Coal Bed Methane Drillers Required to Treat Produced Water

The Montana Supreme Court has held that Montana’s largest producer of coal bed methane (CBM) must treat salty water extracted with the gas before discharging the produced water to surface water. The decision in Northern Cheyenne Tribe v. Montana Department of Environmental Quality,[1] could increase CBM production costs in the Montana portions of the Powder River Basin, an area which spans Montana and Wyoming and yielded 436.6 billion cubic feet of CBM gas in 2007, accounting for natural gas production with a taxable value exceeding $2.8 billion.[2] Although the decision does not directly govern CBM water discharges outside Montana, it turns on a reading of the federal Clean Water Act (CWA)[3] that may encourage similar litigation in other states and persuade other state or federal courts to follow suit, particularly in CBM-intensive states such as Wyoming, Colorado, and New Mexico, which currently do not require pre-discharge treatment. The decision is also potentially applicable to other energy production processes which concentrate solids in water or increase water salinity.

Background

Fidelity Exploration & Production Company (Fidelity) extracts CBM, a form of natural gas, for commercial sale near the Tongue River in southeastern Montana.[4] The Tongue River rises in Wyoming and flows north through Big Horn and Rosebud counties to its confluence with the Yellowstone River. The rivers flow through the Powder River Basin. Large underground coal seams permeate the basin.

The Northern Cheyenne Tribe (Tribe), a federally recognized Indian tribe, Tongue River Water Users’ Association (TRWUA), and Northern Plains Resource Council, Inc. (NPRC) (collectively Appellants) live and work along the Tongue River. The Tribe holds federally reserved water rights on the Tongue River and uses this water for irrigation, stockwater, recreation, and cultural uses. Members of TRWUA and NPRC rely on the Tongue River for irrigation, domestic use, and stockwater.

Methane is used primarily for power production and heating. Methane derived from coal seams is ultimately sold and used in the same manner as traditional natural gas, but its production is different: CBM travels with groundwater in coal seams. To remove CBM, pressure must be released by removing water from the coal-bearing formation to the surface. CBM separates as water-pressure decreases, allowing drillers to pipe the gas out of a well, separate from CBM produced water.[5]

CBM extraction releases significant amounts of groundwater to the surface that must be disposed or reused.[6] CBM producers dispose of the groundwater in a variety of ways. Fidelity discharges the groundwater at issue to surface water.[7] Groundwater associated with CBM extraction contains a naturally high saline content that has the potential to degrade the quality of the receiving surface waterway.[8] Surface waters degraded by CBM discharge water may, in turn, have an adverse affect on irrigated agriculture and aquatic life.[9]

Thirteen percent (13%) of the land in the lower 48 states has some coal under it, and some of this coal contains methane – either as traditional natural gas or as CBM.[10] According to the U.S. Geologic Survey, the Rocky Mountain Region has extensive coal deposits bearing an estimated 30-58 trillion cubic feet (TCF) of recoverable CBM, one-third of the total 184 TCF of natural gas in the Rocky Mountain Region.[11] Within the Region, significant CBM sources exist in the Powder River Basin, the Greater Green River Basin (Wyoming-Colorado-Utah), the Uinta-Piceance Basin (Colorado-Utah), and the Raton and San Juan Basins (Colorado-New Mexico).[12]

The Ninth Circuit has concluded that the discharge water associated with CBM extraction contains “pollutants” within the meaning of the federal CWA.[13] This designation requires a CBM producer to obtain a National Pollutant Discharge Elimination System (NPDES) permit in order to release the produced water into surface waters.[14] NPDES permits impose conditions and limitations on the discharge of pollutants. The Environmental Protection Agency (EPA) administers NPDES permits, but may delegate that authority to the states.[15] EPA has delegated NPDES authority to the State of Montana, which administers its own permit program under the Montana Department of Environmental Quality (MDEQ).[16]

Fidelity initially began discharging untreated CBM water into the Tongue River without a permit.[17] MDEQ authorized Fidelity’s CBM water discharges under a Montana law that allows unpermitted discharges of unaltered groundwater to surface waters if the discharge does not alter the ambient water quality.[18] In 1998, EPA notified MDEQ that the Montana law on which it relied to allow Fidelity’s unpermitted discharges conflicted with the CWA, and that an NPDES permit should be required for the CBM produced water discharge. In 2000, MDEQ issued Fidelity a permit to discharge untreated CBM water into the Tongue River.[19]

In 2006, MDEQ renewed the first permit it had issued to Fidelity and issued a second permit requiring Fidelity to treat a portion of its CBM discharge and blend the treated wastewater with untreated wastewater before discharging it to the Tongue River.[20] The second permit imposed limits on Fidelity’s discharges in the form of water quality based effluent limitations. MDEQ chose not to impose treatment technology-based limits on Fidelity’s CBM water discharge.

The Northern Cheyenne Tribe, the TRWUA, and the NPRC challenged MDEQ’s decision to issue the permits, alleging that MDEQ violated the CWA by failing to include treatment-based effluent limits in both permits.[21]

Procedural History

A Montana district court granted summary judgment to the MDEQ and Fidelity and the Tribes and other plaintiffs appealed to the Montana Supreme Court. The district court had affirmed MDEQ’s decision not to require Fidelity to treat CBM process water prior to discharging the water to Montana rivers. The Montana Supreme Court reversed and remanded the decision, holding that MDEQ violated the CWA and the Montana Water Quality Act by issuing water quality discharge permits to Fidelity without imposing treatment technology-based effluent limits.

Montana Supreme Court Decision

The federal CWA requires that NPDES permits incorporate both technology-based and water quality-based effluent limits.[22] EPA establishes technology-based effluent limitations in one of two ways; either as guidelines for an entire class of industry or, before industry-wide standards have been set, on a case-by-case basis when issuing individual permits applicable to a particular discharger.[23]

EPA has not yet set industry-wide guidelines for CBM water discharges, although it is considering that step.[24] Montana’s Board of Environmental Review (“BER”) has declined to set its own technology-based standards for CBM water discharges, concluding that such standard would not be technologically or economically feasible.[25] MDEQ argued to the Montana Supreme Court that the absence of industry-wide standards for CBM water leaves the actual use of pre-discharge treatment standards in the NPDES permitting process to the discretion of the Administrator or the state implementing the CWA. The Supreme Court rejected this argument, holding that the CWA only allows the Administrator to issue a NPDES permit if the discharge will meet all applicable requirements under CWA. The Court further held that CWA Section 301 requires the Administrator to implement “effluent limitations” to carry the CWA’s objective of minimizing pollutant discharge and that the plain language of CWA Section 301(b)(1)(A)-(2)(A) requires the effluent limitations to include treatment technology-based standards, even in the absence of federal guidelines.[26]

Applying its analysis to MDEQ, the Supreme held that, like the Administrator, the state agency must adhere to a non-discretionary duty of implementing treatment standards as the minimum level of control required in all NPDES permits and that “neither the Administrator, nor the states, may supplant pre-discharge treatment standards with water quality standards.”[27]

The Montana Supreme Court concluded that 1972 amendments to the CWA impose a duty on EPA and the states to apply technology-based treatment standards when granting an NPDES permit.[28] The Court held, therefore, that MDEQ violated the CWA and Montana’s Water Quality Act by issuing discharge permits to Fidelity without imposing treatment technology-based effluent limits. The Court reversed the District Court’s decision granting summary judgment to DEQ, declared Fidelity’s permits void, and remanded to DEQ with directions to re-evaluate Fidelity’s permit applications under the appropriate pre-discharge treatment standards within 90 days of this Court’s decision, during which time Fidelity is allowed to continue operating under its current permits.[29]

Implications of the Montana Decision

The Montana Supreme Court’s decision turns on the court’s reading of federal CWA requirements and could, therefore, affect CMB discharges in other western states. Its import, however, may be narrowed by later administrative developments. The court did not address whether MDEQ could have simply made a determination that technology-based limits were not economically or technologically feasible for the specific discharges authorized by the permit. Given that the Montana BER had earlier determined that industry-wide technology-based standards were not feasible, it may not be that difficult for MDEQ to make the same determination on a case-by-case basis.

EPA also could step in with industry-wide technology-based effluent guidelines for CBM water discharges. EPA periodically reviews its existing effluent guidelines and determines whether it should propose guidelines for new industries or revise existing guidelines. EPA identified CBM water discharges as a candidate for a national effluent guideline in 2006, and began collecting information from CBM well operators in 2009.[30] EPA could be in position to propose industry-wide guidelines for CBW water discharges in the next few years.

For more information please contact Jeff Kray or any other member of Marten Law’s Water Quality practice group.