into Natural Gas Production 

A result of controlling methane and VOC emissions from oil and natural gas production 

is that methane that would otherwise be lost to the atmosphere can be directed into the natural 

gas production stream. We chose to model methane capture in NEMS as an increase in natural 

gas industry productivity, ensuring that, within the model, natural gas reservoirs are not 

decremented by production gains from methane capture. We add estimates of the quantities of 

methane captured (or otherwise not vented or combusted) to the base quantities that the OGSM 

model supplies to the NGTDM model. We subdivide the estimates of commercially valuable 

averted emissions by region and well type in order to more accurately portray the economics of 
6-7 

implementing the environmental technology. Adding the averted methane emissions in this 

manner has the effect of moving the natural gas supply curve to the right in an increment 

consistent with the technically achievable emissions transferred into the production stream as a 

result of the final NSPS. We enter the increased natural gas recovery into NEMS on a per-well 

basis for new wells, following an estimation procedure similar to that of entering compliance 

costs into NEMS on a per-well basis for new wells (Table 6-1). 

6.2.3 Energy Markets Impacts 

We estimate impacts to drilling activity, price and quantity changes in the production of 

crude oil and natural gas, and changes in international trade of crude oil and natural gas. In each 

of these estimates, we present estimates for the baseline years of 2020 and 2025 and predicted 

results for 2020 and 2025 under the final rule. We also present impacts over the 2020 to 2025 

period. For context, we provide estimates of production activities in 2012. With the exception of 

examining crude oil and natural gas trade, we focus the analysis on onshore oil and natural gas 

production activities in the continental (lower 48) U.S. We do this because offshore production is 

not affected by the NSPS and the bulk of the rule’s impacts are expected to be in the continental 

U.S. 

We first report estimates of impacts on crude oil and natural gas drilling activities and 

production. Table 6-2 presents estimates of successful onshore natural gas and crude oil wells 

drilled in the continental U.S. 

 
6-8 

Table 6-2 Successful Oil and Gas Wells Drilled (Onshore, Lower 48 States) 

 Projection, 2020 Projection, 2025 Projection, 2020-25 

 2012 Baseline NSPS Baseline NSPS Baseline NSPS 

 

Successful Wells Drilled

 Natural Gas 10,490 10,501 10,481 12,200 12,145 65,896 65,785 

 Crude Oil 28,496 27,455 27,463 29,244 29,231 168,768 168,736 

Total 38,986 37,956 37,944 41,444 41,376 234,664 234,521

 

% Change in Successful Wells Drilled from Baseline

 Natural Gas 0.19% -0.45% -0.17% 

 Crude Oil 0.03% -0.04% -0.02% 

 Total 0.03% -0.16% -0.06%

Results show that the final NSPS will have a relatively small impact on onshore well 

drilling in the lower 48 states. Drilling remains essentially unchanged in 2020, with very slight 

increases both oil and natural gas wells, relative to the baseline. Meanwhile, drilling of both 

natural gas and crude oil wells decreases slightly in 2025, relative to the baseline. The small 

increase in drilling in 2020 is somewhat counter-intuitive as production costs have been 

increased under the proposed NSPS. However, given NEMS is a dynamic, multi-period model, it 

is important to examine changes over multiple periods. Crude oil drilling over the 2020 to 2025 

period decreases overall but by about 30 wells total, or about 0.02 percent, relative to the 

baseline. Natural gas drilling, over the same period remains declines by about 110 wells total, or 

about 0.17 percent, relative to the baseline. 

Table 6-3 shows estimates of the changes in the domestic production of natural gas and 

crude oil under the NSPS. 

Table 6-3 Domestic Natural Gas and Crude Oil Production (Onshore, Lower 48 States) 

 Projection, 2020 Projection, 2025 Projection, 2020-25 

 2012 Baseline NSPS Baseline NSPS Baseline NSPS 

Domestic Production 

 Natural Gas (trillion cubic feet) 22.158 26.544 26.537 28.172 28.163 164.130 164.086 

 Crude Oil (million bbls/day) 4.597 8.031 8.031 8.027 8.028 48.084 48.086 

 

% Change in Domestic Natural Gas and Crude Oil Production (Onshore, Lower 48 States)

Natural Gas -0.03% -0.03% -0.03% 

 Crude Oil 0.00% 0.01% 0.00% 
6-9 

As indicated by the estimated change in the new well drilling activities, the analysis 

shows that the proposed NSPS will have a relatively small impact on onshore natural gas and 

crude oil production in the lower 48 states. Crude oil production remains essentially unchanged 

in 2020 and 2025 (with changes around or less than 0.01 percent in both years), relative to the 

baseline. While slightly increasing over the time horizon, the overall change in crude oil 

production is less than 0.01 percent, relative to the baseline. Natural gas production is estimated 

to decrease slightly during the 2020-25 period, by around 0.03 percent, relative to the baseline. 

Note this analysis estimates very little change in domestic natural gas production, despite 

some environmental controls anticipated in response to the rule capture natural gas that would 

otherwise be emitted (about 16 bcf in 2020 and 27 bcf in 2025). NEMS models the adjustment of 

energy markets to the new slightly more costly natural gas and crude oil productive activities. At 

the new post-rule equilibrium, producers implementing emissions controls are still anticipated to 

capture and sell the captured natural gas, and this natural gas might offset other production, but 

not so much as to make overall production increase from the baseline projections. 

Table 6-4 presents estimates of national average wellhead natural gas and crude oil prices 

for onshore production in the lower 48 states. 

Table 6-4 Average Natural Gas and Crude Oil Wellhead Price (Onshore, Lower 48 

States, 2012$) 

 Projection, 2020 Projection, 2025 Projection, 2020-25 

 2012 Baseline NSPS Baseline NSPS Baseline NSPS 

Lower 48 Average Wellhead Price 

 Natural Gas (2012$ per Mcf) 2.566 4.428 4.441 5.184 5.190 4.880 4.890 

 Crude Oil (2012$ per barrel) 94.835 73.920 73.918 85.219 85.218 79.530 79.527 

 

% Change in Lower 48 Average Wellhead Price from 

Baseline 

 Natural Gas 0.29% 0.12% 0.20% 

 Crude Oil 0.00% 0.00% -0.01% 

Wellhead crude oil prices for onshore lower 48 production are not estimated to change 

meaningfully in 2020 or 2025, or over the 2020-25 period, relative to the baseline. The 

production-weighted average price for wellhead crude oil over the 2020 to 2025 period is not 

estimated to change more than 0.01 percent, relative to the baseline. Meanwhile, wellhead 

natural gas prices for onshore lower 48 production are estimated to increase slightly in response 
6-10 

to the rule in 2020 by about 0.29 percent and by about 0.12 percent in 2025, relative to the 

baseline. The production-weighted average price for wellhead natural gas over the 2020 to 2025 

period is estimated to increase by around 0.2 percent, relative to the baseline. 

Table 6-5 Net Imports of Natural Gas and Crude Oil 

 Projection, 2020 Projection, 2025 Projection, 2020-25 

 2012 Baseline NSPS Baseline NSPS Baseline NSPS 

Net Imports 

 Natural Gas (trillion cubic feet) 1.519 -2.557 -2.554 -3.502 -3.498 -18.959 -18.939 

 Crude Oil (million barrels/day) 8.459 5.513 5.513 6.073 6.072 5.857 5.857 

 

% Change in Net Imports 

 Natural Gas 0.12% 0.11% 0.11% 

 Crude Oil 0.00% -0.02% 0.00% 

Meanwhile, as shown in Table 6-5, net imports of natural gas are estimated to increase 

slightly in 2020 and 2025 relative to the baseline (by about 0.12 percent and 0.11 percent, 

respectively) relative to the baseline. Net imports of natural gas are also expected to increase by 

about 0.11 percent across the 2020 to 2025 period under the rule. Crude oil imports are not 

estimated to change in 2020 and to decrease slightly in 2025 by about 0.02 percent relative to the 

baseline. Over the 2020 to 2025 period, net imports of crude oil are not estimated to change in 

response to the rule. 

6.3 Final Regulatory Flexibility Analysis 

The Regulatory Flexibility Act (RFA; 5 U.S.C. §601 et seq.), as amended by the Small 

Business Regulatory Enforcement Fairness Act (Public Law No. 104121), provides that 

whenever an agency publishes a final rule after a general notice of proposed rulemaking is made, 

it must prepare and make available a final regulatory flexibility analysis (FRFA), unless it 

certifies that the rule, if promulgated, will not have a significant economic impact on a 

substantial number of small entities (5 U.S.C. §605[b]). Small entities include small businesses, 

small organizations, and small governmental jurisdictions. A FRFA describes the economic 

impact of the rule on small entities and any significant alternatives to the rule that would 

accomplish the objectives of the rule while minimizing significant economic impacts on small 

entities. Pursuant to section 604 of the RFA, the EPA prepared a final regulatory flexibility 
6-11 

analysis (FRFA) that examines the impact of the final rule on small entities along with regulatory 

alternatives that could minimize that impact. 

Prior to publication of the proposed rule, the EPA prepared an initial regulatory flexibility 

analysis (IRFA) and convened a Small Business Advocacy Review (SBAR) Panel consisting of 

the Director of the Sector Policies & Programs Division of the EPA Office of Air Quality 

Planning & Standards, the Administrator of the Office of Information and Regulatory Affairs 

within the Office of Management and Budget, and the Chief Counsel for Advocacy of the Small 

Business Administration. The IRFA and Final SBAR Panel Report can be found in the docket to 

this rulemaking at EPA-HQ-OAR-2010-0505. 

6.3.1 Reasons why the Action is Being Considered 

The EPA is finalizing amendments to subpart OOOO due to reconsideration of certain 

issues raised in petitions for reconsideration that were received by the Administrator, which 

include implementation improvements. The EPA is also finalizing a new subpart, 40 CFR 60, 

subpart OOOOa, which includes: standards for greenhouse gas (GHG) emissions (in the form of 

limitations on methane) from certain facilities that are covered by current VOC standards in the 

oil and natural gas source category, and standards for GHG and VOC emissions from facilities 

across the source category that are currently unregulated, including hydraulically fractured oil 

well completions; fugitive emissions from well sites and compressor stations; pneumatic pumps; 

and centrifugal compressors, reciprocating compressors and pneumatic controllers in the 

transmission and storage segment. The EPA is including requirements for methane emissions 

in subpart OOOOa because methane is a GHG, and the oil and natural gas category is currently 

one of the country's largest emitters of methane. In 2009, the EPA found that by causing or 

contributing to climate change, GHGs endanger both the public health and the public welfare of 

current and future generations.77

 

6.3.2 Significant Issues Raised 

The EPA received comments on the proposed standards related to the potential impacts 

on small entities and requests for comments that were included based on the SBAR Panel 

 

77 “Endangerment and Cause or Contribute Findings for Greenhouse Gases Under Section 202(a) of the Clean Air 

Act,” 74 FR 66496 (Dec. 15, 2009) (“2009 Endangerment Finding”). 
6-12 

Recommendations. See sections VI and VIII of the preamble to the final rule and the RTC 

Document in Docket ID EPA-HQ-OAR-2010-0505 for more detailed responses.

Low production wells: Several commenters supported the proposed exemption of low 

production well sites from the fugitive monitoring requirements. Commenters noted that 

marginal wells generate relatively low revenue and these wells are often drilled and operated by 

small companies. 

Response: While these commenters did provide support for the proposed low production 

well exemption, other commenters indicated that low production well sites have the potential to 

emit substantial amounts of fugitive emissions, and that a significant number of wells would be 

excluded from fugitive emissions monitoring based on this exemption. We did not receive data 

showing that low production well sites have lower emissions than non-low production well sites. 

In fact, the data that were provided indicated that the potential emissions from these well sites 

could be as significant as the emissions from non-low production well sites since the type of 

equipment and the well pressures are more than likely the same. In discussions with 

stakeholders, they indicated that well site fugitive emissions are not based on production, but 

rather on the number of pieces of equipment and components. Therefore, we believe that the 

emissions from low production and non-low production well sites are comparable and we did not 

finalize the proposed exclusion of low production well sites from fugitive emissions monitoring. 

REC costs: Commenters stated that small operators have higher well completion costs, 

and typically conduct completions less frequently. Generally, small operators lack the purchasing 

power to get the discounted prices service companies offer to larger operators. However, 

commenters did not provide specific cost information. 

Response: The BSER analysis is based on the averages of nationwide data. It is possible 

for a small operator to have higher than the nationwide average completion costs, however, the 

daily completion cost provided by the commenters is not significantly different than the EPA’s 

estimate. Therefore, we do not believe that the cost of RECs disfavor small businesses. 

Phase-in period for RECs: Commenters stated that the EPA should create a compliance 

phase-in period of at least 6 months for the REC requirements, to accommodate small operators. 

Commenters stated that REC equipment is in short supply, and this will drive up REC costs. 
6-13 

Commenters stated that small entities lack the purchasing power of larger operators, which 

makes it difficult to obtain the needed equipment before the compliance period begins. 

Response: We agree that complianc with the REC requirements I the final rule could be 

burdensome for some in the near term due to the unavailability of REC equipment. As discussed 

in section VI of the preamble, the final rule provides a phase-in approach that would allow a 

quick build-up of the REC supplied in the near term. 

Alternatives to OGI technology: Several commenters indicated that the EPA should allow 

alternatives to OGI technology as the cost is excessive for small operators. 

Response: In the final rule, the EPA is allowing Method 21 with a repair threshold of 500 

ppm as an alternative to OGI. We believe this alternative will alleviate some of the burden on 

small entities. 

Basing monitoring frequency on the percentage of leaking components: Commenters 

indicated that using a percentage of components, rather than a set number of components, to 

determine the frequency of surveys is also unfair to small entities since a small site will have 

fewer fugitive emission components than a larger site. Commenters stated that smaller entities 

are much more likely to operate these smaller sites, and thus are more likely to have a higher 

frequency survey requirements under the percentage-based system. 

Response: The EPA agrees that imposing a performance based monitoring schedule 

would require operators to develop a program that would require extensive administration to 

ensure compliance. We believe that the potential for a performance–based approach to encourage 

greater compliance is outweighed in this case by these additional burdens and the complexity it 

would add. Therefore, the EPA is finalizing a fixed monitoring frequency instead of performance 

based monitoring. 

Timing of initial fugitive monitoring periods: Commenters stated that the requirement to 

conduct surveys for affected facilities using OGI technology within 30 days of the well 

completion or within 30 days of modification is overly restrictive. Additionally, commenters 

stated that small operators may not be able to find vendors available to survey a small number of 
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wells within the required timeframe. One commenter stated that contractors will be in high 

demand and may give scheduling preference to larger clients versus small business entities. 

Response: EPA considered these and other comments and concluded that the proposed 

time of 30 days within a well completion or modification is not enough time to complete the 

necessary preparations for the initial monitoring survey. In addition, other commenters pointed 

out that first date of production should be the trigger, rather than the date of well completion. 

Therefore, for the collection of fugitive emissions components at a new or modified well site, we 

are finalizing that the initial monitoring survey must take place within [insert date 1 year after 

publication of the final rule in the Federal Register] or within 60 days of the startup of 

production, whichever is later. We believe this extended timeframe for compliance will alleviate 

some of the burden on smaller operators. 

 Third party compliance: Commenters believe that requiring third party compliance audits 

will be a significant burden on small entities. One commenter said that a third-party audit 

requirement will dramatically increase the costs of the program and have a negative competitive 

impact on smaller, less funded operators. 

Response: While the EPA continues to believe that independent third party verification 

can furnish more, and sometimes better, data about regulatory compliance, we have explored 

alternatives to the independent third party verification. Specifically, the “qualified professional 

engineer” model was assessed to focus on the element of engineering design. The final rule 

requires a professional engineer certification of technical infeasibility of connecting a pneumatic 

pump to an existing control device, and a professional engineer design of closed vent systems. 

These certifications will ensure that the owner or operator has effectively assessed appropriate 

factors before making a claim of infeasibility and that the closed vent system is properly 

designed to verify that all emissions from the unit being controlled in fact reach the control 

device and allow for proper control. We believe this simplified approach will reduce the burden 

imposed on all affected facilities, including those owned by small businesses. 
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6.3.3 Small Business Administration Comments 

The Chief Counsel for Advocacy of the Small Business Administration (SBA) did not 

file any comments in response to the proposed rule.

6.3.4 Description and Estimate of Affected Small Entities

The industry sectors covered by the final rule were identified during the development of 

the engineering cost analysis. The EPA conducted this regulatory flexibility analysis at the 

ultimate (i.e., highest) level of ownership, evaluating parent entities.78 The EPA identified the 

size of ultimate parent entities by using the SBA size threshold guidelines.79 The criteria for size 

determination vary by the organization/operation category of the ultimate parent entity, as can be 

seen in Table 6-6. 

Table 6-6 SBA Size Standards by NAICS Code 

NAICS 

Codes NAICS Industry Description 

Size Standards 

(in millions of dollars) 

Size Standards 

(in no. of employees) 

211111 Crude Petroleum and Natural Gas Extraction - 1,250 

211112 Natural Gas Liquid Extraction - 750 

213111 Drilling Oil and Gas Wells - 1,000 

213112 Support Activities for Oil and Gas Operations $38.5 - 

486110 Pipeline Transportation of Crude Oil - 1,500

486210 Pipeline Transportation of Natural Gas $27.5 - 

Sources: U.S. Census Bureau, Statistics of U.S. Businesses, 2012. <http://www.census.gov/econ/susb/>. SBA Size 

Standards, 13 CFR 121. 201 

We have projections of future potentially affected activities at an aggregate level, but 

identifying impacts on specific entities is challenging because of the difficulty of predicting 

potentially affected new or modified sources at the firm level. Because of these limitations, we 

based the analysis in this FRFA on impacts estimates for the final requirements for hydraulically 

fractured and re-fractured oil well completions and well site fugitive emissions. We are able to 

do this because the base year activity counts for the impacts estimates (as described in the TSD) 

 

78 See Section 2.6 of this RIA for more information on oil and natural gas industry firm characteristics and a 

breakdown of firms by size at the national level. 

79 U.S. Small Business Administration (SBA). 2016. Small Business Size Standards. Effective as of February 26, 

2016. See: <https://www.sba.gov/sites/default/files/files/Size_Standards_Table.pdf>. 
6-16 

for this rule were based on detailed information for 2012 in a dataset of U.S. wells. The 

proprietary DrillingInfo dataset contains a variety of information including oil, condensate, and 

natural gas production levels, geographic locations, as well as basin and formation information, 

and information about owners/operators of wells, among other data fields.80 As described in the 

TSD sections on hydraulically fractured and re-fractured oil well completions and fugitive 

emissions, we used the DrillingInfo dataset to identify and estimate all wells that were completed 

in 2012, as well as completions of hydraulically fracture or re-fractured oil wells.81 We used the 

field called “common operator” to identify the owner/operator of all wells in this set of new or 

modified 2012 wells. 

While the FRFA does not incorporate potential impacts from other provisions of the final 

NSPS, the completions and fugitive emissions provisions represent about 98 percent of the 

estimated compliance costs of the final NSPS in 2020 and 2025 (Table 6-7). Not incorporating 

impacts from other provisions in this analysis is a limitation, but the EPA believes that detailed 

analysis of the two provisions impacts on small entities is illustrative of impacts on small entities 

from the rule in its entirety. 

Table 6-7 Distribution of Estimated Compliance Costs Across Sources 

 Annualized Costs (With Product Recovery, 2012$) 

 2020 2020 (%) 2025 2025 (%) 

Hydraulically-fractured and Re-fractured Oil Well 

Completions and Recompletions $130,000,000 39% $130,000,000 25% 

Fugitive Emissions at Well Sites $190,000,000 59% $380,000,000 73% 

Other Sources $8,000,000 2% $11,000,000 2% 

Total Annualized Costs of Proposed NSPS $320,000,000 100% $530,000,000 100% 

Note: sums may not total due to independent rounding. 

To identify potentially affected entities under the NSPS, the EPA combined ownership 

information from the DrillingInfo dataset with information drawn from the Hoover’s Inc. online 

 

80 DrillingInfo is a private company that provides information and analysis to the energy sector. More information is 

available at: http://info.drillinginfo.com. 

81 The TSD for this proposed rule provides information on this dataset of U.S. wells. Additional details on the 

development of this dataset can also be found in the following docketed memo: Memorandum to Mark de 

Figueiredo, EPA, from Casey MacQueen and Jessica Gray, ERG. “DrillingInfo Processing Methodology”. 

August 27, 2014. 
6-17 

platform, which includes information about companies, such as NAICS codes, employee counts, 

and sales information.82 Note that this analysis assumes that the firms performing potentially 

affected activities are also the firms performing activities in the future under the NSPS. While 

likely true for many firms, this will not be the case for all firms. 

The EPA matched owner/operators from the DrillingInfo dataset to companies in a 

database developed from a download of oil and gas companies in Hoover’s online database. The 

EPA matched as many records as possible. In the instances where the DrillingInfo 

owner/operator was not the highest level or company ownership, we recorded the highest level of 

owner as was identifiable in Hoovers. Linking these two datasets yields information on the 

NAICS, employee levels, and revenues of the owner/operators shown in the DrillingInfo dataset 

to have new or modified wells in 2012. 

The EPA then used the NAICS codes associated with the matched owner/operators to 

determine which owner/operators should be considered to be small entities for this analysis, 

based on the SBA size standards above. That said, many DrillingInfo owner/operators had no 

match in Hoovers. Additionally, some Hoovers records lacked the information (employees or 

revenues, depending on the NAICS) needed to make a size determination. We initially classified 

these as an “unknown” size. See Table 6-8 for a summary of results of this matching exercise. 

Table 6-8 No. of Completions in 2012 by Preliminary Firm Size 

 Number of Completions, 2012 

Firm Size Performing 

Well Completions No. of Firms 

Hydraulically Fractured 

or Re-fractured Oil Wells All Completions 

Small 951 2,998 10,360 

Not Small 150 10,674 22,866 

Unknown 1,118 676 5,762 

Total 2,219 14,348 38,988 

Note: consistent with the cost and emissions analysis, these 2012 completion counts do not include completions in 

states where there are state rules with similar requirements as the proposed rules. Counts are slightly lower than 

totals included in the impacts analysis base year estimates as some completions have no owner/operator recorded in 

the dataset. Sums may not total due to independent rounding.

 

82 The Hoover’s Inc. online platform includes company records that can contain NAICS codes, number of 

employees, revenues, and assets. For more information, see: <http://www.hoovers.com>. 
6-18 

Upon analysis of the firms of unknown size, the EPA observed that, on average, the firms 

of unknown size perform fewer well completions. For this reason, we made the observation that 

the firms of unknown size are more likely to be small than not small. To proceed with the 

analysis, we reclassified these firms as small, resulting in the distribution presented in the first 

two columns of Table 6-9. 

Table 6-9 No. of Completions in 2012 by Firm Size 

 No. of Completions, 2012 

Firm Size Performing 

Well Completions No. of Firms 

Hydraulically Fractured 

or Re-fractured Oil Wells All Completions 

Small 2,069 3,674 16,122 

Not Small 150 10,674 22,866 

Total 2,219 14,348 38,988 

Note: consistent with the cost and emissions analysis, these 2012 completion counts do not include completions in 

states where there are state rules with similar requirements as the proposed rules. Counts are slightly lower than 

totals included in the impacts analysis base year estimates as some completions have no owner/operator recorded in 

the dataset. Sums may not total due to independent rounding. 

6.3.5 Projected Reporting, Recordkeeping and Other Compliance Requirements 

The information to be collected for the NSPS is based on notification, performance tests, 

recordkeeping and reporting requirements which will be mandatory for all operators subject to 

the final standards. Recordkeeping and reporting requirements are specifically authorized by 

section 114 of the CAA (42 U.S.C. 7414). The information will be used by the delegated 

authority (state agency, or Regional Administrator if there is no delegated state agency) to ensure 

that the standards and other requirements are being achieved. Based on review of the recorded 

information at the site and the reported information, the delegated permitting authority can 

identify facilities that may not be in compliance and decide which facilities, records, or processes 

may need inspection. All information submitted to the EPA pursuant to the recordkeeping and 

reporting requirements for which a claim of confidentiality is made is safeguarded according to 

Agency policies set forth in 40 CFR part 2, subpart B. 

Potential respondents under subpart OOOOa are owners or operators of new, modified or 

reconstructed oil and natural gas affected facilities as defined under the rule. None of the 

facilities in the United States are owned or operated by state, local, tribal or the Federal 

government. All facilities are privately owned for-profit businesses. The requirements in this 
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action result in an industry recording keeping and reporting burden associated with review of the 

requirements for all affected entities, gathering relevant information, performing initial 

performance tests and repeat performance tests if necessary, writing and submitting the 

notifications and reports, developing systems for the purpose of processing and maintaining 

information, and training personnel to be able to respond to the collection of information. The 

estimated average annual burden (averaged over the first 3 years after the effective date of the 

standards) for the recordkeeping and reporting requirements in subpart OOOOa for the 

2,554 owners and operators that are subject to the rule is 98,438 labor hours, with an annual 

average cost of $3,361,074. The annual public reporting and recordkeeping burden for this 

collection of information is estimated to average 20 hours per response. Respondents must 

monitor all specified criteria at each affected facility and maintain these records for 5 years. 

Burden is defined at 5 CFR 1320.3(b). 

6.3.5.1 Methodology for Estimating Compliance Cost Impacts on Small Entities 

This section describes how we project the 2012 base year estimates of incrementally 

affected facilities to 2020 and 2025 levels, how we estimate costs at the firm level from these 

activity estimates, and how we estimated sales for small entities when available data on sales are 

incomplete. 

New and modified hydraulically fractured oil well completions and well sites in this 

FRFA are based on the same growth rates used to project future activities as described in the 

TSD and are consistent with other analyses in this RIA. These growth rates are consistent with 

the drilling activity in the 2015 Annual Energy Outlook. These growth rates are applied to the 

2012 base year estimates for each firm in the database. 
6-20 

Table 6-10 presents future year estimates of incrementally affected new and modified 

sources. 

 
6-21 

Table 6-10 No. of Incrementally Affected Sources in 2020 and 2025 by Firm Size 

 No. of Incrementally Affected Sources, 

2020 

No. of Incrementally Affected Sources, 

2025 

Firm Size 

Performing 

Well 

Completions 

Hydraulically 

Fractured or Refractured Oil 

Wells 

Gas Well 

Sites 

Oil Well 

Sites 

Hydraulically 

Fractured or Refractured Oil 

Wells 

Gas Well 

Sites 

Oil Well 

Sites 

Small 3,500 5,600 33,000 3,800 11,000 68,000 

Not Small 10,000 11,000 44,000 11,000 24,000 86,000

Total 14,000 17,000 77,000 15,000 35,000 160,000 

Note: Sums may not total due to independent rounding. Assumes well sites have two wells apiece.

This approach assumes that no other firms perform potentially affected activities and 

firms performing these activities in 2012 will continue to do so in 2020 and 2025. Again, the 

analysis in this FRFA is meant to be illustrative of impacts on small entities. Exact predictions of 

future activities at the firm level is not possible. 

Once the future year activities were estimated we allocated compliance costs across small 

entities based upon the costs estimated in the TSD and consistently with other analyses in this 

RIA. These cost estimates include estimates of revenue from natural gas recovery at the assumed 

value of $4/Mcf in 2012 dollars, again consistent with other analyses in this RIA. For 

hydraulically fractured and re-fractured oil well completions, we assumed each small entity is 

required to perform RECs and combustion in the same proportions assumed in the TSD and RIA. 

We also assumed the same proportion would be exploratory or delineation wells as the TSD and 

RIA. Table 6-11 shows the distribution of compliance costs estimates across firm size and year. 

Table 6-11 Distribution of Estimated Compliance Costs1

 across Firm Size Classes 

 Annualized Compliance Costs (2012$) 

Firm Size No. of Firms 2020 2025 

Small 2,069 110,000,000 190,000,000 

Not Small 150 200,000,000 320,000,000 

Total 2,219 310,000,000 510,000,000 

1

 Compliance cost estimates here include only costs of requirements for hydraulically fractured or re-fractured oil 

well completions and well-site fugitive emissions. As described in Section 6.1.3, these provisions account for the 

large majority of the rule’s potential impact in 2020 and 2025. 

Note: sums may not total due to independent rounding. 
6-22 

In order to estimate the cost-to-sales ratio, we again combined information from Hoovers 

and the DrillingInfo databases. The Hoovers database has sales information for some, but not all, 

small entities estimated in this FRFA analysis to have impacts. To supplement the sales 

information, we estimated 2012 sales by multiplying 2012 oil and natural gas production levels 

reported in the DrillingInfo database by assumed oil and natural gas prices at the wellhead. For 

natural gas, we assumed the same $4/Mcf for natural gas.83 For oil prices, we estimated revenues 

using two alternative prices, $70/bbl and $50/bbl. In the results, we call the case using $70/bbl 

the “primary scenario” and the case using the $50/bbl as the “low oil price scenario”.84 In the 

instances where the 2012 production-derived revenues exceeded the Hoovers revenues, we 

replaced the Hoovers estimate with the production-derived estimate as more likely to be an 

accurate estimate of sales for 2012. 

6.3.5.2 Compliance Cost Impact Estimate Results 

This section presents results of the cost-to-sales ratio analysis for both the primary 

scenario and the low oil price scenario. The percent of small entities with cost-to-sales ratios 

exceeding 1 percent and 3 percent in 2020 and 2025 are greater under the low oil price scenario, 

as would be expected due to lower estimated sales revenues from a lower oil price. Also, as 

expected, the entities with cost-to-sales ratios greater than 1 percent and greater than 3 percent 

increase from 2020 to 2025 in both the main case and the low oil price scenario as affected 

sources accumulate under the NSPS. 

 

83 The U.S. Energy Information Administration’s 2015 Annual Energy Outlook projects 2020 Henry Hub natural gas 

prices to be $4.88/MMBtu in its reference case and $4.30/MMBtu in its “low oil” price case in 2013 dollars. 

Available at: <http://www.eia.gov/beta/aeo/#/?id=14-AEO2015>. After adjusting to $/Mcf (using the conversion 

of 1 MMBtu = 1.208 Mcf) in 2012 dollars (using the GDP-Implicit Price Deflator), these prices are $4.80/Mcf in 

the reference case and $4.323/Mcf in the low oil price case. Rounding down to $4/Mcf likely under-estimates 

sales. 

84 The 2015 Annual Energy Outlook projects wellhead oil prices to be $75.16/bbl in its reference case and 

$54.10/bbl in its “low oil” price case in 2013 dollars. Available at: <http://www.eia.gov/beta/aeo/#/?id=14-

AEO2015>. After adjusting to 2012 dollars (using the GDP-Implicit Price Deflator), these prices are $74.00/bbl 

in the reference case and $53.27/bbl in the low oil price case. 
6-23 

Table 6-12 Compliance Costs-to-Sales1 Ratios across Firm Size Classes for Primary 

Scenario and Low Oil Price Scenario2 

 2020 (Main Case) 2020 (Low Oil Price Case) 

 

No. of Small 

Entities 

% of Small 

Entities 

No. of Small 

Entities 

% of Small 

Entities 

No. of Small Entities 2,031 - 2,043 - 

Greater than 1 percent 564 28% 648 32% 

Greater than 3 percent 289 14% 344 17% 

 

2025 (Main Case) 2025 (Low Oil Price Case) 

 

No. of Small 

Entities 

% of Small 

Entities 

No. of Small 

Entities 

% of Small 

Entities 

No. of Small Entities 2,031 - 2,043 - 

Greater than 1 percent 824 41% 924 45% 

Greater than 3 percent 419 21% 502 25% 

1

 Compliance cost estimates here include only costs of requirements for hydraulically fractured or re-fractured oil 

well completions and well-site fugitive emissions. These provisions account for the large majority of the rule’s 

potential impact in 2020 and 2025. 

2

 In the main case, the wellhead prices are assumed to be $4/Mcf for natural gas and $70/bbl for crude oil. In the low 

oil price case, the wellhead prices are assumed to be $4/Mcf for natural gas and $50/bbl for crude oil.

6.3.5.3 Caveats and Limitations 

The analysis above is subject to a number of caveats and limitations, many of which we 

discussed in the presentation of methods and results. It is useful, however, to present a complete 

list of the caveats and limitations here. 

• Because of data limitations, the analysis presented in the FRFA only examines impacts 

on requirements for hydraulically fractured and re-fractured oil well completions and 

well site fugitive emissions. While impacts from these requirements constitute a large 

proportion of the estimated impacts from the final NSPS, the omission of the estimated 

costs of other requirements leads to a relative under-estimation of the impacts on small 

entities. Also, the impacts from other requirements may affect firms that are not 

drilling wells, such as pipeline transmission firms. 

• Not all owner/operators listed in the DrillingInfo database could be identified in the 

Hoovers database. These owner/operators tend to have developed relatively few new 

or modified wells in 2012. As a result, we assumed these were small entities, whereas 

these entities may actually be subsidiaries of larger enterprises. While the impacts 

estimates are not affected in the aggregate by this assumption, the assumption likely 

leads to an over-estimate of the impact on small entities for the provisions examined. 

• The analysis assumes the same population of entities completing wells in 2012 are also 

completing wells in 2020 and 2025, according to growth rates developed for the entire 
6-24 

sector. In the future, many of these firms will complete fewer or more wells, and other 

firms will complete wells. All of these firms combined may complete new or modified 

wells at higher or lower rates depending on economics and technological factors that 

are largely unpredictable. 

• The approach used to estimate sales for the cost-to-sales ratio might over-estimate or 

under-estimate sales depending upon the accuracy of the information in the underlying 

databases and the market prices ultimately faced in 2020 and 2025. 

6.3.6 Regulatory Flexibility Alternatives 

The EPA considered three major options for this final rule. The option EPA is finalizing 

contains reduced emission completion (REC) and completion combustion requirements for a 

subset of newly completed oil wells that are hydraulically fractured or refractured. This option 

requires fugitive emissions survey and repair programs be performed semiannually (twice per 

year) at the affected newly drilled or refractured oil and natural gas well sites, and quarterly at 

new or modified gathering and boosting stations and new or modified transmission and storage 

compressor stations. Additionally this option requires reductions from centrifugal compressors, 

reciprocating compressors, pneumatic controllers, and pneumatic pumps throughout the oil and 

natural gas source category. 

The other options considered differ from the finalized option with respect to the 

requirements for fugitive emissions. One option exempted low production well sites from the 

well site fugitive requirements. This less stringent option was analyzed as an alternative to 

reduce burden on small entities. However, it was rejected because we believe that low production 

well sites have the same type of equipment and components as production well sites with 

production greater than 15 boe per day. Since we did not receive additional data on equipment or 

component counts for low production wells, we believe that a low production well model plant 

would have the same equipment and component counts as a non-low production well site. This 

would indicate that the emissions from low production well sites could be similar to that of nonlow production well sites. Additionally, we did not receive data showing that low production 

well sites have lower methane or VOC emissions than well sites. In fact, the data that were 

provided indicated that the potential emissions from these well sites could be as significant as the 

emissions from non-low production well sites since the type of equipment and the well pressures 

are more than likely the same. In discussions with industry stakeholders, they indicated that well 

site fugitive emissions are not based on production, but rather on the number of pieces of 
6-25 

equipment and components. Therefore, we believe that the emissions from low production and 

non-low production well sites are comparable, and low production well sites were included in the 

selected option. 

Lastly, the more stringent option required quarterly monitoring for all sites under the 

fugitive emissions program. This option lead to greater emission reductions, however it was not 

selected because it increased costs, resulting in a net effect of lower net benefits compared to the 

finalized option. 

In addition, the EPA is preparing a Small Entity Compliance Guide to help small entities 

comply with this rule. The guide will be available on the World Wide Web approximately 60 

days after promulgation of the rule, at 

https://www3.epa.gov/airquality/oilandgas/implement.html. 

The EPA notes that the IRFA includes numerous recommendations made by the SBAR 

Panel85. The EPA considered these recommendations during the development of the proposal and 

final rule. The rationale for the EPA’s acceptance or rejection of each recommendation can be 

found in the relevant discussion of each emission source throughout the preamble to the 

proposal, final rule, and RTC. Though all comments were seriously considered, the EPA is 

unable to incorporate all suggestions without compromising the effectiveness of the final 

regulation. Changes to the rule from proposal that may benefit small entities due to comments 

received include allowing both OGI and Method 21 as acceptable monitoring technology, 

replacing a performance based monitoring schedule with a fixed frequency, lengthening the time 

of initial fugitive monitoring from within 30 days to the later of either [insert date 1 year after 

publication of the final rule in the Federal Register] or with 60 days of the startup of 

production, and simplified the third party verification of technical infeasibility requirements. 

Though these are not monetized, we believe the flexibility and simplifications these changes 

have added to the rule result in a reduced burden on small entities. 

 

85 The final SBAR Panel report is found at <https://www.regulations.gov/#!documentDetail;D=EPA-HQ-OAR2010-0505-4959>. 
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6.4 Employment Impact Analysis 

In addition to addressing the costs and benefits of the final rule, the EPA has analyzed the 

impacts of this rulemaking on employment, which are presented in this section.86 While a 

standalone analysis of employment impacts is not included in a standard cost-benefit analysis, 

such an analysis is of particular concern in the current economic climate given continued interest 

in the employment impact of regulations such as this final rule. Executive Order 13563, states, 

“Our regulatory system must protect public health, welfare, safety, and our environment while 

promoting economic growth, innovation, competitiveness, and job creation.” 87 A discussion of 

compliance costs, including reporting and recordkeeping requirements, is included in Section 3 

of this RIA. This analysis uses detailed engineering information on labor requirements for each 

of the control strategies identified in this final rule in order to estimate partial employment 

impacts for affected entities in the oil and gas industry. These bottom-up, engineering-based 

estimates represent only one portion of potential employment impacts within the regulated 

industry, and do not represent estimates of the net employment impacts of this rule. First, this 

section presents an overview of the various ways that environmental regulation can affect 

employment. The EPA continues to explore the relevant theoretical and empirical literature and 

to seek public comments in order to ensure that the way the EPA characterizes the employment 

effects of its regulations is valid and informative. The section concludes with partial employment 

impact estimates that rely on engineering-based information for labor requirements for each of 

the control strategies identified by the rule. 

6.4.1 Employment Impacts of Environmental Regulation 

From an economic perspective labor is an input into producing goods and services; if a 

regulation requires that more labor be used to produce a given amount of output, that additional 

labor is reflected in an increase in the cost of production. Moreover, when the economy is at full 

employment, we would not expect an environmental regulation to have a net impact on overall 

employment because labor is being shifted from one sector to another. On the other hand, in 

 

86 The employment analysis in this RIA is part of the EPA’s ongoing effort to “conduct continuing evaluations of 

potential loss or shifts of employment which may result from the administration or enforcement of [the Act]” 

pursuant to CAA section 321(a). 

87 Executive Order 13563 (January 21, 2011). Improving Regulation and Regulatory Review. Section 1. General 

Principles of Regulation, Federal Register, Vol. 76, Nr. 14, p. 3821. 
6-27 

periods of high unemployment, net employment effects (both positive and negative) are possible. 

For example, an increase in labor demand due to regulation may result in a short-term net 

increase in overall employment as workers are hired by the regulated sector to help meet new 

requirements (e.g., to install new equipment) or by the environmental protection sector to 

produce new abatement capital resulting in hiring previously unemployed workers. When 

significant numbers of workers are unemployed, the opportunity costs associated with displacing 

jobs in other sectors are likely to be higher. And, in general, if a regulation imposes high costs 

and does not increase the demand for labor, it may lead to a decrease in employment. The 

responsiveness of industry labor demand depends on how these forces all interact. Economic 

theory indicates that the responsiveness of industry labor demand depends on a number of 

factors: price elasticity of demand for the product, substitutability of other factors of production, 

elasticity of supply of other factors of production, and labor’s share of total production costs. 

Berman and Bui (2001) put this theory in the context of environmental regulation, and suggest 

that, for example, if all firms in the industry are faced with the same compliance costs of 

regulation and product demand is inelastic, then industry output may not change much at all. 

Regulations set in motion new orders for pollution control equipment and services. New 

categories of employment have been created in the process of implementing environmental 

regulations. When a regulation is promulgated, one typical response of industry is to order 

pollution control equipment and services in order to comply with the regulation when it becomes 

effective. On the other hand, the closure of plants that choose not to comply – and any changes in 

production levels at plants choosing to comply and remain in operation - occur after the 

compliance date, or earlier in anticipation of the compliance obligation. Environmental 

regulation may increase revenue and employment in the environmental technology industry. 

While these increases represent gains for that industry, they translate into costs to the regulated 

industries required to install the equipment. 

Environmental regulations support employment in many basic industries. Regulated firms 

either hire workers to design and build pollution controls directly or purchase pollution control 

devices from a third party for installation. Once the equipment is installed, regulated firms hire 

workers to operate and maintain the pollution control equipment—much like they hire workers 

to produce more output. In addition to the increase in employment in the environmental 
6-28 

protection industry (via increased orders for pollution control equipment), environmental 

regulations also support employment in industries that provide intermediate goods to the 

environmental protection industry. The equipment manufacturers, in turn, order steel, tanks, 

vessels, blowers, pumps, and chemicals to manufacture and install the equipment. 

Berman and Bui (2001) demonstrate using standard neoclassical microeconomics that 

environmental regulations have an ambiguous effect on employment in the regulated sector. The 

theoretical results imply that the effect of environmental regulation on employment in the 

regulated sector is an empirical question. Berman and Bui (2001) developed an innovative 

approach to examine how an increase in local air quality regulation that reduces nitrogen oxides 

(NOX) emissions affects manufacturing employment in the South Coast Air Quality Management 

District (SCAQMD), which incorporates Los Angeles and its suburbs. During the time frame of 

their study, 1979 to 1992, the SCAQMD enacted some of the country’s most stringent air quality 

regulations. Using SCAQMD’s local air quality regulations, Berman and Bui identify the effect 

of environmental regulations on net employment in the regulated industries.88 The authors find 

that “while regulations do impose large costs, they have a limited effect on employment” 

(Berman and Bui, 2001, p. 269). Their conclusion is that local air quality regulation “probably 

increased labor demand slightly” but that “the employment effects of both compliance and 

increased stringency are fairly precisely estimated zeros, even when exit and dissuaded entry 

effects are included” (Berman and Bui, 2001, p. 269).89

While there is an extensive empirical, peer-reviewed literature analyzing the effect of 

environmental regulations on various economic outcomes including productivity, investment, 

competitiveness as well as environmental performance, there are only a few papers that examine 

the impact of environmental regulation on employment, but this area of the literature has been 

growing. As stated previously in this RIA section, empirical results from Berman and Bui (2001) 

suggest that new or more stringent environmental regulations do not have a substantial impact on 

net employment (either negative or positive) in the regulated sector. Similarly, Ferris, 

Shadbegian, and Wolverton (2014) also find that regulation-induced net employment impacts are 

 

88 Berman and Bui include over 40 4-digit SIC industries in their sample. 

89 Including the employment effect of exiting plants and plants dissuaded from opening will increase the estimated 

impact of regulation on employment. 
6-29 

close to zero in the regulated sector. Furthermore, Gray et al (2014) find that pulp mills that had 

to comply with both the air and water regulations in the EPA’s 1998 “Cluster Rule” experienced 

relatively small and not always statistically significant, decreases in employment. Nevertheless, 

other empirical research suggests that more highly regulated counties may generate fewer jobs 

than less regulated ones (Greenstone 2002, Walker 2011). However, the methodology used in 

these two studies cannot estimate whether aggregate employment is lower or higher due to more 

stringent environmental regulation, it can only imply that relative employment growth in some 

sectors differs between more and less regulated areas. List et al. (2003) find some evidence that 

this type of geographic relocation, from more regulated areas to less regulated areas may be 

occurring. Overall, the peer-reviewed literature does not contain evidence that environmental 

regulation has a large impact on net employment (either negative or positive) in the long run 

across the whole economy. 

While the theoretical framework laid out by Berman and Bui (2001) still holds for the 

industries affected under these emission guidelines, important differences in the markets and 

regulatory settings analyzed in their study and the setting presented here lead us to conclude that 

it is inappropriate to utilize their quantitative estimates to estimate the net employment impacts 

from this final regulation. In particular, the industries used in these two studies as well as the 

timeframe (late 1970’s to early 1990’s) are quite different than those in this final NSPS. 

Furthermore, the control strategies analyzed for this RIA include implementing RECs, reducing 

fugitive emissions, and reducing emissions from pneumatic controllers, pumps, and reciprocating 

and centrifugal compressors, which are very different than the control strategies examined by 

Berman and Bui.90 For these reasons we conclude there are too many uncertainties as to the 

transferability of the quantitative estimates from Berman and Bui to apply their estimates to 

quantify the net employment impacts within the regulated sectors for this regulation, though 

these studies have usefulness for qualitative assessment of employment impacts. 

The preceding sections have outlined the challenges associated with estimating net 

employment effects in the regulated sector and in the environmental protection sector. These 

challenges make it very difficult to accurately produce net employment estimates for the whole 

 

90 More detail on how emission reductions expected from compliance with this rule can be found in Section 3 of this 

RIA. 
6-30 

economy that would appropriately capture the way in which costs, compliance spending, and 

environmental benefits propagate through the macro-economy. Given the difficulty with 

estimating national impacts of regulations, the EPA has not generally estimated economy-wide 

employment impacts of its regulations in its benefit-cost analyses. However, in its continuing 

effort to advance the evaluation of costs, benefits, and economic impacts associated with 

environmental regulation, the EPA has formed a panel of experts as part of the EPA’s Science 

Advisory Board (SAB) to advise the EPA on the technical merits and challenges of using 

economy-wide economic models to evaluate the impacts of its regulations, including the impact 

on net national employment.91 Once the EPA receives guidance from this panel it will carefully 

consider this input and then decide if and how to proceed on economy-wide modeling of net 

employment impacts of its regulations. 

6.4.2 Labor Estimates Associated with Final Requirements 

Section 2 of the RIA, in Table 2-17 and Table 2-18, presents background information on 

employment and wages in the oil and natural gas industry. As well as producing much of the 

U.S. energy supply, the oil and natural gas industry directly employs a significant number of 

people. Table 2-17 shows employment in six oil and natural gas-related NAICS codes from 1990 

to 2014.92 The overall trend shows a decline in total industry employment throughout the 1990s, 

hitting a low of 314,000 in 1999, but rebounding to a 2014 peak of about 660,000. Crude 

Petroleum and Natural Gas Extraction (NAICS 211111) and Support Activities for Oil and Gas 

Operations (NAICS 213112) employ the majority of workers in the industry. From 1990 to 2014, 

average wages for the oil and natural gas industry increased. Table 2-18 shows real wages (in 

2012 dollars) from 1990 to 2014 for the NAICS codes associated with the oil and natural gas 

industry. 

The focus of this part of the analysis is on labor requirements related to the compliance 

actions for the final rule of the affected entities within the oil and natural gas sector. We do not 

estimate any potential changes in labor outside of the affected sector, and due to data and 

 

91 For further information see: 

http://yosemite.epa.gov/sab/sabproduct.nsf/0/07E67CF77B54734285257BB0004F87ED?OpenDocument 

92 NAICS 211111, 21112, 213111, 213112, 486110, and 486210. 
6-31 

methodology limitations we do not estimate net employment impacts for the affected sector, 

apart from the partial estimate of the labor requirements related to control strategies. This 

analysis estimates the labor required to the install, operate, and maintain control equipment and 

activities, as well as to perform new reporting and recordkeeping requirements. 

It is important to highlight that, unlike the typical case where a firm often has to reduce 

production in order to reduce output of negative production externalities (i.e., emissions), many 

of the emission controls required by the final NSPS will simultaneously increase production and 

reduce negative externalities. That is, these controls jointly produce environmental 

improvements and increase output in the regulated sector. Therefore, new labor associated with 

implementing these controls to comply with the new regulations can also be viewed as additional 

labor increasing output while reducing undesirable emissions. However, these rules may require 

unprofitable investments for some operators, and there is a possibility that these producers 

decrease output in response and create downward pressure on labor demand, both in the 

regulated sector and on those sectors using natural gas as an input. This RIA does not include 

quantified estimates of these potential adverse effects on the labor market due to data limitations 

and theoretical challenges, as described above. 

No estimates of the labor used to manufacture or assemble pollution control equipment or 

to supply the materials for manufacture or assembly are included because the EPA does not 

currently have this information. The labor requirements analysis uses a bottom-up engineeringbased methodology to estimate employment impacts. The engineering cost analysis summarized 

in Chapter 3 of this RIA includes estimates of the labor requirements associated with 

implementing the regulations. Each of these labor changes may be required as part of an initial 

effort to comply with the new regulation or required as a continuous or annual effort to maintain 

compliance. We estimate up-front and continual annual labor requirements by estimating hours 

of labor required and converting this number to full-time equivalents (FTEs) by dividing by 

2,080 (40 hours per week multiplied by 52 weeks). We note that this type of FTE estimate 

cannot be used to make assumptions about the specific number of employees involved or 

whether new jobs are created for new employees. 

The results of this employment analysis of the NSPS are presented in Table 6-13 through 
6-32 

Table 6-16 for 2020 and 2025 for individual sources regulated under this rule. Table 6-17 

presents summary-level labor impacts for all sources. The tables break down the installation, 

operation, and maintenance estimates by type of pollution control evaluated in the RIA and 

present both the estimated hours required and the conversion of this estimate to FTE. The labor 

information is based upon the cost analysis presented in the TSD that supports this rule, based 

upon analysis presented in the RIA developed for the 2012 NSPS and NESHAP Amendments for 

the Oil and Natural Gas Sector (U.S. EPA, 2012). In addition, for the final NSPS, reporting and 

recordkeeping requirements were estimated for the entire rule rather than by anticipated control 

requirements. The reporting and recordkeeping estimates are consistent with estimates the EPA 

submitted as part of its Information Collection Request (ICR), the estimated costs which are 

included in the cost estimates presented in Chapter 3. 

Table 6-13 presents estimates of labor requirements for hydraulically fractured oil well 

completions. The REC and completion combustion requirements are associated with certain new 

and existing oil well completions. While individual well completions take place over a short 

period of time (days to a few weeks), the overall industry completes new wells and re-completes 

some existing wells every year. Because of the continuing nature of new and existing well 

completions, annually, at the industry level, we report the REC-related labor requirements in 

annual units. 

The per-unit estimates of one-time labor requirements associated with implementing 

RECs and completion combustion are drawn from the labor requirements estimated for 

implementing RECs on hydraulically fractured well completions in EPA (2012). However, the 

labor requirements in that report were based upon a completion that is assumed to last seven days 

(218 hours per completion for a REC or 22 hours labor per completion for completion 

combustion). In this analysis, completion events for hydraulically fractured oil wells are assumed 

to last three days, so we multiply the seven-day requirements by 3/7 (93 hours per completion for 

a REC or 9 hours labor per completion for completion combustion). 

 
6-33 

Table 6-13 Estimates of Labor Required to Comply with NSPS for Hydraulically 

Fractured Oil Well Completions, 2020 and 2025 

Emissions Source/Control 

Projected No. 

of 

Incrementally 

Affected 

Units (2020) 

Per Unit 

Onetime 

Labor 

Estimate 

(hours) 

Per Unit 

Annual 

Labor 

Estimate 

(hours) 

Total 

OneTime 

Labor 

Estimate 

(hours) 

Total 

Annual 

Labor 

Estimate 

(hours) 

Onetime 

FTE 

Annual 

FTE 

 

 2020 

Hydraulically Fractured Oil Well Completions and 

Recompletions 

Completions where REC 

and completion 

combustion is required 

7,500 0 93 0 700,000 0 340 

Completions where 

completion combustion is 

required 

5,600 0 9 0 53,000 0 25 

Total 13,000 N/A N/A 0 760,000 0 360 

 

 2025 

Hydraulically Fractured Oil Well Completions and 

Recompletions 

Completions where REC 

and completion 

combustion is required 

8,000 0 93 0 750,000 0 360 

Completions where 

completion combustion is 

required 

6,000 0 9 0 57,000 0 27 

Total 14,000 N/A N/A 0 800,000 0 390 

Note: Full-time equivalents (FTE) are estimated by first multiplying the projected number of affected units by the 

per-unit labor requirements and then multiplying by 2,080 (40 hours multiplied by 52 weeks). Totals may not sum 

due to independent rounding. 

Table 6-14 presents estimates of labor requirements for fugitive emissions. Consistent 

with the cost estimates for fugitive emissions presented in Section 5 of the TSD, we estimate 

labor associated with company-level activities and activities at field sites. Company-level 

activities include one-time activities such as planning the company’s fugitive emissions program 

and annual requirements such as reporting and recordkeeping. Field-level activities include 

semiannual inspection and repair of leaks. It is important to note, however, that the compliance 

costs estimates for leak inspection were based upon an estimate of the costs to hire a contractor 

to provide the inspection service, but the source providing this information does not have a 

breakdown of the labor component of the rental cost. As a result, the labor requirements for the 

fugitives program remain uncertain. 
6-34 

Table 6-14 Estimates of Labor Required to Comply with NSPS for Fugitive Emissions, 

2020 and 2025

Emissions Source 

Emissions 

Control 

Projected No. 

of 

Incrementally 

Affected 

Units (2020) 

Per Unit 

Onetime 

Labor 

Estimate 

(hours) 

Per Unit 

Annual 

Labor 

Estimate 

(hours) 

Total 

OneTime 

Labor 

Estimate 

(hours) 

Total 

Annual 

Labor 

Estimate 

(hours) 

Onetime 

FTE 

Annual 

FTE 

 2020 

Well Sites 

Company-level Planning 4,300 120 0.0 500,000 0 240 0 

Site-level 

Monitoring 

and 

Maintenance 

94,000 0.0 14 0 1,300,000 0 640 

Gathering and Boosting Stations 

Company-level Planning 480 120 0.0 57,000 0 27 0 

Site-level 

Monitoring 

and 

Maintenance 

480 0.0 110 0 52,000 0 25 

Transmission Compressor Stations 

Company-level Planning 20 120 0.0 2,400 0 1 0 

Site-level 

Monitoring 

and 

Maintenance 

20 0.0 110 0 2,100 0 1 

Storage Compressor Stations 

Company-level Planning 25 120 0.0 3,000 0 1 0 

Site-level 

Monitoring 

and 

Maintenance 

25 0.0 210 0 5,300 0 3 

Total 94,000 N/A N/A 560,000 1,400,000 270 660 

 2025 

Well Sites 

Company-level Planning 4,300 120 0.0 500,000 0 240 0 

Site-level 

Monitoring 

and 

Maintenance 

190,000 5.4 14 0 2,700,000 0 1,300 

Gathering and Boosting Stations 

Company-level Planning 480 120 0.0 57,000 0 27 0 

Site-level 

Monitoring 

and 

Maintenance 

960 0.0 110 0 100,000 0 50 

Transmission Compressor Stations 

Company-level Planning 20 120 0.0 2,400 0 1 0 

Site-level 

Monitoring 

and 

Maintenance 

40 0.0 110 0 4,300 0 2 

Storage Compressor Stations 

Company-level Planning 25 120 0.0 3,000 0 1 0 

Site-level 

Monitoring 

and 

Maintenance 

50 0.0 210 0 11,000 0 5 

Total 190,000 N/A N/A 560,000 2,800,000 270 1,400 

Note: Full-time equivalents (FTE) are estimated by first multiplying the projected number of affected units by theper 

unit labor requirements and then multiplying by 2,080 (40 hours multiplied by 52 weeks). Totals may not sum due to 

independent rounding.
6-35 

Most labor required for fugitive emissions is needed at well sites in the field, which 

number in the thousands. Note that the labor requirements estimates increase from 2020 to 2025 

as the number of sites regulated under the final NSPS accumulates. 

Table 6-15 presents labor requirement estimates for monitoring and maintainence 

requirements for reciprocating compressors and routing emissions to a control device for 

centrifugal compressors. Like the estimates for completions, the per unit labor estimates were 

based on EPA (2012). As relatively little labor is required for reciprocating compressors and 

relatively few affected centrifugal compressors are expected in the future, the estimates of both 

one-time and on-going labor requirements for compressor requirements are minimal. 

Table 6-15 Estimates of Labor Required to Comply with NSPS for Reciprocating and 

Centrifugal Compressors, 2020 and 2025 

Emissions Source 

Emissions 

Control 

Projected 

No. of 

Incr. 

Affected 

Units 

Per-unit 

Onetime 

Labor 

Est. 

(hrs) 

Per-unit 

Annual 

Labor 

Est. 

(hrs) 

Total 

OneTime 

Labor 

Estimate 

(hrs) 

Total 

Annual 

Labor 

Estimate 

(hrs) 

Onetime 

FTE 

Annual 

FTE 

 

 2020 

Compressors 

 Reciprocating 

Monitoring 

and 

Maintenance 

160 1 1 160 160 0 0 

 Centrifugal Route to 

Control 5 360 0 1,800 0 1 0 

Total 170 N/A N/A 2,000 160 1 0 

 

 2025 

Compressors 

 Reciprocating 

Monitoring 

and 

Maintenance 

320 1 1 160 320 0 0 

 Centrifugal Route to 

Control 10 360 0 1,800 0 1 0 

Total 330 N/A N/A 2,000 320 1 0 

Note: Full-time equivalents (FTE) are estimated by first multiplying the projected number of affected units by the 

per unit labor requirements and then multiplying by 2,080 (40 hours multiplied by 52 weeks). Totals may not sum 

due to independent rounding. 

Table 6-16 presents the labor requirement estimates for requirements applying to 

pneumatic controllers and pneumatic pumps. Note that pneumatic controllers have no one-time 

or continuing labor requirements. While the controls do require labor for installation, operation, 
6-36 

and maintenance, the required labor is less than that of the controllers that would be used absent 

the regulation (U.S. EPA, 2012). In this instance, we assume the incremental labor requirements 

are zero. Meanwhile, we are currently unable to estimate the labor associated with pneumatic 

pump control activities. 

Table 6-16 Estimates of Labor Required to Comply with NSPS for Pneumatic 

Controllers and Pumps, 2020 and 2025 

Emissions 

Source 

Emissions 

Control 

Projected 

No. of Incr. 

Affected 

Units 

Per-unit 

Onetime 

Labor 

Est. 

(hrs) 

Per-unit 

Annual 

Labor 

Est. 

(hrs) 

Total 

OneTime 

Labor 

Estimate 

(hrs) 

Total 

Annual 

Labor 

Estimate 

(hrs) 

Onetime 

FTE 

Annual 

FTE 

 

 2020 

Pneumatic 

Controllers 

Emissions 

Limit 480 0 0 0 0 0 0 

Pneumatic 

Pumps 

Route to 

Control 3,900 N/A N/A N/A N/A N/A N/A

 

 2025 

Pneumatic 

Controllers 

Emissions 

Limit 960 0 0 0 0 0 0 

 

Pneumatic 

Pumps 

Route to 

Control 7,900 N/A N/A N/A N/A N/A N/A

Note: Full-time equivalents (FTE) are estimated by first multiplying the projected number of affected units by the 

per unit labor requirements and then multiplying by 2,080 (40 hours multiplied by 52 weeks). Totals may not sum 

due to independent rounding. 

Table 6-17 presents the labor estimates across all emissions sources. Two main categories 

contain the majority of the labor requirements for the final NSPS: implementing reduced 

emissions completions (REC) at hydraulically fracture oil well completions and fugitive 

emissions detection and repair at well sites. The up-front labor requirement to comply with the 

final NSPS is estimated at 270 FTEs in 2020 and in 2025. The annual labor requirement to 

comply with final NSPS is estimated at about 1,100 FTEs in 2020 and 1,800 FTEs in 2025. We 

note that this type of FTE estimate cannot be used to identify the specific number of employees 

involved or whether new jobs are created for new employees, versus displacing jobs from other 

sectors of the economy. 

 
6-37 

Table 6-17 Estimates of Labor Required to Comply with NSPS, 2020 and 2025 

Emissions Source 

Projected No. 

of 

Incrementally 

Affected 

Units (2020) 

Total OneTime Labor 

Estimate 

(hours) 

Total Annual 

Labor Estimate 

(hours) 

One-time 

FTE 

Annual 

FTE 

 

 2020 

Hydraulically Fractured and 

Re-fractured Oil Well 

Completions 

13,000 0 760,000 0 360 

Fugitive Emissions 94,000 560,000 1,400,000 270 660

Pneumatic Controllers 480 0 0 0 0 

Pneumatic Pumps 3,900 N/A N/A N/A N/A 

Reciprocating Compressors 160 160 160 0 0 

Centrifugal Compressors 5 1,800 0 1 0 

Reporting and 

Recordkeeping Requirements All 0 180,000 0 88 

Total 110,000 570,000 2,300,000 270 1,100 

 

 2025 

Hydraulically Fractured and 

Re-fractured Oil Well 

Completions 

14,000 0 800,000 0 390 

Fugitive Emissions 190,000 560,000 2,800,000 270 1,400 

Pneumatic Controllers 960 0 0 0 0 

Pneumatic Pumps 7,900 N/A N/A N/A N/A 

Reciprocating Compressors 320 160 320 0 0 

Centrifugal Compressors 10 1,800 0 1 0 

Reporting and 

Recordkeeping Requirements All 0 180,000 0 88 

Total 220,000 570,000 3,800,000 270 1,800 

Note: Full-time equivalents (FTE) are estimated by first multiplying the projected number of affected units by the 

per unit labor requirements and then multiplying by 2,080 (40 hours multiplied by 52 weeks). Rounded to two 

significant digits. Totals may not sum due to independent rounding. 

6.5 References 

Berman, E. and L. T. M. Bui. 2001. “Environmental Regulation and Labor Demand: Evidence 

from the South Coast Air Basin.” Journal of Public Economics 79(2): 265-295, docket nr. 

EPA-HQ-OAR-2011-0135 at <http://www.regulations.gov> 

Ferris, A., R.J. Shadbegian, and A. Wolverton. 2014. “The Effect of Environmental Regulation 

on Power Sector Employment: Phase I of the Title IV SO2 Trading Program.” Journal of 

the Association of Environmental and Resource Economists 5:173-193. 
6-38 

Gray, W.B., R.J. Shadbegian, C. Wang, and M. Meral. 2014. “Do EPA Regulations Affect Labor 

Demand? Evidence from the Pulp and Paper Industry.” Journal of Environmental 

Economics and Management: 68, 188-202. 

Greenstone, M. 2002. “The Impacts of Environmental Regulations on Industrial Activity: 

Evidence from the 1970 and 1977 Clean Air Act Amendments and the Census of 

Manufactures.” Journal of Political Economy 110(6): 1175-1219. 

List, J. A., D. L. Millimet, P. G. Fredriksson, and W. W. McHone. 2003. “Effects of 

Environmental Regulations on Manufacturing Plant Births: Evidence from a Propensity 

Score Matching Estimator.” The Review of Economics and Statistics 85(4): 944-952. 

U.S. Bureau of Labor Statistics. 

U.S. Census Bureau (Census). 

U.S. Energy Information Administration (U.S. EIA). 2014. Oil and Gas Supply Module of the 

National Energy Modeling System: Model Documentation 2014. July 2014. 

<http://www.eia.gov/forecasts/aeo/nems/documentation/ogsm/pdf/m063(2014).pdf> 

Accessed May 10, 2015. 

U.S. Energy Information Administration (U.S. EIA). 2014. Model Documentation Report: 

Natural Gas Transmission and Distribution Module of the National Energy Modeling. 

June 2014. 

<http://www.eia.gov/forecasts/aeo/nems/documentation/ngtdm/pdf/m062(2014).pdf> 

Accessed May 10, 2015. 

U.S. Environmental Protection Agency (U.S. EPA). 2012. Regulatory Impact Analysis: Final 

New Source Performance Standards and Amendments to the National Emissions 

Standards for Hazardous Air Pollutants for the Oil and Natural Gas Industry. 

<http://www.epa.gov/ttn/ecas/regdata/RIAs/oil_natural_gas_final_neshap_nsps_ria.pdf> 

Accessed December 19, 2014.U.S. Small Business Administration (U.S. SBA), Office of 

Advocacy. 2010. A Guide for Government Agencies, How to Comply with the Regulatory 

Flexibility Act, Implementing the President’s Small Business Agenda and Executive 

Order 13272. 

Walker, R. 2011. “Environmental Regulation and Labor Reallocation." American Economic 

Review: 101(3):442-447. 

 
6-39 

United States Environmental Protection Agency 

Office of Air Quality Planning and Standards 

Health and Environmental Impacts Division 

Research Triangle Park, NC