May 16—The U.S. Environmental Protection Agency's threat of declaring the Permian Basin a non-attainment zone for ozone not only jeopardizes the region's economic stability, it endangers national security for the sake of promoting President Biden's re-election campaign.
That's according to State Rep. Brooks Landgraf and Permian Basin Petroleum Association President Ben Shepperd, who say the visit here last Friday of EPA Region 6 Administrator Earthea Nance of Dallas was very worrisome.
However, Waco economist Ray Perryman says the region could successfully manage the EPA's demands.
"As a state representative deeply invested in the prosperity of the Permian Basin and the entire energy sector of Texas, I certainly have concerns regarding the potential impact of the EPA's actions on our region," Landgraf said. "As a West Texan I'm thankful our United States representative, Congressman August Pfluger, is in the foxhole with us fighting for the Permian Basin and Texas energy.
"While none of us possesses a crystal ball to predict the precise outcomes of these actions, two things are certain."
Landgraf, an Odessa Republican, said any federal action declaring the Permian Basin a non-attainment area for ozone would undoubtedly complicate matters for energy companies.
"Such a designation could hamper investment opportunities and increase financial burdens, casting a shadow of uncertainty over the future of our energy sector," he said. "Unfortunately it's now evident that President Biden is willing to utilize the energy sector as a political football, prioritizing symbolic gestures over pragmatic solutions.
"By curtailing domestic production Biden risks jeopardizing our nation's economic and energy security while empowering foreign regimes with questionable environmental and human rights records. This approach not only undermines our values but also threatens our prosperity."
Secondly, Landgraf said, Texas has historically demonstrated an unparalleled ability to adapt and innovate, ensuring that it continued to meet the global demand for oil and natural gas.
"Challenges have arisen in the past, but our resilience has prevailed time and again," he said. "President Biden's efforts to impede our industry may pose hurdles, but they won't extinguish our spirit or determination.
"So while the EPA's potential designation may introduce challenges and complexities, I believe the Permian Basin will persevere as we always have."
Shepperd said a non-attainment designation for the Basin under the National Ambient Air Quality Standards for ground level ozone would have a significant negative impact on oil and gas operations in the region.
"According to the Texas Methane & Flaring Coalition the Permian Basin reduced methane emissions by more than 76 percent from 2011 to 2021 with methane being a key component to the formation of ground level ozone while at the same time production has been increased by more than 345 percent," Shepperd said. "Even with these great reductions in methane emissions our region continues to be the No. 1 target for those opposed to affordable, reliable energy development.
"A non-attainment designation, which can only be based largely on modeling because of the lack of EPA ozone monitoring stations in the Permian Basin, would severely limit the ability of oil and gas operators to fully execute their drilling plans. The negative impacts, however, would not just be felt by oil and gas companies and those they employ, but such a designation would result in significant impacts to the local, Texas and New Mexico and national economies."
Shepperd added that because worldwide energy demand, particularly for oil and gas, continues to grow, a non-attainment designation shifts production away from the Basin to international locations with less interest in environmental policy and to those nations that have shown they oppose America's long-term energy security interests.
"So a non-attainment designation would not only result in a negative economic impact but a negative environmental impact," he said.
Shepperd said every construction operation in a non-attainment-designated Basin would have to receive federal authorization for permitting, extending planning horizons and costs.
"Further, the equipment requirements which would need to be met to receive federal permitting would include their own cost increases," Shepperd said. "These extensions and cost increases would be felt not just by those in the oil and gas industry but by any construction project whether that be road construction, electrical transmission and distribution construction or public, commercial and residential building construction.
"The building of schools would be impacted. The building of hospitals would be impacted. To be able to comply with the requirements needed to achieve such permitting, you would have to commit to using construction equipment and materials that satisfied certain requirements at EPA.
"For instance any equipment with emissions like backhoes, cranes, tractors, front loaders, dump tracks or cement mixers would have to utilize something like an advanced exhaust gas after treatment technology to comply with federal requirements."
Shepperd said that would raise the engine rating on those pieces of equipment from Tier 3 to Tier 4 under the EPA's Non-road Diesel Engine Rating System, explaining that Tier 4 engines are 5-15 percent more fuel-efficient than Tier 3 engines but 30-60 percent more expensive.
"A base cost for all construction projects would go up and likely stay up as it is near impossible for areas to get out of non-attainment once they are designated like El Paso, especially when the thresholds for being in attainment continue to be reduced by the EPA," he said. "The ground level ozone attainment threshold was 80 parts per billion in 1997. It was reduced to 75 ppb in 2008 and reduced again to 70 ppb in 2015.
"And there is no guarantee that it won't be reduced again and again."
Asked if the energy industry would contest the designation in federal court, Shepperd said, "Without a non-attainment designation in place by the EPA it is very difficult to comment on possible legal actions or strategies resulting from such a fully unknown agency designation.
"Any legal argument would likely be based on not just the designation made by the EPA but the facts, data, analysis and modeling supporting such a designation."
He said production would continue, but new construction projects including lease roads, pad sites, drilling and completion operations would likely be slowed and would take on additional costs to comply with EPA requirements.
"Many of these projects would likely become uneconomical," Shepperd said. "Any non-attainment designation made by EPA should be based on facts and science.
"Regardless of who is president and what staff is at the EPA we will continue to fight to make sure that facts and science, not politics, are the reason that any agency action is taken."
Perryman said a long-term designation by the EPA could have some consequences over time, but it would be unlikely to have any immediate or meaningful impacts on oil and gas activity.
"In fact the entire Dallas-Fort Worth and Houston areas, which combined encompass about half of the entire Texas economy, have had this designation for many years and have continued to expand at a rapid pace," Perryman said. "If an area is designated as non-attainment for ozone the EPA then requires state and local governments to develop implementation plans outlining how the areas will attain and maintain the standards by reducing air pollutant emissions.
"In other words we wouldn't see an immediate shutting down of production by any means. Instead there would be a period of time to come up with a plan to reduce emissions over time."
He said there is already massive investment underway in efforts to improve the environmental properties of the oil and gas sector and that pattern is likely to persist irrespective of any regulatory measures.
"I anticipate that a designation as non-attainment would precipitate the potentially affected firms seeking regulatory and, if necessary, judicial relief," he said. "A common avenue for such challenges is the Major Questions Doctrine.
"The basic premise stems from court decisions which prevent agencies from making decisions with major economic and political implications unless they have clear statutory authority from Congress. My firm has done studies in the past which have demonstrated that various actions exceed the relevant economic threshold." Obviously, Perryman said, any effort seeking to partially account even a small portion of oil and gas production in the Permian Basin would qualify as having major economic implications.
"As a practical matter plans would likely be implemented to achieve compliance and they would be relatively consistent with the efforts that are already well underway," he said. "The process would probably be messy, but the ultimate risk to the area economy is quite low.
"Given ongoing patterns in terms of both climate initiatives and global energy demand, it seems likely that production in the Permian Basin will continue and even increase over time as will diligent efforts to reduce emissions throughout the process. With careful planning and responsible development going forward it should be possible to avoid any massive disruptions irrespective of regulatory actions."
