REGULATORY IMPACT ANALYSIS OF
EFFLUENT LIMITATION GUIDELINES FOR
OFFSHORE OIL AND GAS FACILITIES
Final Report
Prepared for:
Economic and Statistical Analysis Branch
Office of Science and Technology
Office of Water
U.S. Environmental Protection Agency
Mahesh Podar, Project Officer
Prepared by:
RCG/Hagler, Bailly, Inc.
P.O. Drawer O
Boulder, CO 80306-1906
Contact:
Dr. Robert Raucher
Ms. Ann Dixon
(303) 449-5515
Prepared Under Contract:
68-C8-0084
January 14, 1993
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TABLE OF CONTENTS
EXECUTIVE SUMMARY ES-1
1.0 INTRODUCTION 1-1
2.0 BACKGROUND 2-1
3.0 NEED FOR THE REGULATION 3-1
3.1 MARKET FAILURES 3-1
3.2 ENVIRONMENTAL FACTORS 3-2
3.3 LEGAL REQUIREMENTS 3-2
4.0 EVALUATION OF ALTERNATIVES AND TECHNOLOGY OPTIONS . . 4-1
4.1 ALTERNATIVES TO THE REGULATION 4-1
4.2 INDUSTRY OVERVIEW - 4-1
4.2.1 Background 4-1
4.2.2 Existing Facilities 4-2
4.2.3 New Sources 4-3
4.3 DISCHARGE CHARACTERIZATION OF MAJOR WASTE
STREAMS CONSIDERED IN THE RIA 4-6
4.3.1 Drilling Fluids 4-6
4.3.2 Drill Cuttings 4.7
4.3.3 Produced Water 4-7
4.4 DRILLING FLUIDS AND DRILL CUTTINGS TREATMENT
OPTIONS 4-8
4.5 PRODUCED WATER TREATMENT OPTIONS . 4-10
5.0 COSTS AND ECONOMIC IMPACTS 5-1
5.1 AGGREGATE COSTS 5-1
5.1.1 Drilling Fluids and Drill Cuttings . 5-1
5.1.2 Produced Water BAT (Existing Sources) 5-3
5.1.3 Produced Water NSPS (New Sources) 5-4
5.1.4 Combined Regulatory Options 5-4
5.2 COST-EFFECTIVENESS 5-7
5.3 ECONOMIC IMPACTS AND ECONOMIC ACHIEVABILITY 5-9
5.3.1 Economic Impacts on the Oil and Gas Industry 5-9
5.3.2 Impacts on Production 5-14
5.3.3 Secondary Impacts of the Regulations 5-15
5.4 CONCLUSION 5-15
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TABLE OF CONTENTS
6.0 EVALUATION OF BENEFITS AND WATER QUALITY IMPACTS 6-1
6.1 INTRODUCTION 6-1
6.2 OVERVIEW OF THE METHODOLOGY FOR ESTIMATING
MONETIZED BENEFITS 6-2
6.3 MONETIZED BENEFITS: DRILLING FLUIDS AND
CUTTINGS 6-4
6.3.1 Summary of Benefits Estimation Approach . . 6-5
6.3.2 Results 6-7
6.4 MONETIZED BENEFITS: PRODUCED WATER 6-11
6.5 COMPARISON OF MONETIZED BENEFITS TO COSTS ... 6-14
6.6 ANALYSIS OF NON-MONETIZED BENEFITS 6-16
6.6.1 Water Column and Pore Water Quality 6-17
6.6.2 Produced Water Radioactivity Study 6-28
6.6.3 Case Studies 6-28
6.6.4 Other Non-Monetized Benefits 6-47
6.7 LIMITATIONS 6-48
7.0 OVERVIEW OF FULL SOCIAL BENEFITS AND COSTS '. . . . 7-1
7.1 SOCIAL COSTS 7-1
7.1.2 Welfare Effects of Increased Compliance/Production Costs ... 7-1
7.1.3 Regional/Sectoral Employment Loss 7-3
7.1.4 Loss of Tax and Lease Revenues by State and Federal
Governments 7-3
7.1.5 Balance of Trade and National Energy Security . 7-3
7.1.6 Risks and Costs Posed by Transport and Disposal of Drilling
Fluids and Cuttings 7-4
7.2 SOCIAL BENEFITS • • • 7-5
7.2.1 Monetized Direct Human Health Benefits 7-5
7.2.2 Unquantified and Nonmonetized Direct Human Health t
Benefits • 7-5
7.2.3 Unquantified and Nonmonetized Benefits Apart from Human
Health • • • • 7-5
7.2.4 Regional/Sectoral Employment Gains . 7-5
7.2.5 Increased Oil and Gas Reserves 7-6
7.3 CONCLUSIONS 7-6
8.0 REFERENCES . . • • • • 8~1
APPENDIX A REFERENCES REVIEWED AND SUMMARIZED IN TABLES
6-10 AND 6-11
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ES-1
EXECUTIVE SUMMARY
For all major rulemaking actions, Executive Order 12291 requires a Regulatory Impact
Analysis (RIA), in which benefits of the regulation are compared to costs imposed by the
regulation. This report presents the Environmental Protection Agency's (EPA, or the
Agency) RIA of the final rule on the effluent limitations guidelines for the Offshore
Subcategory of the Oil and Gas Extraction Industry.
The principal requirement of the Executive Order is that the Agency perform an analysis
comparing the benefits of the regulation to the costs that the regulation imposes. Three
types of benefits are analyzed in this RIA: quantified and monetized benefits; quantified
and non-monetized benefits; and non-quantified and non-monetized benefits. Wherever
possible, the costs and benefits are to be expressed in monetary terms; however, many of
the benefits are not currently amenable to quantification or monetization. To address
the analytical requirement of an RIA, this report is organized into five major sections:
> Background
*• Need for the Regulation
*• Evaluation of Alternatives and Technology Options
> Evaluation of Costs and Economic Impacts
*• Evaluation of Benefits and Water Quality Impacts.
Regulatory Background
The 1972 Federal Water Pollution Control Act, as amended by the 1977 Clean Water
Act Amendments and the Water Quality Act of 1987 (Clean Water Act), authorizes EPA
to develop technology-based effluent limitations guidelines and standards for categories
of industries, including the oil and gas extraction category, of which offshore oil and gas
activities are a subcategory. These effluent limitations guidelines and standards are
defined based upon the following levels of pollution control:
> Best Conventional Pollutant Control Technology (BCT)
>• Best Available Technology Economically Achievable (BAT)
*• New Source Performance Standards (NSPS).
An estimated 2,549 structures develop or produce oil or gas in the offshore waters of the
United States and are estimated to bear costs associated with the rule. This:; estimate
includes all tracts leased offshore in the Gulf of Mexico, California, and Alaska. There
are no development or production platforms in the Atlantic Ocean. In terms of
development operations, offshore drilling varies from year to year, depending on such
factors as the hydrocarbon economic market conditions, state and federal leasing
programs and reservoir discoveries. The Agency estimates that between 1993 and the
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ES-2
year 2007, an average of 759 wells/year will be drilled (based on an average oil price of
$21/barrel). Of these 759 wells/year, 456 wells/year are projected to become producing
wells drilled on new and existing structures, and the remaining 303 wells/year are
projected to be dry holes. Between the years 1993 and 2007, an estimated 759 new
platforms installed offshore will be producing oil or gas.
Regulatory Options
For drilling fluids and drill cuttings, several regulatory options beyond baseline practices
(BPJ or "dirty" barite muds) were developed. While cost estimates were prepared for all
regions, benefit estimates were prepared for Gulf of Mexico locations only. The options
for which both costs and benefits were estimated include:
„• 3 Milft Gulf/California. Zero discharge (Le., the transport of muds and
cuttings to shore for appropriate land-based waste management and
disposal) for all platforms within three miles of shore. Under this option,
Best Available Technology (BAT), consisting of using "clean" barite drilling
fluids and other requirements, applies to all platforms beyond three miles
of shore. Alaska is exempt from the zero discharge requirement.
^ R Mile Gulf/3 Mile California. Zero discharge for platforms within eight
miles of shore, and BAT for platforms beyond. California and Alaska must
meet the same requirements as in the 3 Mile Gulf/California option.
* Zero Discharge- Gulf/California. Zero discharge for all platforms. Alaska
is exempt, but must meet the same requirements as in the 3 Mile
Gulf/California option.
For produced water (BAT and NSPS), several regulatory options were evaluated. While
cost estimates were prepared for all regions, benefit estimates were prepared for Gulf of
Mexico locations only. The options for which both costs and benefits were estimated
include:
» Flotation All. Improved gas flotation for all platforms.
„ Tern 3 Miles Gulf and Alaska. Zero discharge (re-injection) at platforms
within three miles of shore, and BAT for platforms beyond three miles.
BAT required for California wells. Exclusion for Gulf single-well structures
but no exclusion for Gulf NSPS structures.
Zero Discharge. Gulf and Alaska. Zero discharge for all platforms except
California. BAT required for California wells.
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ES-3
Estimate of Costs
For drilling fluids and drill cuttings, total annual costs for all options considered range
from $18.9 million for the selected option, 3 Mile Gulf/California, to $148.4 million for
Zero Discharge Gulf/California. For the selected option, costs are approximately $26,000
per well in the Gulf of Mexico and $3,000 per well iri the Pacific.1
For produced waters (BAT), the peak annual costs for all options considered range from
$96.3 million ($108.4 million in 1991 dollars) for the selected option, Flotation All, to
$654.2 million ($736.5 million in 1991 dollars) for Zero Discharge Gulf and Alaska.
These costs do not represent average annual costs over the 15-year period evaluated;
rather, they represent the peak costs that will be incurred in the first year of the
regulation. By Year 15, these costs will decline to zero.
For produced waters (NSPS), total annual costs for all options considered range from
$0.8 million ($0.9 million in 1991 dollars) for the selected option, Flotation All, to $23.1
million ($26 million in 1991 dollars) for Zero Discharge Gulf and Alaska.
Combined costs were calculated for two packages of selected regulatory options:
»• Package A includes the selected options for drilling fluids and cuttings (3
Mile Gulf/California) and produced water (Flotation All).
> Package B contains the selected option for drilling fluids and cuttings, the
Zero 3 Miles Gulf and Alaska option for BAT produced water, and the
Zero 3 Miles Gulf and Alaska option for NSPS produced water.
Both packages include costs for regulation of workover fluids and produced sand (not
presented in this RIA). For all regions, first-year annualized costs for Package A are
$122 million ($134 million in 1991 dollars), and $144 million ($160 million in 1991
dollars) for Package B (workover fluids and produced sand comprise 4.5 percent and 3.8
percent of the package costs, respectively). Fifteen-year costs, the point at which all
BAT projects will have reached the end of their economic lifetimes and NSPS costs are
at their peak, are estimated at $36 million annually for Package A ($38 million in 1991
dollars), and $86 million per year for Package B ($94 million in 1991 dollars). Old
projects anticipated to cease production are projected to outnumber new projects that
1 Cost estimates, as developed by ERG (1993a), are in 1986 dollars. Because barite and barging
costs have remained constant since that time, the 1991 price levels for costs related to drilling fluids and
cuttings are not likely to have changed significantly and, therefore, are unchanged from the 1986 estimates
(ERG, Memorandum of October 21, 1992 from Maureen Kaplan to Mahesh Podar).
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ES-4
begin production over the 15-year period. For the Gulf of Mexico only, the 1991
annualized costs of the proposed regulatory package are $127 million in Year 1 and $37
million in Year 15.
Cost-Effectiveness and Economic Impacts
The incremental cost-effectiveness (1981 dollars) of the selected options is $44 per pound
equivalent removed for drilling fluids and drill cuttings, $33 per pound equivalent
removed for BAT produced water, and $17 per pound equivalent removed for NSPS
produced water. The economic impacts of the pollution control options are minimal for
a typical major oil company under any set of options. Impacts on a typical independent
oil company are somewhat greater. Given a regulatory package including the 3 Mile
Gulf/California option for drilling fluids and drill cuttings and the Flotation All option for
produced water, working capital may decline by 5 percent in the event that an
independent should choose to fund all expenditures out of working capital. All other
ratios would change by no more than 0.4 percent.
Estimate of Benefits
The benefit assessment for the effluent limitations guidelines includes: 1) assessment of
benefits that can be quantified and monetized, consisting of estimates of health-related
benefits anticipated from controlling pollutants in effluent discharges from drilling and
production waste streams; 2) assessment of water quality improvements attributable to
the guidelines that can be quantified but not easily monetized; and 3) compilation of case
studies of documented environmental impacts from these discharges that, similar to water
quality improvements, can be quantified but not easily monetized. Monetized results
focus exclusively on the benefits associated with human health risk reduction through
reduced concentration of platform-related pollutants in recreationally-caught finfish
species and commercial shrimp. The monetized benefits assessment presented in this
RIA is restricted to analysis of operations in the Gulf of Mexico. The vast majority of
production platforms are located in the Gulf of Mexico (2,517 of 2,549 total U.S. offshore
producing structures). .
The estimated benefits of the effluent guidelines for drilling fluids and cuttings are
predominantly derived from reducing the amount of lead in edible shrimp tissue
harvested commercially from platform-impacted waters of the Gulf. Additionally, lead
concentrations in edible fish tissue, based on water column concentrations (omitting
uptake via sediment or food chain), were applied to estimates of recreationally-caught
Gulf finfish to derive applicable health benefits. Finally, benefits associated with
decreased carcinogenic risks from commercially-caught shrimp and recreationally-caught
finfish were estimated.
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.- • •'- ES-5
The total monetized benefits of the options for drilling muds and cuttings are shown in
Table ES-1, along with their associated costs. In addition to the lead-related benefits
described above, the values also reflect modest reductions in cancer risk as associated
with arsenic. These "total" benefits are understated due to .the omission of several
potentially significant benefits. Omitted benefits include, but are not limited to:
(1) adverse health effects from lead in women (all ages) and in men below the age of 40
or over the age of 59; (2) adverse lead-related health effects other than the endpoints
quantified; (3) lead-related exposure associated with shrimp or finfish uptake of lead
through the sediments directly, or indirectly, through the food chain; (4) recreational and
commercial fishery improvements; (5) ecologic benefits; and (6) nonuse values.
As shown in this table, most of the benefits are obtained at the 3-mile Gulf/California
option, with small incremental benefits realized at more stringent options. All of the
benefit levels shown in these tables are related to the use of a saltwater leach scenario
for calculating the bioavailability of lead in the marine environment. An alternative
scenario evaluated (using a pH-dependent leach rate to estimate fish tissue
concentrations) would increase human intake of lead to a significant degree, and the
resulting benefit levels would increase by more than a factor of six times greater than the
values shown here.2
For produced water, the quantified and monetized benefits are based on reduced human
health risks through exposure to selected carcinogens (e.g., arsenic, benzene,
benzo(a)pyrene) and lead through the consumption of recreationally-harvested finfish.3
The estimated benefit levels are relatively modest, as shown in Table ES-2 for existing
platforms and NSPS. It is important to note, however, that these quantified and ,
monetized values omit several potentially important benefits. These omitted benefits
include (but are not limited to): (1) lead-related risk reductions for women (all ages)
and for men other than those between the ages of 40 and 59; (2) lead-related health
effects other than those evaluated; (3) lead-related exposure associated with shrimp or
finfish uptake of lead through sediment or the food chain; (4) recreational and
commercial fishery benefits; (5) ecologic benefits; (6) any nonuse values that may be
associated with the regulatory options; and (7) benefits from reduced lead exposure via
shrimp.
2 While available data appear to support use of a weak acid extraction (pH 5.0-5.3), benefits
summarized in this RIA are based on a saltwater leach scenario to avoid any potential overestimate of
benefits. This issue is discussed on page 6-17 of the RIA, and a full discussion is found in Avanti, 1993,
Appendix C.
3 Shrimp impacts could not be estimated for produced water. Highly preliminary benefits estimates,
based on a rough assessment of risk reductions associated with the potential for incidentaLremoval of
radium, also are developed.
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Table ES-1
Total Monetized Benefits and Costs
Drilling Fluids and Cuttings
Gulf of Mexico
(Salt Water Leach Scenario)
Regulatory Option
Baseline - Current
3 Mile Gulf/California
8 Mile Gulf/3 Mile California
Zero Discharge Gulf/California
Annual Benefits "*>c
(millions 1991 dollars)
—
$28.1 - $103.6
$28.5 - $104.7
$30.0 - $110.5
Annual Costs c
(millions 1991 dollars)
—
$18.8
$33.1
$142.4
a Health benefits primarily based on reduced lead exposure, only partially on reduced arsenic-
related carcinogenic risks.
b Relative to baseline.
c For Gulf of Mexico only.
Table ES-2
Total Monetized Benefits for Produced Waters
Gulf of Mexico
(Thousands of 1991 Dollars)
Regulatory Option
Existing Sources
NSPS
Baseline
Flotation All
Zero 3 Miles Gulf and Alaska
Zero Discharge Gulf and Alaska
$29.8 - $122.5
$278.7 - $1,417.5
$542.4 - $2,773.2
$39.0 - $161.6
$298.7 - $1,464.3
$554.8 - $2,824.8
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Comparison of Benefits to Costs
ES-7
The combined human health benefits of regulating drilling fluids and cuttings and
produced water for the selected options (3 Mile Gulf/California and Flotation All) are
between $28 and $104 million per year in 1991 dollars.4 In addition, under an
alternative pH-dependent leach scenario, benefits of the selected options may amount to
more than $600 million per year. The total annualized costs (1991 dollars) of the
selected options are estimated to be $121.9 million for the Gulf region in Year 1 and
$32.2 million in Year 15. Costs decline over time as existing projects, which must meet
BA1 requirements, reach the end of their economic lives. Assuming a straight-line
decline in existing BAT projects over the 15-year time frame, benefits could begin to
exceed costs as early as Year 9. Benefits and costs associated with the selected options
are compared in Table ES-3. p
— ;^==
Table ES-3
Summary of Benefits and Costs
Selected Options
Gulf of Mexico Operations
- •*•*•<; J ;
Wastestream
Drilling Fluids and Drill Cuttings
(3 Mile Gulf/California Option)
Produced Water (BAT)
(Flotation All Option)
Produced Water (NSPS)
(Rotation All Option)
Total
Annual Benefits*
<1S«H dollars)
Low
$28,100,000
$30,000
$39,000
$28,174,000
High
$103,600,000
$123,000
$162,000
$103,885,000
Annual Costs
(1991 dollars)
Yearl
18,800,000
102,200,000
900,000
121,900,000
'Year 15
$18,800,000
0
$13,400,000
$32,200,000
1 Monetized benefits are limited to the health-related benefits presented in Table ES-4
4 Benefits estimates are for the Gulf of Mexico only. Ninety-nine percent of existing oil and gas
structures are located in the Gulf. &
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ES-8
Monetized benefits reflect only a limited set of health-related benefits associated with the
rule. These benefit categories, as well as the categories of non-monetized benefits
evaluated in this RIA, are summarized in Table ES-4.
Evaluation of Non-Monetized Benefits
An assessment of quantified, non-monetized water quality benefits was developed to
compare projected water column and sediment pore water pollutant concentrations,
resulting from discharges at the current level of treatment and for evaluated options, to
acute and chronic marine and human health (fish consumption only) criteria/toxic values.
This benefits assessment projected exceedences of these values by drilling fluids, drill
cuttings, and produced water discharges. The quantified, non-monetized benefits
identified for the selected options include: (1) for drilling fluids and drill cuttings,
elimination of the projected aquatic life and human health toxic values exceedences
within 3 miles from the shore and reduction of projected impacts beyond 3 miles from
shore; and (2) reduction of projected impacts for produced water.
The assessment of quantified, non-monetized impacts also reviewed and summarized case
studies of localized impacts found near oil and gas drill sites and platforms located in the
Gulf of Mexico, Southern California, and Alaska. Discharged drilling fluids and drill
cuttings contaminate sediments with heavy metals and hydrocarbons. Documented
biological effects include elimination and inhibited growth of seagrasses, declined
abundance in benthic species, altered benthic community structure, decreased coral
coverage, and bioaccumulation of heavy metals. Biological impacts from single wells
occur from several hundred meters to several kilometers; chemical impacts have been
noted from several to tens of kilometers. Produced water discharges contaminate
sediments with polynuclear aromatic hydrocarbons (PAH), metals, and radionuclides,
local elimination and depressed abundance of benthic species, and alteration of benthic
communities. Studies do not indicate that larger-scale (more than several hundred to a
thousand meters) impacts occur. However, these studies are not adequate to conclude
that regional-scale impacts do not occur.
Federal water quality criteria or toxic benchmarks for marine organisms acute effects,
marine organisms chronic effects, and human health for fish consumption (Versar, 1992)
are compared to the projected incremental concentration of pollutants in the water
column (for drilling fluids and produced water) and the sediment pore water (for the
drilling fluids and drill cuttings).
For drilling fluids, using the selected option (3 Mile Gulf/California), the water quality
exceedences in the water column in the 0-3 mile zone will drop to zero. In waters for
which discharge is allowed, projected water quality exceedences in the water column are
reduced to a maximum of 2 exceedences (1 marine chronic and 1 human health for fish
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Table ES-4,
Benefits of Offshore Oil and Gas Effluent Guidelines
Monetized Benefits
Human Health Risk Reductions:
Contaminants
> carcinogens with Agency-established risk slope factors
*• lead
Environmental Pathway
> water column concentrations (finfish)
+ sediment pore water concentrations (shrimp)
Exposure Route
>• commercially harvested shrimp in Gulf of Mexico (drilling fluids and cuttings only)
*• offshore rig recreational angling catch in Gulf of Mexico
Populations
> carcinogens: all shrimp consumers and offshore Gulf recreational anglers
> lead-from among shrimp and recreational finfish consumers: children (5 year
old-cohort), males (40 to 59 years old), pregnant women (infant mortality)
Non-Monetized Benefits
Human Health Risk Reductions Associated With;
> carcinogens without Agency-established risk slope factors
> systemics other than lead
> lead health risk endpoints other than infant mortality, IQ detriment,
or selected hypertension-related illnesses
> lead-related risks to women (all ages) and to men under 40 or over 59 years of age
> exposure from shrimp and finfish uptake of pollutants via sediment or the food
chain
> pH-dependent leach rates
*• platform-related contaminants in commercial finfish or shellfish other than shrimp
Ecologic Risk Reductions
> all pollutants
»• all offshore species and ecosystems
Fishery Benefits
> commercial fisheries
»• recreational fisheries
Intrinsic Benefits
> existence value
> bequest value
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consumption) to 8 exceedences (6 marine chronic, 1 marine acute, and 1 human health
for fish consumption) from the current baseline of 4 to 10 exceedences for sea water and
pH 5 extraction, respectively. (These ranges result from the uncertainty over the
appropriate leaching factors that are selected).
To assess potential water quality impacts for the benthos, projected pore water
concentrations of pollutants in drilling fluids and cuttings discharges were also compared
to federal water quality criteria/toxic benchmarks at the edge of a 100-meter mixing zone.
Using an impact radius for exploration that is based on sediment barium levels taken
from studies of 1 and 2 well scenarios, there are 5 (4 marine chronic and 1 human health
for fish consumption) to 13 (7 marine chronic, 3 marine acute, and 3 human health for
fish consumption) projected pore water quality exceedences for drilling fluids and cuttings
under current baseline conditions, depending on the teachability of the trace metals. For
the selected option (3 Mile Gulf/California) the water quality exceedences within 3 miles
drop to zero.
Produced water pollutant concentrations in the water column, using a 100-meter mixing
zone, were also compared to EPA's water quality criteria/toxic benchmarks. Depending
on the effluent discharge rate and the depth of the receiving water, a maximum of 16
exceedences (9 marine chronic, 3 marine acute, and 4 human health for fish
consumption) are exhibited at current (BPT) discharge conditions. Under the selected
option, only a maximum of 11 exceedences (5 marine chronic, 2 marine acute, and 4
human health for fish consumption) are projected.
A review of the available literature identified 23 field impact studies that were
summarized for their findings on the environmental effects of drilling fluids and cuttings
discharges. This review indicates that these discharges are capable of producing localized
(less than several kilometers) impacts. These discharges have not been shown to result
in regional-scale impacts. However, existing studies may not be sufficient to conclude
regional-scale impacts are not occurring.
When viewed as a whole, the 7 field studies of the impacts of produced water show that
produced water contaminants locally can accumulate in sediments, impact behthic fauna,
and have the potential for bioaccummulation. Factors that influence the degree to which
these effects have been observed include site-specific parameters such as discharge
volume, discharge configuration, effluent contaminant levels, water depth, degree of
hydrologic mixing and confounding factors such as proximity to other produced water
discharges or drilling and other operational discharges. However, these factors
apparently operate in a complex manner, and cannot easily be used to predict the
potential extent of contaminant changes.
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A review of seven studies indicates that localized benthic impacts occur, and may extend
up to several kilometers, although water column impacts to biota have been observed
beyond 500 meters in a high energy environment. Such impacts are highly dependent on
the specific characteristics of the site.
Other non-quantified, non-monetized benefits assessed in this RIA are recreational
fishing, commercial fishing, aesthetic quality of the near-platform waters, and benefits to
threatened or endangered species that inhabit the Gulf of Mexico. These potential
benefits predictions are highly speculative, but any positive impact of the regulation will
be appreciable. A 0.1% increase in recreational value would yield benefits of about $12
to $14 million per year (RCG/Hagler, Bailly, 1991). There are no data that indicate
adverse effects on the endangered species found in the Gulf of Mexico (the Kemp's
Ridley Turtle and the Brown Pelican), but the proposed regulation will possibly reduce
environmental stress on these and other important marine species.
Overview of Full Social Benefits and Costs
The RIA provides a discussion of the range of categories that might be evaluated in a
full social accounting of the benefits and costs associated with the effluent guidelines. In
additional to direct compliance costs, losses to domestic producers (producer surplus
loss) may be incurred to the extent the marginal cost curve shifts upward as a result of
the guidelines. Other cost categories evaluated (e.g., tax revenues), while reflecting
potentially important distributional impacts, do not belong in a true benefit-cost analysis
because they represent transfers of costs or benefits generated (and accounted for)
elsewhere. Additional impacts evaluated, notably sectoral employment losses and gains,
appear to cancel one another out; they furthermore should be viewed as distributional
impacts, not true social costs, in a national analysis absent conditions of high
unemployment. Finally, while monetized estimates are not available for all benefit
categories, a range of potentially significant benefits (discussed above), including
recreational and commercial fishing, ecologic and nonuse values, and additional health
benefits, exists in addition to the selected health-related benefits quantified in this RIA
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1-1
1.0 INTRODUCTION
This report has been prepared to comply with Executive Order 12291 which requires the
Agency to complete a Regulatory Impact Analysis (RIA) for each major rule it proposes
or promulgates. The accompanying regulation, defining best available technology
economically achievable (BAT), best conventional pollutant control technology (BCT),
and new source performance standards (NSPS) for the offshore subcategory of the oil
and gas extraction point source category, meets the Order's definition of a major rule.
The principal requirement of the Executive Order is that the Agency perform an analysis
comparing the benefits of the regulation to the costs that the regulation imposes.
Wherever possible, the costs and benefits are to be expressed in monetary terms. To
address this analytical requirement, this report is organized into six major sections:
*• Background
*• Need for the Regulation
*• Evaluation of Alternatives and Technology Options
> Evaluation of Costs and Economic Impacts
> Evaluation of Benefits and Water Quality Impacts
>• Overview of Full Social Benefits and Costs.
Chapter 2 ("Background") discusses the history of the regulation.
Chapter 3 ("Need for the Regulation") briefly explains marketplace failures .that water
pollution control regulations are intended, to correct. Also, the Agency's legal mandate
for developing effluent limitation guidelines for the offshore subcategory of the oil and
gas extraction industry is summarized. In addition, this section discusses the
environmental factors necessitating the development of these regulations.
Chapter 4 ("Evaluation of Alternatives and Technology Options") describes the options
considered for the technology-based effluent limitations required for this industry.
.Chapter 5 ("Evaluation of Costs and Economic Impacts") presents: (1) the costs of the
regulation, (2) the associated financial impacts on the industry in terms of closures,
profitability, and cost as a percent of sales, (3) secondary impacts, and (4) the cost-
effectiveness of the regulation.
Chapter 6 ("Evaluation of Benefits and Water Quality Impacts") presents the benefits
and water quality improvements that the Agency expects to occur from the
implementation of this regulation.
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Chapter 7 ("Overview of Full Social Benefits and Costs") provides a supplement to the
RIA's quantified analysis of compliance costs and selected health-related benefits by
describing the range of categories of costs and benefits associated with the regulation,
with empirical information provided as appropriate or available.
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2.0 BACKGROUND
The 1972 Federal Water Pollution Control Act, as amended by the 1977 Clean Water
Act Amendments and the Water Quality Act of 1987 (Clean Water Act), requires EPA
to develop technology-based effluent limitations guidelines and standards for categories
of industries, including the oil and gas extraction category, of which offshore oil and gas
activities are a subcategory. These effluent limitations guidelines and standards are
defined based upon the following levels of pollution control:
> Best Conventional Pollutant Control Technology (BCT)
»• Best Available Technology Economically Achievable (BAT)
* New Source Performance Standards (NSPS).
BCT limitations control discharge of conventional pollutants: BOD, TSS, oil and grease,
pH, and fecal coliform. BAT limitations address listed toxic pollutants that are
discharged from existing sources of pollution based on the best available, economically
achievable control technology developed for that particular industry. NSPS limitations
require new sources within a particular industry to meet the most stringent limitations
attainable, based on the best demonstrated available technology.
The Natural Resources Defense Council (NRDC) filed suit against EPA on
December 29, 1979, seeking an order to compel the Administrator to promulgate final
NSPS for the offshore subcategory. In settlement of the suit fNRDC vs. Costle. D. D.C
No. 79-3442 (JHP)), the Agency agreed to take steps to issue such standards. Because of
the length of time that had passed since the proposal, EPA believed that additional data
should be examined and reproposal was necessary. Consequently, the Agency withdrew
the proposed NSPS on August 22, 1980 (45 FR 56115). The proposed BAT regulations
were withdrawn on March 19, 1981 (46 FR 17567). On August 26, 1985, EPA
reproposed BCT, BAT, and NSPS for the subcategory (50 FR 34595).
The Settlement Agreement was revised in April 1990. Under the modified agreement,
EPA was to propose or repropose BAT and BCT effluent limitations guidelines and
NSPS for produced water, drilling fluids and drill cuttings, well treatment fluids, and
produced sand by November 16, 1990. EPA was to promulgate final guidelines and
standards covering these waste streams by June 19, 1992. The court on May 28, 1992,
granted an extension of this promulgation deadline to January 15, 1993.
EPA also was to determine by November 16, 1990, whether to propose effluent
limitations guidelines and NSPS covering deck drainage and domestic and sanitary wastes
and, if it determined to do so, to promulgate final guidelines and standards covering
those waste streams by June 30, 1993.
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For the offshore subcategory, the current BPT regulations limit the discharge of oil and
grease in produced water to a daily maximum of 72 mg/1 and a 30-day average of
48 mg/1; prohibits the discharge of free oil in deck drainage, drilling fluids, drill cuttings,
and well treatment fluids; requires a minimum residual chlorine content of 1 mg/1 in
sanitary discharges for facilities continuously manned by 10 or more persons; and
prohibits the discharge of floating solids in sanitary wastes.
On August 26, 1985, EPA proposed effluent limitations guidelines for certain waste
streams covering BGT, BAT, NSPS (shallow water), and NSPS (deep water). The
Agency received comments and collected additional data after the August 26, 1985
proposal. On October 21, 1988, the Agency published a Notice of Data Availability for
public review and comment on new technical, economic, and environmental assessment
information relating to the regulation of the waste streams. The notice presented
variations on the originally proposed BAT and NSPS limitations on the mercury and
cadmium content of discharged drilling fluids. The notice presented limitations of
5 mg/kg and 3 mg/kg, respectively, of cadmium and mercury in the stock barite based on
the use of existing barite supplies and limitations of 2.5 mg/kg and 1.5 mg/kg,
respectively, of cadmium and mercury in the drilling fluid (whole fluid basis). The notice
also discussed EPA's initial investigation into the application of an oil content limitation
on drilling waste streams.
On January 9, 1989, EPA published Correction to Notice of Data Availability (54 FR
634) concerning the analytical method for the measurement of oil content and diesel oil.
The 1988 notice had inadvertently published an incomplete version of that method.
On November 26, 1990, EPA published an initial proposal and reproposal of the rule (55
FR 49094). The Agency presented the major regulatory options for drilling fluids, drill
cuttings, produced water, deck drainage, produced sand, well treatment/workover fluids,
and domestic and sanitary waste.
On March 13, 1991, EPA published an additional proposal/reproposal (56 FR 10664). A
listing of the Federal Register notices tracing the history of this rulemaking is presented in
Table 2-1.
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Table 2-1
Summary of Offshore Oil and Gas
Subcategory Federal Register Notices
Level of Control
BPT
BAT/NSPS
BPT/BAT/NSPS
NSPS
BAT
BAT/BCT/NSPS
BAT/BCT/NSPS
BAT/BCT/NSPS
BAT/BCT/NSPS
BAT/BCT/NSPS
Action
Interim Final
Proposal
Final (BPT)
Reserved (BAT/NSPS)
Withdraw Proposal
Withdraw Proposal
Proposal
Notice of Data Availability
(Drillings Fluids & Cuttings)
Correction to Notice of Data
Availability
Initial Proposal
Reproposal
Date
September 15, 1975
(40 FR 42543)
September 15, 1975
(40 FR 42572)
April 13, 1979
(44 FR 22069)
August 22, 1980
(45 FR 56115)
March 19, 1981
(46 FR 17567)
August 26, 1985
(50 FR 34592)
October 21, 1988
(53 FR 34592)
January 9, 1989
(54 FR 634)
November 26, 1990
(55 FR 49094)
March 13, 1991
(56 FR 10664)
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3.0 NEED FOR THE REGULATION
The Executive Order requires that the Agency identify the need for the regulation being
promulgated. This section will discuss: (1) the reasons the marketplace does not provide
for adequate water pollution control absent appropriate incentives or standards;- (2) the
environmental factors that indicate the need for additional water pollution controls are
necessary for the offshore subcategory of the oil and gas extraction industry; and (3) the
legal requirements that dictate the necessity for and timing of this regulation.
3.1 MARKET FAILURES
The need for environmental regulations, and effluent guidelines for the offshore oil and
gas subcategory of the oil and gas extraction industry, arises from the failure of the
marketplace to provide a level of pollution control desired by society. Two important
market considerations, the concepts of public goods and externalities, explain this
discrepancy between the supply of environmental protection provided by private entities
and the level of environmental quality desired by the general public. As a result, under
market conditions individuals and firms will not provide sufficient safeguards against
important health, recreational, ecological, and aesthetic damages that may result from
their discharges.
In making production decisions, private entities will only consider those costs and benefits
that accrue to them personally, i.e. internalized costs and benefits. To the extent that the
actions of private entities result in environmental externalities, external costs imposed
upon society will be overlooked in the production decision. Under these circumstances,
the prices incurred and charged for products fail to reflect the full social costs of
production.
The failure to account for social costs and benefits is inherent in a market system without
government intervention. Under such conditions, firms in competitive product markets
that voluntarily devote resources to pollution control in order to avoid the social costs of
resource degradation risk a competitive disadvantage relative to their competitors.
Thus, the marketplace cannot be expected to generate a socially desirable level of
pollution control, and some form of market intervention needs to be considered as a
means of improving social welfare.
Additionally, in the absence of government intervention, public goods will not be
protected or provided by the free market at the quantity and quality desired by the
public. The benefits of a healthy environment exhibit the properties of public goods:
they are predominantly non-excludable and non-rival. Because many environmental"
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amenities are non-excludable, individuals utilize but do not assume ownership of these
goods and, therefore, will not invest adequate resources in their protection.
3.2 ENVIRONMENTAL FACTORS
As a result of the market's failure to promote control of water pollution, the condition of
the nation's rivers, streams, coastal areas, and oceans has degraded. Federal, state, and
local regulatory programs have since contributed to the cleanup of the most visible
problems; however, many waterbodies are still adversely affected by pollutant discharges.
Chapter 6 discusses the water quality impacts of the offshore subcategory, oil, and gas
extraction discharges.
Total pollutants that would be discharged by drilling fluids and drill cuttings waste
streams under current regulations, are estimated at 1.9 billion Ibs/year. After the
regulations are implemented, discharges of total pollutants would decrease by
approximately 223 million Ibs/year (SAIC, 1992).
Produced water (BAT) limitations are projected to reduce the total pollutants discharged
by approximately 27.6 million Ibs/year. Produced water (NSPS) limitations are projected
to reduce the total pollutants discharged by approximately 13.3 million Ibs/year.
33 LEGAL REQUIREMENTS
The Agency is promulgating effluent limitations guidelines and standards for the Offshore
Oil and Gas Extraction Subcategory under the authority of Sections 301, 304, 306, 307,
and 501 of the Clean Water Act (the Federal Water Pollution Control Act Amendments
of 1972, 33 U.S.C 1251 et seq., as amended by the Clean Water Act Amendments of
1977, Pub. L. 95-217 and the Water Quality Act of 1987, Pub. L. 100-4, also called the
"Act"). These effluent limitations guidelines and standards are also being promulgated in
response to the Settlement Agreement described above and in accordance with EPA's
Effluent Guidelines Plan under section 304(m) of the Clean Water Act (57 FR 41000;
September 8, 1992).
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4.0 EVALUATION OF ALTERNATIVES AND TECHNOLOGY
OPTIONS
This chapter presents alternatives to the regulation and describes the technology options
for the effluent limitations for the offshore oil and gas industry. In addition, this chapter
provides an overview of the industry and the waste streams to be regulated.
4.1 ALTERNATIVES TO TEE REGULATION
Potential alternatives to uniform national effluent limits based on available technology
include: allowing waivers from national standards for the non-toxic priority pollutants
(nonconventionals) based on economic or site-specific water quality considerations; or
establishing a single effluent limitation which would apply to a number of discharge pipes
on one platform or even on a number of platforms (the "bubble" concept). This RIA,
however, is limited to an evaluation of alternatives for technology-based effluent
limitations guidelines such as those selected for the offshore siibcategory of the oil and
gas extraction industry in the March 13, 1991, Federal Register (56 FR 10664). The
specific regulatory options considered are outlined in sections 4.4 and 4.5 of this chapter.
4.2 INDUSTRY OVERVIEW
4.2.1 Background •
The offshore subcategory (as defined in 40 CFR 435.10) of the Oil and Gas Extraction
Point Source Category covers those structures involved in exploration, development, and
production operations seaward of the inner boundary of the territorial seas. The inner
boundary of the territorial seas is defined in section 502(8) of the Clean Water Act as:
. . .the line of ordinary low water along that portion of the
coast which is in direct contact with the open sea and the line
marking the seaward limit of inland waters.
In some areas the inner boundary of the territorial seas is clearly established and is
shown on maps. For example, the Texas General Land Office (Survey Division) has
available 7.5 minute quadrangle maps for the entire coastline of Texas which clearly show
the inner boundary of the territorial seas. Additionally, the Louisiana State Minerals
Board (Civil and Engineering Division) has available maps for the Louisiana coastline
showing the inner boundary of the territorial seas. In other areas such as Alaska the
baseline is not clearly established.
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Ocean discharge criteria applicable to this industrial subcategory were promulgated on
October 3, 1980 (45 FR 65942) under section 403(c) of the Act. These criteria are to be
used in making site-specific assessments of the impacts of discharges. Section 403
evaluations may lead to limitations imposed through section 402 National Pollutant
Discharge Elimination System (NPDES) permits. Section 403 is intended to prevent
unreasonable degradation of the marine environment and to authorize imposition of
effluent limitations, including a prohibition of discharge, if necessary, to ensure this goal.
In 403 (c) determinations where it is questionable whether the discharge is beyond the
baseline or not, the appropriate state agency is consulted to make site-specific
determinations. In relation to the implementation of the BPT effluent limitations
guidelines, no problems have been associated with the definition of the inner boundary of
the territorial seas.
Exploration and development activities for the extraction of oil and gas include work
necessary to locate, drill, and complete wells. Exploration activities involve the drilling of
wells to determine the potential hydrocarbon reserves. They are usually of short duration
at a given site, involve a small number of wells, and generally are conducted from mobile
drilling units. The major waste streams from exploration activities are drilling fluids and
drill cuttings.
Development activities involve the drilling and completion of production wells once a
commercial hydrocarbon reserve has been identified. These operations, in contrast to
exploration activities, usually involve a large number of wells and are typically conducted
from a fixed platform. The major waste streams are drilling fluids and drill cuttings.
Other associated waste streams include fracturing and well stimulation fluids, well
treatment, and well completion fluids.
Production operations include all post-completion work necessary to bring hydrocarbon
reserves from the producing formation. They begin as each well is completed during the
development phase. The major waste stream associated with production activities is
produced water; however, produced sand is a minor associated waste stream. Both of
these waste streams originate with the gas or oil product stream and are separated from
the oil product in the initial processing of the production stream.
4.2.2 Existing Facilities
An estimated 2,549 structures produce or develop oil and/or gas in the offshore waters of
the United States. This estimation is based upon information from the Tobin Database,
and includes all tracts leased offshore in the Gulf of Mexico, California, and Alaska.
There are no development or production platforms in the Atlantic Ocean.
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Table 4-1 presents the number of existing producing structures according to distance
from shore. Approximately 8% of the total are located within the 3-mile distance, and
17% of the total are located within the 4-mile distance.
Table 4-1
Existing Producing Platforms
According to Distance from Shore
: Region
Gulf of Mexico
California
Atlantic
Alaska
Total
Within 3 Miles
201
10
0
0
211
3-4 Miles
209
4
0
0
213
Beyond 4 Miles
2,107
18
0
0
2,125
Total
2,517
32
0
0
2,549
Source: ERG, 1992a
4.2.3 New Sources
The 1985 proposed guidelines include a definition for the term "new source." As
discussed in that proposal, provisions in the National Pollutant Discharge Elimination
System (NPDES) regulations define new source (40 CFR 122.2) and establish criteria for
a new source determination (40 CFR 122.29(b)). In 1985, EPA proposed special
definitions which are consistent with 40 CFR 122.29 and which provide that 40 CFR
122.2 and 122.29(b) shall apply "except as otherwise provided in an applicable new
source performance standard.
Section 306(a)(2) of the Clean Water Act defines a new source to mean "any source, the
construction of which is commenced" after publication of the proposed NSPS. Drilling
rigs are moved from site to site for several years while production platforms are built
onshore and transported to an offshore site. A drilling rig or production platform is
determined as a new source, not by the date of the building of such structures, but by the
date the rig or platform is placed at the offshore site where the drilling and production
activity and discharge would occur. The Act defines "construction" to mean "any
placement, assembly, or installation of facilities or equipment...at the premises where
such equipment will be used."
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While the provisions in the NPDES regulations that define new source (40 CFR
122.29(b)) were applicable to the offshore subcategory, two terms were defined in the
proposed subcategory-specific new source definition -- "water area" and "significant site
preparation work" — because of certain unique aspects of the activities in this
subcategory. In the 1985 proposed guidelines, "water area" was defined to mean the
specific geographical location where the exploration, development, or production activity
is conducted, including the water area and the ocean floor beneath such activities.
Therefore, if a new platform is built at or moved from a different location, it would be
considered a new source if placed at the new site where its oil and gas activities take
place even if the platform is placed next to an existing platform.
The second special term proposed in 1985, "significant site preparation work" was defined
as "the process of surveying, clearing, and preparing an area of the ocean floor for the
purpose of constructing or placing a development or production facility on or over the
site." Exploration activities were not considered to be "significant site preparation work"
because such activities are not necessarily followed by development or production
activities at that site.
In the final rule, EPA is following the approach explained in the 1985 proposal, but in
addition, EPA is excluding from the definition of "new source" those facilities that as of
the effective date of the Offshore Guidelines are subject to an existing general permit
pending EPA's issuance of new source NPDES general permits. EPA will apply NSPS to
appropriate (those where there is significant site preparation work for development or
production) facilities within the Offshore Subcategory.
In terms of development operations, offshore drilling varies from year to year, depending
on such factors as the hydrocarbon economic market conditions, state and federal leasing
programs and reservoir discoveries. In 1981, almost 1,500 wells were drilled offshore,
culminating the upward trend of the 1970s. The average number of wells drilled during
the 1972-1982 time period was 1,100 wells/year. Drilling activity has declined since 1982,
and in a 1988 notice, the Agency estimated that between 1986 and the year 2000, an
average of 759 wells/year would be drilled (based on an average oil price for the years
1986-2000 to be $21/barrel). Of these 759 wells/year, 456 wells/year would become
producing wells drilled on new and existing structures, and the remaining 303 wells/year
would be dry holes. The projected distribution of wells drilled, by region and distance
from shore, is shown in Table 4-2.
Between the years 1993 and 2007, an estimated 759 new platforms installed offshore will
be producing oil or gas. Table 4-3 shows the distribution of new producing and
discharging structures according to region and distance from shore.
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Table 4-2
Estimate of Average Annual Number of Wells Drilled, BAT and NSPS
According to Distance from Shore
1993-2007
$21/bbl Scenario
Region
Gulf of Mexico
California
Alaska
Total
Within 3 Miles
60
0
*
60
3-4 Miles
12
0
*
12
4-8 Miles
64
29
*
93
Beyond 8 Miles
579
3
*
582
Total
715
32
12
759
* Not presented because Alaska is exempt from zero discharge requirements for drilling
fluids and drill cuttings.
Source: ERG, 1992a
Table 4-3
Total Projected NSPS Structures
According to Distance from Shore
1993-2007
Region
Gulf of Mexico
California
Alaska
Total
Within 3 Miles
102
0
2
104
3-4 Miles
38
0
0
38
Beyond 4 Miles
615
0
2
617
Total
755
0
4
759
Source: ERG, 1992a
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43 DISCHARGE CHARACTERIZATION OF MAJOR WASTE STREAMS
CONSIDERED IN THE RIA
This regulatory effort focuses on the major waste streams from exploration, development,
and production operations based on their volumes and potential toxicity. This RIA for
the final promulgation of the rule evaluated the costs and benefits of controlling three
major waste streams: drilling fluids, drill cuttings, and produced water. The volumes and
potential toxicity of the other miscellaneous wastes are generally less than these
discharges, and therefore were not considered in this RIA
43.1 Drilling Fluids
Drilling fluids, or muds, are suspensions of solids and dissolved materials in a base of
water or oil that are used primarily in rotary drilling operations to carry cuttings from the
hole to the surface, and maintain hydrostatic pressure downhole. Drilling fluids can be
water-based or oil-based. Oil-based drilling fluids are those in which oil serves as the
continuous phase with water as the dispersed phase. Such fluids contain blown asphalt
and usually one to five percent; water emulsified into the system with caustic soda or
quicklime and an organic acid.; Silicate, salt, and phosphate may also be present. Oil-
based drilling fluids have been more costly and more toxic than water-based drilling
fluids, and are used for particularly demanding drilling conditions (deep or highly
deviated wells), including offshore wells.
In water-based drilling fluids, water is the suspending medium for solids and is the
continuous phase, whether or not oil is present. Water-based drilling fluids are used for
more routine drilling conditions offshore and are composed of anywhere from 30 percent
to 90 percent water by weight, with a variety of mud additives constituting the remainder.
Drilling fluids are specifically formulated to meet the physical and chemical requirements
of a particular well. Mud composition is affected by geographic location, well depth,
rock type, and is altered as well depth, geologic formations, and other conditions change.
The number and nature of mud components varies by well, and several products may be
used at any given time to control the properties of a mud system. The eight basic
functions of a drilling fluid are as follows:
1. Transport drill cuttings to the surface
2. Suspend drill cuttings in the annulus when circulation is stopped
3. Control subsurface pressure
4. Cool and lubricate the bit and drill string
5. Support the walls of the wellbore
6. Help suspend the weight of the drill string and casing
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7. Deliver hydraulic energy upon the formation beneath the bit
8. Provide a suitable medium for running wireline logs.
Four basic components account for approximately 90 percent by weight of all materials
contained in drilling fluids: barite, clays, lignosulfonate, and lignites. Other components
include lime, caustic soda, soda ash, and a multitude of specialty additives. These
additives are used to modify the characteristics of drilling fluids as dictated by well
requirements to control site-specific drilling conditions.
4.3.2 Drill Cuttings
Drilling fluids circulate in the bore hole and move up the annular space between the drill
string and the borehole to the surface, carrying drill cuttings with them. Cuttings are
removed from the drilling fluids in a step-wise process which removes particles of
decreasing size.
Upon reaching the surface, fluids and cuttings pass to the shale shaker, which is a
vibrating screen that removes large particles from the fluid. Standard shaker screens
generally remove particles larger than 440 Atm; particles down to approximately 150 /wn
are removed by fine screen shakers. A desilter, a hydrocyclone using centrifugal forces,
can then be used to remove silt-size particles (larger than 15 to 25 /ton). After removal,
the cuttings are usually discharged from the rig near the water surface or shunted below
the surface of the sea. Processed drilling fluids return to the mud tanks for .recirculation
to the well.
Solids removal system discharges consist of: drill cuttings, wash solution, and drilling mud
that still adheres to the cuttings. At one well drilled on the Southern California outer
continental shelf, normal cuttings discharged from solids control equipment comprised
0-96 percent cutting solids and only 4 percent adhered drilling fluids. However, data
from one well drilled on the mid-Atlantic outer continental shelf and one well drilled in
Alaskan waters suggested cuttings discharges were approximately 40 percent drill cuttings
and 60 percent drilling fluids.
4.3.3 Produced Water
Produced water (also known as production water or produced brine) is process water
discharged during oil and gas extraction. It is composed of the formation water, which
has been brought to the surface with the oil and gas, injection water (if used for
secondary oil recovery and has broken through into the oil formation), and various
chemicals added during the oil/water separation process. Produced water contains
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dissolved, emulsified, and paniculate crude oil constituents, natural and added salts,
organic chemicals, solids, and trace metals. Produced water constitutes the major waste
stream from offshore oil and gas production activities.
4.4 DRILLING FLUIDS AND DRILL CUTTINGS TREATMENT OPTIONS
Most offshore oil and gas facilities are operating under Best Professional Judgement
(BPJ) permits that are more stringent than BPT effluent guidelines. The BMJ permit
issued in 1986 for the Gulf of Mexico OCS is used as the baseline for determining the
costs and benefits for this RIA because this level of control most accurately represents
the technology-based pollutant control being used by most facilities.1 This BPJ Baseline
"option" is included only for analytical purposes (i.e., to enable the incremental costs and
benefits of the other options to be derived). Offshore subcategory operations off of
Alaska are also covered by NPDES permits having BPJ determinations of BAT and BCT
that are more stringent than BPT. Currently, however, operations in the territorial seas
of Texas and Louisiana are operating under an administratively extended BPT general
permit unless state BPJ permits have been issued, and facilities located in federal waters
offshore of California also are operating under an administratively extended BPT permit
unless an individual permit has been issued by EPA.
is
Four options are considered in this RIA for drilling fluids (three options only in the
benefits analysis); these are presented in Table 4-4. Option 1, 3 Mile Gulf/California,
the Agency's selected option. The following requirements are included in some
combination in the various options considered:
f No discharge of diesel oil
»• No discharge of "free oil" as measured by the static sheen test
*• Toxicity limitation as measured by a 96-hour LC50 test
>• Limitations on cadmium and mercury in stock barite
»• Zero discharge of fluids and cuttings based on distance from shore. The
zero discharge requirement is presumed to be met by barging the drilling
fluids and drill cuttings to shore for disposal.
1 Subsequent to development of this RIA, EPA Region 6 has reissued a new BPJ general permit
covering the western and central Gulf of Mexico (57 FR 54642, November 19, 1992). Some of the permit
conditions used for this RIA have been revised by the new permit. However, in order to ensure timely
promulgation of the final effluent guidelines, those changes were not incorporated into this analysis.
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Table 4-4
Drilling Fluids and Drill Cuttings
Regulatory Options Considered 4
Option
Option 1
Option 2*
Option 3
Option 4
Short Form
of Title
3 Mile Gulf/California
4 Mile Gulf/California
8 Mile Gulf/3 Mile
California
Zero Discharge
Gulf/California
Description ; ;;
Drilling wastes from wells located within three miles of
shore must meet zero discharge requirements. The disposal
of drilling wastes from wells located beyond three miles of
shore must meet limitations on toxicity, no discharge of
diesel oil, no discharge of free oil as determined by the
static sheen test, and limitations on mercury and cadmium
content in the stock barite. Alaska is exempt from the zero
discharge requirement, but must meet all the requirements
for wells drilled beyond three miles of shore.
The requirements are the same as in the 3 Mile
Gulf/California option, except that the boundary
determining the zero discharge requirement is set at four
miles from shore.
California and Alaska must meet the same requirements as
in the 3 Mile Gulf/California option. For the Gulf of
Mexico and other regions, drilling wastes from wells within
eight miles of shore must meet zero discharge requirements,
while wastes from wells beyond eight miles of shore must
meet limits on toxicity, no discharge of free oil, no discharge
of diesel, and metals limitation on the barite.
Alaska must meet the same requirements as in the 3 Mile
Gulf/California option. All other regions must meet zero
discharge requirements for all drilling wastes regardless of
the distance from shore.
» The 4 Mile Gulf/California option, while not considered in the final benefits analysis, is comparable
to the preferred option in the March 1991 proposal.
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4.5 PRODUCED WATER TREATMENT OPTIONS
Four options are considered in the final RIA for BAT- and NSPS-produced water, and a
fifth, Filter 4 Miles, was considered in the Economic Impact Analysis and Cost-
Effectiveness Analysis but was not found to be cost-effective. All of these options
include the use of improved gas flotation technology for treatment of produced water.
The options are presented in Table 4-5.
The Agency has selected the Flotation All option (Option 2) for both BAT and NSPS.
This option requires all production structures to treat produced water discharges .using
gas flotation technology to achieve approximately 29 mg/1 oil and grease and 42 mg/1 oil
and grease, respectively, for monthly average and daily maximum. EPA has determined
this option to be economically achievable and technically feasible.
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Table 4-5
Produced Water BAT and NSPS
Regulatory Options Considered
Option
Option la
Option 2
Option 3
Option 4
Option 5*
Short Form
of Title
BPTA11
Flotation All
Zero 3 Miles Gulf and
Alaska
Zero Discharge Gulf
and Alaska
Filter 4 Miles
Description '•• S. •/ "-. :::'" :' ;::""' • : -.of
Best Practicable Technology required for all structures. This
option is the same as current practices, and therefore
involves no incremental costs or removals.
All discharges of produced water, regardless of water depth
or distance from shore, would be required to meet
limitations on oil and grease content at 29 mg/1 monthly
average and a daily maximum of 42 mg/1. The technology
basis for these limits is improved operating performance of
gas flotation.
No discharge of produced water within 3 nautical miles from
shore. Facilities located more than 3 miles from shore
would be required to meet oil and grease limitations of 30
mg/1 monthly average and 40 mg/1 daily maximum. All wells
off California and existing singe-well dischargers in the Gulf
of Mexico would be excluded from the zero discharge
requirement but would be required to comply with oil and
grease limitations.
No discharge of produced water based on reinjection of the
produced water. All facilities off California and all currently
existing single-well dischargers in the Gulf of Mexico would
be excluded from zero discharge limitation but would be
required to comply with oil and grease limitations.
Granular filtration required for discharges of produced
water within 4 miles of shore. BPT required for all
structures beyond 4 miles.
1 While these two options were considered in the Economic Impact Analysis, they were not considered
in the benefits analysis for the following reasons: Option 1 involves no incremental benefits, and Option
5 was found to be less cost-effective than the Flotation All option, so was removed from the analysis.
RCG/Hagler, Bailly, Inc.
-------
-------
5-1
5.0 COSTS AND ECONOMIC IMPACTS
This section presents the estimated costs for each of the regulatory options considered
for the offshore subcategory of the oil and gas extraction industry, as estimated in the
Economic Impact Analysis of Final Effluent Limitations Guidelines and Standards.of
Performance for the Offshore Oil and Gas Industry (ERG, 1993a). These costs are
evaluated in terms of their associated economic impacts on the subcategory. The cost-
effectiveness of these options for pollutant removal is also evaluated based on the Cost-
Effectiveness Analysis of Effluent Limitations Guidelines and Standards of Performance
for the Offshore Oil and Gas Industry (ERG, 1993b).
To analyze the cost and economic impacts of the effluent guidelines regulations, 34
model projects were defined. These projects account for a diversity of platform size (i.e.,
number of wellslots), location, and production type encountered in offshore areas. Costs
for these model projects were applied to projections of future offshore oil and gas
activity in the regions considered.
The analysis evaluates one projection of future offshore oil and gas activity. The
projection covers a 15-year time period and assumes an average $21/bbl oil price and
restricted or constrained development activities in the Atlantic and the Pacific. This
scenario is considered the most reasonable given recent oil prices and moratoria. All .
incremental costs of increased pollution control are calculated using current permit
requirements as the baseline.
5.1 AGGREGATE COSTS1
5.1.1 Drilling Fluids and Drill Cuttings
The annual average cost associated with each option is a function of the average number
of wells drilled per year, percentage of wells that incur the zero discharge requirement,
volume of waste generated per well, toxicity failure rates, and other assumptions.
The total and per-well costs for each region are summarized in Table 5-1. In general,
wells within a specified distance of shore must meet a zero discharge requirement for
drilling fluids and cuttings. Wells beyond that distance must meet (in addition to BPT
requirements): metals limitation of 1 mg/kg mercury and 3 mg/kg cadmium in the stock
1 Regulatory costs were developed by the Engineering and Analysis Division, U.S. Environmental
Protection Agency, and are presented in ERG (1992a).
RCG/Hagler, Bailly, Inc.
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5-3
barite, a toxicity limitation (LC50 of 30,000 ppm suspended paniculate phase), and no
discharge of "free oil" as determined by a static sheen test.
The costs reflect the varying percentages of the wells that must meet the zero discharge
requirement, i.e., they are weighted average costs of the option-specific boundary for
"within" (zero discharge) and "beyond" (clean barite, toxicity test, and sheen test)
requirements. The costs do not change for Alaska because of the exemption from the
zero discharge requirement. Costs for the Pacific include the costs for emissions offsets,
which will be incurred because California is a non-attainment area under Clean Air Act
requirements. Drilling wastes that fail toxicity or sheen tests or must meet zero discharge
requirements must be barged to shore. Offsets must be paid to address the emissions
from barging. If a project is located within the zero discharge area, all drilling wastes
from all wells for that project must be barged.
Option 1, 3 Mile Gulf/California, is the selected option. Total annual costs for this
option approximate $19 million.2 The costs are approximately $26,000 per well in the
Gulf of Mexico and $3,000 per well in the Pacific for this option,
5.1.2 Produced Water BAT (Existing Sources)
Only existing projects in production in the Gulf of Mexico and the Pacific are expected to
bear incremental costs of additional pollution control under BAT. The cost for a given
technology to reduce pollution will depend on whether treatment and disposal of
produced water takes place at the platform or at a centralized onshore facility. Roughly
37 percent of produced water in the Gulf of Mexico is transported to shore for treatment
and disposal (DOI, 1991), as it is often less expensive to treat production wastes at a
centralized location. This analysis assumes that the 37 percent of BAT structures that
are currently piping their produced water to shore will continue to do so. Because no
estimates of the percentage of platforms that use onshore treatment or the volume of
produced water that is treated onshore were available, disposal costs for the Pacific are
calculated assuming that 100 percent of the structures dispose of their water at the
platform. Should it be more cost-effective to treat the water on land but to dispose of it
at the platform, the costs as calculated will be conservatively high.
The model-specific capital and O&M costs were entered into the BAT economic models
to calculate the annualized cost of the regulation. The annualized costs were calculated
2 Cost estimates, as developed by ERG (1993a), are in 1986 dollars. Because barge rates have
remained constant since that time, 1991 dollar equivalents for costs related to drilling fluids and cuttings
have not changed significantly and are therefore unchanged from the 1986 estimates (ERG, Memorandum
of October 21, 1992 from Maureen Kaplan to Mahesh Podar).
RCG/Hagler, Bailly, Inc.
-------
5-4
over the remaining lifetime of the project and account for projects shutting down early
because of an increase in the annual O&M costs.
The total costs of the regulatory options are obtained by multiplying the number of each
model project by the per-project cost of each disposal option. Table 5-2 shows the total
capital, O&M, and annualized Year 1 and Year 15 costs for each of the regulatory
options under consideration (including the 1991 preferred option, Filter 4 Miles)
(Kaplan, 1992b). The peak (Year 1) annual costs for the selected option, Flotation All,
are $96.3 million ($108.4 million in 1991 dollars) while by Year 15, costs are O.3
Because all existing structures will be affected in Year 1, the highest cost for BAT
pollution control options will be in the first year of the regulation. As existing projects
come to the end of their economic lives, the number of structures incurring BAT costs
will decline.
5.13 Produced Water NSPS (New Sources)
As with the BAT analysis, the per-project capital and O&M costs for each technology
were input into the NSPS economic models to derive the annualized costs. It was
assumed that 80 percent of new structures would have been constructed with a gas
notation system regardless of this rulemaking. For these projects, it was assumed that
the incremental capital costs would be incurred to upgrade the flotation system.
Table 5-3 presents the total capital costs, total annual O&M, Year 1 cost, and Year 15
cost for new projects for the five NSPS regulatory options (including the 1991 preferred
option, Filter 4 Miles) (Kaplan, 1992b). The Year 1 annualized cost for the selected
option, Flotation All, is $0.8 million ($0.9 million in 1991 dollars), and the Year 15
annualized cost of this option is $12 million ($13.6 million in 1991 dollars). This Year 15
cost represents the cumulative costs associated with all new structures assumed to enter
the industry at a constant rate over this period.
5.1.4 Combined Regulatory Options
Combined costs were calculated for two packages of selected regulatory options.
Package A includes the selected options for drilling fluids and cuttings (3 Mile
Gulf/California) and produced waters (Flotation All). Package B contains the selected
option for drilling fluids and cuttings, the Zero 3 Miles Gulf option for BAT produced
water, and the Zero 3 Miles Gulf and Alaska option for NSPS produced water. Both
3 Cost estimates and economic impacts, as developed by ERG (1993a), are in 1986 dollars. Using the
ENR construction cost index, 1991 dollar equivalents have been calculated for costs related to produced
waters and are presented in this report
RCG/Hag!er, Bailly, Inc.
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5-7
packages include costs for regulation of workover fluids and produced sand not presented
in this RIA. First-year costs for Package A are $126 million ($134 million in 1991
dollars) and $144 million ($160 million in 1991 dollars) for Package B. (Workover fluids
and produced sand comprise 4.5 percent and 3.8 percent of the package costs,
respectively.) Fifteen-year costs, the point at which all BAT projects will have reached
the end of their economic lifetimes and NSPS costs are at their peak, are estimated at
$36 million for Package A ($38 million in 1991 dollars) and $86 million for Package B
($94 million in 1991 dollars). More old projects are anticipated to cease production than
new projects will begin production over the 15-year period.
5.2 COST-EFFECTIVENESS
Cost-effectiveness is defined as the incremental annualized cost of a pollution control
option in an industry "or industry subcategory" per incremental "pound equivalent" of
pollutant removed annually by that control option. Because different pollutants have
different potential effects on human and aquatic life, cost-effectiveness analyses account
for differences in toxicity among the pollutants with toxic weighting factors. Thus, the
amount of pollutant removed by a control option is weighted by its relative toxicity.
Toxic weighting factors for pollutants are derived using ambient water quality criteria and
toxicity values. In this study of an industry that discharges into the ocean, chronic
saltwater aquatic criteria were used wherever available. These toxic weighting factors
were then standardized by relating them to a particular pollutant, copper. The final
weights are used to calculate the "pound equivalent" unit, a standard measure of toxicity
used by EPA in evaluating point source controls. Cost-effectiveness is calculated as the
ratio of incremental annual cost of an option to the incremental pound equivalents
removed by that option.
Cost-effectiveness analysis was conducted for four options considered for drilling fluids
and drill cuttings, five options considered for BAT produced water (including current
practices-BPT All), and four options considered for NSPS produced water (including
current practiees—BPT All). For each option considered, the pound equivalents of
pollutants removed were obtained by multiplying the pounds of each pollutant removed
annually by that pollutant's toxic weighting factor and summing the pound equivalents for
each approach. Regional totals were then summed to obtain the national totals.
Removals represent the incremental quantities of pollutants that would be removed.
Table 5-4 shows the cost-effectiveness analysis for drilling fluids and drill cuttings. The
costs and removals are based on the $21/bbl oil price and a restricted development
scenario. Cost-effectiveness for the 3 Mile Gulf/California option is $44 per pound
equivalent removed. The incremental cost-effectiveness for the other options is
approximately $72-73 per pound equivalent.
RCG/Hagler, Bailly, Inc.
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Table 5-5 shows the cost-effectiveness analysis for BAT produced water.4 As the BPT
All option is the same as current practices, no incremental costs.or removals are
associated with this option. Incremental cost-effectiveness for the selected option,
Flotation All, is $33 per pound equivalent. Incremental cost-effectiveness ranges from
$244 to $653 per pound equivalent for the other options.
Table 5-6 shows the cost-effectiveness analysis for NSPS produced water.5 As with BAT
produced water, the BPT All option under NSPS has no incremental costs or removals
associated with it. The cost-effectiveness of the remaining options ranges from $16 per
pound equivalent for the Flotation All selected option to $295 per pound equivalent for
the Zero Discharge Gulf and Alaska option.
Table 5-7 summarizes the range in cost-effectiveness for the offshore oil and gas industry
effluent controls compared to the cost-effectiveness of BAT regulations for other
industries. Table 5-8 summarizes the same information for NSPS regulations. All costs
are shown in 1981 dollars in order to facilitate comparisons with cost-effectiveness ratios
for removals in other industries.
5.3 ECONOMIC IMPACTS AND ECONOMIC ACHIEVABILITY
5.3.1 Economic Impacts on the Oil and Gas Industry
Economic impacts of the options considered are examined in detail in the report
Economic Impact Analysis of Effluent Limitations Guidelines and Standards of
Performance for the Offshore Oil and Gas Industry (ERG, 1993a). Offshore
development is financed by a small number of very large major and independent oil
companies. Data on publicly held companies were used to define balance sheets for
representative major and independent oil companies. These balance sheets were then
used to judge the impact of pollution control requirements of these proposed effluent
guidelines and standards. Two methods for financing the regulatory costs were
considered: working capital (as measured by working capital and the current ratio) and
long-term debt (as measured by the long-term debt to equity ratio and the debt to capital
ratio).
4 The Filter 4 Miles option is included in this analysis, although it was not one of the final regulatory
options considered because it is not cost-effective.
5 The Filter 4 Miles option does not appear because it has lower removals and higher costs than the
Flotation All option. The Filter 4 Miles option is therefore considered dominated by the Flotation All
option, and is removed from the analysis.
RCG/Hagler, Bailly, Inc.
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b Reflects costs and remo
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d The major impact of tb
Impacts for produced s:
Source: ERG, 1993b
8
-------
5-13
Table 5-8
Industry Comparison of Cost-Effectiveness for New Source Performance Standards
Toxic and Nonconventional Pollutants Only
Copper-Based Weights
(1981 Dollars)
-
Industry
Aluminum Forming
Battery Manufacturing
Carmaking
Coal Mining
Coil Coating
Copper Forming
Electronics I
Electronics II
Foundries
Inorganic Chemicals I
Inorganic Chemicals II
Iron and Steel
Leather Tanning
Metal Finishing
Nonferrous Metals
Manufacturing I
Nonferrous Metals
Manufacturing II
Offshore Oil and Gas
- Drilling Fluids and Drill Cuttings
- Produced Water
- Produced Sand
Organic Chemicals, and Plastics and
Syntheticsb
Pesticides
Petroleum Refining
Pharmaceuticals
Plastics Molding and Forming
Porcelain Enameling
Pulp and Paper0
Steam Electric
Textile Mills
Timber
f : f f
Incremental11 Pounds
Equivalent Removed
509
1,612
NA
5,004
216
NA
427
NA
26,208
NA
32,570
357,955
601,169
10,842
NA
NA
NA
NA
2,500
NA
NA
Cost-Effectiveness of
Selected Option(s)
(&Pound Equivalent)
190
47
NA
13
132
NA
183
NA
b
NA
9
44
17
291
NA
NA
NA
NA
38
NA
NA
* Incremental pound equivalent removed from next less stringent option considered.
b Less than a dollar.
c Incremental treatment required for conventional pollutants only.
Source: ERG, 1993b
RCG/Hagler, Bailly, Inc.
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5-14
Financial impacts are minimal for a typical major oil company under any set of pollution
control options. The financial ratios affected by debt financing change 0,5 percent or less
for all options considered for drilling fluids, drill cuttings, and produced water (BAT and
NSPS). The financial ratios affected by financing through working capital also change by
less than 0.5 percent except for the Zero Discharge options, which were not selected for
the final rule.
The change in financial ratios for a typical independent oil company under the various
regulatory options is greater than that seen for a typical major oil company. Financial
ratios affected by debt financing increase by 1 percent or less under the regulatory
options investigated for each waste system. For all waste streams, the financial ratios
affected by financing through working capital change by 4.5 percent or less, except for
the Zero Discharge options, which were not selected for the final rule.
Financial impacts were considered for two regulatory packages, which combine effluent
control options in the source categories. Under regulatory Package A, which includes the
3 Mile Gulf/California option for drilling fluids and drill cuttings and the Flotation All
option for BAT produced water and NSPS produced water, the financial ratios affected
by debt financing change by 0.1 percent for a typical major and by 0.2 percent for a
typical independent, even in Year 1 of the regulation. Financial ratios affected by
working capital change by 0.5 percent or less for majors and independents even in Year
1, except for a working capital decline of 4.6 percent for a typical independent oil
company. A typical independent, however, may not choose to fund all of these
expenditures out of working capital and may be more likely to use some mix of working
capital and debt (thereby reducing the estimated impact on working capital).
5.3.2 Impacts on Production
The estimated total amount of production from BAT and NSPS structures6 was
compared to the total production under the two sets of regulatory options. The range in
potential production loss varies from 0.1 to 0.2 percent.
6 Production is expressed in terms of BOE (barrels-of-oil equivalent) in order to compare both oil
and gas production on a common basis. The conversion factor is based on the heating value of the
product. A barrel of oil is 5.8 million BTU and an MMCF of gas is 1,021 million BTU. An MMCF of gas
is equivalent to 176.03 BOE.
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5.3.3 Secondary Impacts of the Regulations
The impact of the effluent guidelines regulations on federal revenues, state revenues, and
the balance of payments was analyzed. Federal revenues are impacted by the tax effects
of effluent guidelines expenditures and by potential reduction in lease/bonus bids. The
potential impact of the regulations on federal revenues in the first year is estimated to be
between $114 and $136 million in 1986 dollars ($129 and $153 million in 1991 dollars),
depending upon the regulatory package. State revenues might be affected by reductions
in lease/bonus bids. The maximum impact of the guidelines on state revenues is $7 to
$8.6 million ($8 to $10 million in 1991 dollars). For Texas' and Louisiana's estimated
share of the impact, lost revenues are less than 0.1 percent of the state's total 1986
revenues. No significant impacts on the balance of trade or inflation are projected.
5.4 CONCLUSION
The first-year costs (1991 dollars) for selected options are $19 million for drilling fluids
and cuttings, and $108.4 million and $0.9 million for produced waters BAT and NSPS,
respectively. The significant costs for BAT produced waters will decrease with each
subsequent year, as existing structures come to the end of their economic lives. The
incremental cost-effectiveness (1981 dollars) of the selected options is $44 per pound
equivalent removed for drilling and fluids and drill cuttings, $33 per pound equivalent
removed for BAT produced water, and $16 per pound equivalent removed for NSPS
produced water. The economic impacts of the pollution control options are minimal for
a typical major oil company under any set of options. Impacts on a typical independent
oil company are somewhat greater. Given a regulatory package including the 3 Mile
Gulf/California option for drilling fluids and drill cuttings and the Flotation All option for
produced water, working capital may decline by 5 percent in the event that an
independent should choose to fund all expenditures out of working capital. All other
ratios would change by no more than 0.4 percent.
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6.0 EVALUATION OF BENEFITS AND WATER QUALITY IMPACTS
6.1 INTRODUCTION
The Agency has attempted to identify and, where possible, quantify in monetary terms,
the environmental benefits of the effluent limitations guidelines for the offshore
subcategory of the oil and gas extraction industry. This benefit assessment has pursued
three principal lines of investigation: 1) assessment of benefits that can be quantified
and monetized, including estimates of national health-related benefits that could result
from controlling pollutants in effluent discharges from drilling and production waste
streams, 2) assessment of water quality improvements attributable to the guidelines that
can be quantified but not easily monetized, and 3) compilation of case studies of
documented environmental impacts from these discharges that, similar to water quality
improvements, can be quantified but not easily monetized. Monetized results focus
almost exclusively on the benefits associated with human health risk reduction through
reduced concentration of platform-related pollutants in recreationally-caught finfish
species and commercial shrimp. Both carcinogenic and systemic human toxicants are
considered. These quantified and monetized incremental benefits are compared to the
annualized incremental cost in the Gulf of Mexico for the BAT and NSPS control options
under consideration for proposal.
The RIA addresses the benefits of three major waste streams identified for this industrial
subcategory: drilling fluids, drill cuttings, and produced water. These waste streams were
selected because they comprise the majority of effluent discharge volumes from oil and
gas exploration, development, and production facilities, and because of their toxicity and
potential for causing adverse environmental effects. In this chapter, benefits associated
with three options for drilling fluids and cuttings and three options for produced water
are evaluated. (See Tables 4-5 and 4-6 for a listing of options for drilling fluids and
cuttings, produced water (BAT), and produced water (NSPS), respectively.)
The quantified benefits assessment presented in this RIA is restricted to analysis of
operations in the Gulf of Mexico. The vast majority of production platforms are located
in the Gulf of Mexico, which has 2,517 of the 2,549 total U.S. offshore producing
structures projected to be affected by the rule. Therefore, the greatest portion of
environmental benefits would reasonably be expected to occur in the Gulf of Mexico.
Additionally, regional-scale environmental information and fisheries landings data, which
are important to the required modeling and predictive approach of the benefits
assessment, are available for a Gulf of Mexico analysis. Finally, the Gulf of Mexico
offshore waters and ecosystems have a far greater degree of environmental homogeneity
(e.g., bathymetric and habitat conditions) than other regions, such as the southern
California outer continental shelf (OCS) or the northern, western, and southeastern OCS
regions of Alaska. Heterogeneity of the aquatic ecosystems in these areas requires more
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site-specific or platform-specific modeling and predictive analyses that are less easily
developed into a regional or subcategory-wide assessment.
6.2 OVERVIEW OF THE METHODOLOGY FOR ESTIMATING MONETIZED
BENEFITS
Human health benefits of the regulations were quantified and assigned monetary values,
to the extent feasible given limitations on data availability, the state of knowledge, and
EPA-accepted methodologies. There are three major types of health risk reductions
relevant to the guidelines covering the major waste streams of this industrial subcategory-
-carcinogenic risk reduction, systemic toxicant risks (expressed as a fraction of the RfD
values), and as a special case of systemic toxicants notable in its own right, lead-related
risk reductions. Carcinogenic and lead-related impacts are monetized. Systemic toxicant
risks are quantified but not monetized.
This RIA focuses almost exclusively on the benefits associated with reduced risks to
human health. Estimating the monetized benefits of an improvement in health and
environmental quality requires that a chain of events and physical relationships be
specified and understood. Thus, to estimate the benefits of water pollution controls
directed at reducing pollutant loadings, links have to be made from the regulatory action
(change in effluent limits) all the way through to outcomes that are of direct value to
society. These benefits are estimated through the application of existing studies that
credibly link physical changes in the marine environment to changes in human activities
and social values using results from existing models. This approach was used to evaluate
effluent guidelines for the iron and steel industry and for the organic chemicals, plastics,
and synthetic fibers industry.
Health risks for drilling fluids and cuttings are determined for the consumption of both
commercially-caught shrimp by the general population, and recreationally-caught finfish
by fishermen and their families, that are projected to be exposed to discharges from oil
and gas structures in offshore subcategory areas of the Gulf of Mexico region. The
categories of finfish considered in the analysis are reef species typically caught around
offshore structures, which act as artificial reefs. For produced water, only human health
risks from consumption of recreationally-caught finfish are assessed. Impacts of this
regulation on commercial finfish catch are very difficult to project, and are thought to be
potentially smaller than impacts on recreational finfish catch because commercial
fishermen avoid the immediate areas around offshore oil and gas structures in order to
protect their equipment and because commercial finfisheries are mobile (compared to
the reef species typical of the targeted recreational finfish catch). Only those health risk
reduction benefits that are readily quantified and monetized have been assessed. When
interpreting the results presented in this section, it should be recognized that the analysis
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addresses only a portion of the full range of risk reductions that the final regulations will
•attain 1
attain.1
Human health benefits arise from reduction in the risk of adverse health effects due to -
reductions in exposure to contaminants that enter the environment through regulated
wastewaters. The extent of the reduced levels of contamination in fish tissue depends on
the change in ambient concentrations of the relevant pollutants and their
bioconcentration in applicable fish species. Levels of contaminants in recreational fish
tissue are estimated for the current baseline and for each regulatory option (using
chemical-specific leaching factors for metal pollutants for drilling fluids and cuttings), by
combining average effluent concentrations of pollutants with transport and fate modeling
analyses to estimate the projected environmental concentrations of these pollutants.
These projected concentrations were developed for pollutants in seawater (water column
exposure scenarios) for both drilling fluids and produced water; they also were developed
for sediment pore water (benthic exposure scenarios) for drilling fluids. Then, using
chemical-specific bioconcentration factors, and fish lipid content factors for organic
pollutants, fish tissue pollutant concentrations are predicted from projected seawater and
pore water concentrations.2 All of these projections are made on an incremental basis,
i.e., they only account for exposures to pollutants in the regulated waste stream and do
not include any analyses that include exposures to these pollutants from other pollution
or natural sources. For two radioactive produced water pollutants (i.e., 226Ra and 228Ra)
and two reinjection regulatory options evaluated by this RIA, the tissue concentrations
measured in edible portions of fish and crabs near platforms (CSA, 1992) were used
instead of tissue levels projected from modeling.
Health benefits for carcinogens and most systemic toxicants are calculated based on
scenarios that reflect national shrimp and recreational finfish consumption patterns,
including both average individual risks and the "high end"3 consumer risks. For the
systemic toxicant lead, health benefits are calculated using a harvest-based mass balance
distribution of exposure scenarios for shrimp and fish consumption. This scenario is
based on the distribution of national fish consumption levels weighted by the proportion
1 Omitted benefits include, but are not limited to: (1) adverse health effects from lead in women (all
ages) and in men below the age of 40 or over the age of 59; (2) adverse lead-related health effects other than
the endpoints quantified; (3) lead-related exposure associated with.shrimp or finfish uptake of lead through
the sediments directly, or indirectly, through the food chain; (4) recreational and commercial fishery
improvements; (5) ecologic benefits; and (6) nonuse values.
2 These analyses are described in greater detail in Avanti (1993).
The high end risk descriptor is a plausible estimate of the individual risk for those persons at the upper
end of the risk distribution. See EPA "Guidance on Risk Characterization for Risk Managers and Risk
Assessors." February 26, 1992. Office of the Administrator.
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of the U.S. population consuming fish at that level, all of which are normalized to the
total amount of fish consumed. Standard dose-response data are used to translate •
reduced exposure levels into reduced levels of health risk.
Cancer risks are quantified and monetized using average individual exposure levels, which
are applied to the exposed population (national shrimp consumers and Gulf offshore
recreational anglers), and Agency-established unit risk factors. Average exposures are
based on human intake of pollutant levels consistent with the relevant shrimp and
recreational finfish harvests (i.e., there is a mass balance between impacted fish harvested
and subsequent human exposure). The linear, no threshold dose-response relationship
for carcinogens enables the straight-forward quantification of total excess cancer cases.
Regulatory actions resulting in reduced mortality are valued in this analysis at $1.97
million to $9.96 million (in 1991 dollars) per statistical fatality avoided, representing a
widely accepted range of values in the literature (see U.S. EPA, 1989a, Violette and
Chestnut, 1983, 1986).
Risk reductions associated with lead intake from drilling fluids require more complex
analyses, because the dose-response functions are not linear. Therefore, different
exposure scenarios are applied to population subcategories to maintain a mass balance
between edible shrimp and fish tissue harvests and human intake. The analysis is further
subdivided into three types: benefits to infants, benefits to adult males, and benefits to
children. Because the appropriate methods of quantifying and/or valuing several of the
important health effects associated with lead exposure are not yet firmly established, the
monetized lead benefits represent only a limited portion of the total range of human
health benefits that may be attributed to reduced lead exposure.
The benefits estimation approach for drilling fluids and cuttings and produced waters,
respectively, is discussed in greater detail in sections 6.3 and 6.4.
63 MONETIZED BENEFITS: DRILLING FLUIDS AND CUTTINGS
The estimated benefits of the effluent guidelines for drilling fluids and cuttings are
predominantly derived from reducing the amount of lead in edible shrimp tissue
harvested commercially from platform-impacted waters of the Gulf (over 15 million
kilograms per year). Additionally, lead concentrations in edible fish tissue, based on
water column concentrations (omitting uptake via sediment or food chain), were applied
to estimates of recreationally-caught Gulf finfish to derive applicable health benefits.
Additionally, the more modest benefits associated with decreased carcinogenic risks from
commercially-caught shrimp and recreationally-caught finfish were estimated. For both
risk categories, benefits were estimated using a saltwater leach scenario and an
alternative pH-dependent leach scenario.
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Major toxic effects of lead include inhibition of heme synthesis, kidney disfunction, and
damage to the central nervous system. Broad symptoms include increased blood pressure
and reduced learning ability. Based on previous Agency research relating lead intake to
selected adverse health effects, reductions in the number of cases of these health
endpoints were quantified for the offshore oil and gas effluent guidelines options. These
lead-related benefits include (1) decreased infant mortality; (2) reduced I.Q. impairments
in children; and (3) reduced risks of heart disease, strokes, hypertension and death in
males between 40 and 59 years of age.
Benefits were estimated for several regulatory options beyond baseline practices (BPJ, or
"dirty" barite muds). Estimates were prepared for Gulf of Mexico locations only. The
options include:
» 3 Mile Gulf/California. Zero discharge (i.e., the transport of muds and
cuttings to shore for appropriate land-based waste management and
disposal) for all platforms within three miles of shore. Under this option,
Best Available Technology (BAT), consisting of using "clean" barite muds,
applies to all platforms beyond three miles of shore. Alaska is exempt
from the zero discharge requirement.
»• 8 Mile Gulf/3 Mile California. Zero discharge for platforms within eight
miles of shore, and BAT for platforms beyond. California and Alaska must
meet the same requirements as in the 3 Mile Gulf/California option.
f Zero Discharge Gulf/California. Zero discharge for all platforms. Alaska
is exempt, but must meet the same requirements as in the 3 Mile
Gulf/California option.
63.1 Summary of Benefits Estimation Approach
Lead-Related Benefits. All of the lead-related benefits analysis draws upon, and is
consistent with, the Agency's previous research on lead. These previous findings are
reflected in Agency analyses and documents prepared for the lead phasedown in
gasoline, the lead in drinking water rulemaking, and the sludge disposal program (U.S.
EPA, 1985, 1986(a), 1986(b), 1989(a), 1989(b), 1991).
Lead concentrations in edible shrimp tissue and recreationally caught finfish tissue, and
estimates of the shrimp and finfish harvests impacted by platform operations, were
prepared for each drilling fluids and cuttings regulatory option by Avanti Corporation
(1993).
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The impacted shrimp harvest was allocated across the estimated 50 million Americans
who consume shrimp. The impacted finfish harvest was allocated across the estimated
1.7 million individuals consuming recreationally-caught Gulf finfish. Estimates of human
exposure were made at four intake levels that reflect the distribution of shrimp or finfish
consumption levels across the population of shrimp or finfish eaters (e.g., individuals who
consume relatively low amounts of impacted shrimp, versus those who eat relatively high
levels of shrimp).
Seafood consumption levels, coupled with the option-specific lead concentrations in
edible shrimp or finfish tissue, provide estimates of the daily lead intake via shrimp and
finfish for each exposure group (for each regulatory option). Using age-specific
adsorption factors to distinguish lead uptake levels in children versus adults, lead intake
levels were transformed into estimates of lead uptake. Using prior Agency lead research
(U.S. EPA 1989(b)), lead uptake was used to estimate changes in the distribution of
blood lead levels (PbB) above the baseline (no shrimp-related or finfish-related lead
exposure) distribution.
Within each exposure group, the populations were distributed across age and sex
categories for which risk reduction analysis can be performed: children, adult males, and
pregnant women (whose blood lead level affects the risk of infant mortality).4 For the
children within each exposure group, established Agency research linking elevated blood
lead levels to IQ impairments was used to estimate the option-specific reductions in: 1)
the total level of IQ point decrements, and 2) the number of children with IQ levels
below 70. For the expected number of pregnant women within each exposure group,
established Agency research linking elevated blood lead levels to reduced fetal birth
weight and, hence, increased infant mortality, was used to estimate the option-specific
reductions of infant deaths. For the expected number of males between the ages of 40
and 59 within each exposure group, established Agency research was used that links: 1)
elevated blood lead levels to hypertension and, subsequently, 2) the increased risk of
strokes, cardiovascular heart disease (CHD), and premature fatality due to hypertension-
related causes. These results were used to estimate the option-specific reductions of
strokes, CHD events, and death in the male population between 40 and 59 years of age.
4 Results of this distribution, based on 50 million shrimp consumers, are as follows: for children (5-year-
old cohort), 645,000 individuals were in the low exposure group, 82,500 were in the moderate exposure group,
21,750 were in the moderately high exposure group, and 750 were in the highest group. For pregnant women
(newborn infants), 722,517 were in the low exposure group, 92,415 were in the moderate exposure group,
24364 were in the moderately high exposure group, and 840 were in the highest group. For males (aged
40-59), 4,988,000 were in the low exposure group, 638,000 were in the moderate exposure group, 160,000 were
in the moderately high exposure group, and 5,800 were in the highest group. A full discussion of this procedure
can be found on pages 2-8 and 3-4 of the benefits analysis for the offshore oil and gas guidelines (RCG/Hagler,
Bailly, 1993).
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Cancer Risk Reduction Benefits. In conformance with standard Agency risk assessment
procedures for carcinogens, excess cancer cases were estimated by multiplying the
average exposure levels (at each option) by the established Agency carcinogenic slope
factor (CSF), by the total exposed population.
63.2 Results
Reduced Cancer Risk
Estimated carcinogenic risks posed by drilling fluids and cuttings are associated with
exposure to arsenic. Relatively few health benefits accrue from the estimated arsenic-
related cancer risk reductions of the regulatory options for drilling fluids and cuttings.
Carcinogenic risks for the average scenario from finfish and shrimp consumption
combined are orders of magnitude below the 1(H to IQ-6 range targeted for most Agency
programs. Compared to a baseline ("current") average excess risk level of 6 x 10"8,
regulatory options range from 4 x 10*8 for the selected option (3 Mile Gulf/California) to
zero for the Zero Discharge option.5
Monetized benefits associated with reduced cancer cases amount to between $51,200 and
$448,200 per year over the range of regulatory options. The selected option for drilling
fluids and cuttings results in an incremental reduction in annual excess cancer cases of
0.026, and associated monetized benefits ranging from $51,200 to $258,900 per year.
Lead-related Risk Reductions
Lead-related monetized benefits based on exposure via shrimp consumption dominate
the estimated benefits for drilling fluids and cuttings. Lead-related benefits are based on
reduced infant mortality, IQ impacts in children, and health benefits to adult males.
Appreciable benefits are accrued especially to adult males as discussed below. The
estimated number of reductions in health effects (cases avoided) at each regulatory
option is shown in Table 6-1. For drilling fluids and cuttings, estimable lead-related
exposures via recreational finfish consumption are so low that no discernable lead-related
benefits can be attributed to the regulatory options.
As shown in Table 6-2, most of the monetized benefits are obtained at the 3 Mile
Gulf/California option, with small incremental benefits realized at more stringent options.
All of the benefit levels shown in these tables are related to the use of a saltwater leach
5 The Agency currently is reviewing new evidence of the carcinogenic endpoints and potency of arsenic,
and the carcinogenic slope factor for arsenic may be revised to reflect higher health risks per unit of exposure
(Dr. Charles Abernathy, U.S. EPA, personal communication, October 1992).
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Table 6-1
Annual Incremental Lead-Related
Health Effects Reductions for Drilling Fluids and Cuttings
(SaltWater Leach Scenario, Gulf of Mexico, Shrimp Only)
Benefit Category
Infant Mortality
Children
IQ < 70
IQ points
Adult Males
Hypertension
Stroke
Heart Disease
Death
Cases Avoided - From Baseline to Regulatory Options
3 Mile Gulf/
California
0.31
0.65
142.00
243.50
1.29
6.966
9.114
8 Mile Gulf/
3 Mile California
0.31
•
0.70
144.00
247.00
1.29
7.095
9.159
Zero Discharge
Gulf/California
0.33
0.70
151.00
259.00
1.42
7.48
9.68
scenario for calculating the bioavailability of lead in the marine environment. The
alternative scenario evaluated (using a pH-dependent leach rate to estimate fish tissue
concentrations) would increase human intake of lead to a significant degree, and the
resulting benefit levels would increase by more than a factor of six times greater than the
values shown in Table 6-2.6 .
6 While available data appear to support use of a weak acid extraction (pH 5.0-5.3), benefits summarized
in this RIA are based on a saltwater leach scenario to avoid any potential overestimate of benefits. This issue
is discussed on page 6-17 of the RIA, and a full discussion is found in Avanti, 1993, Appendix C.
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Table 6-2
Monetized Lead-Related Benefits of
Drilling Fluids and Cutting Options
Gulf of Mexico
(Salt Water Leach Scenario, Shrimp Only)
Regulatory Option
Baseline - Current
3 Mile Gulf/California
8 Mile Gulf/3 Mile California
Zero Discharge Gulf/California
Annual Benefits8
{millions 1991 dollars)
-
$28.0
$28.4
$29.9
- $103.3
- $104.4
-$110.1
a Relative to baseline.
Lead-Related Benefits to Infants: Reduced Infant Mortality
There are many likely benefits to infants that could be attributed to reduced lead
exposure via maternal blood. However, the only effect quantified and valued in EPA's
prior lead analyses, and therefore in this analysis, is the reduced risk of mortality in the
first year of life. The monetized lead-related benefits of reduced infant mortality for all
options evaluated range from $0.7 million to $3.3 million per year.
Lead-Related Benefits to Adult Males: Reduced Circulatory System-Related Effects
Elevated blood lead (PbB) levels in adult males have been linked statistically to several
adverse health risks associated with the circulatory system: increased incidence of
hypertension, strokes, cardiovascular heart disease events (CHDs, e.g., heart attacks), and
premature death. Estimated monetized health benefits for all evaluated options (except
the "Current" Baseline) range from $26.7 million to $106.1 million per year when applied
to males aged 40 to 59.7
Hypertension results apply to males aged 20 to 74. Other health effects are estimated for males aged
40 to 59 because data and reliable quantification methods have yet to be developed to allow credible extension
of the results to a broader population.
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Benefits to Children: IP Impacts.' Future Earnings, and Special Education Costs
Children are considered especially vulnerable to lead exposure. Of the health effects
related to lead in children, the most analytically tractable is the relationship between PbB
and intelligence, typically measured in IQ points. Based on estimated PbB levels, the
number of children with a specific adverse impact was estimated, and was limited to (1)
the present value of future earning losses due to the IQ decrements associated with
elevated PbB levels and (2) the expense of supplemental education for those additional
children with IQ levels below 70 points due to shrimp-related exposures. The present
value of lost earnings is valued at $4,588 per IQ point decrement. The lead-related
monetized health benefit to children of moving from the current level of treatment to
more stringent options ranges is as high as $0.7 million per year.
Summary of Results: Drilling Fluids and Cuttings
The total monetized benefits of the options for drilling muds and cuttings are shown in
Table 6-3. In addition to the lead-related benefits described above, the values also
reflect modest reductions in cancer risk as associated with arsenic. These "total" benefits
are understated due to the omission of several potentially significant benefits. Omitted
benefits include, but are not limited to: (1) adverse health effects from lead in women
Table 6-3
Total Monetized Benefits and Costs'
Drilling Muds and Cuttings
Gulf of Mexico
(Salt Water Leach Scenario)
Regulatory Option
Baseline - Current
3 Mile Gulf/California
8 Mile Gulf/3 Mile California
Zero Discharge Gulf/California
Annual Benefits ^
(millions 1991 dollars)
. -
$28.1 - S103.6
$28.5-5104.7
$30.0 - $110.5
Annual Costs; ; ;,
(millions 1991 T|
dollars)
- 4
$18.8
$33.1
$142.4
* Benefits and costs in this table are for Gulf of Mexico operations only.
b Health benefits primarily based on reduced lead exposure, only partially on reduced arsenic-
related carcinogenic risks.
e Relative to baseline.
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and in men below the age of 40 or over the age of 59; (2) adverse lead-related health
effects other than the endpoints quantified; (3) lead-related exposure associated with
shrimp or finfish uptake of lead through the sediments directly, or indirectly, through the
food chain; (4) Recreational and commercial fishery improvements; and (5) nonuse
values.
6.4 MONETIZED BENEFITS: PRODUCED WATER
The benefits associated with produced water at existing or new sources (NSPS) are
related to three regulatory options:
»• Flotation All. Improved gas flotation for all platforms (BAT).
*• Zero 3 Miles Gulf and Alaska. Zero discharge (re-injection) at platforms
within three miles of shore, and BAT for platforms beyond three miles.
BAT required for California wells. _, •
*• Zero Discharge Gulf and Alaska. Zero discharge for all platforms except
California. BAT required for California wells.
Benefit estimates were prepared for Gulf of Mexico locations only. The methodology for
estimation of benefits associated with the produced water options is the same as that
described above under Drilling Fluids and Cuttings. Benefit estimates, however, are
based on exposure via recreationally-harvested finfish only; shrimp-related exposures
could not be estimated for produced waters.
Reduced Carcinogenic Risk
Carcinogenic risks from recreationally harvested finfish were estimated for arsenic,
benzene, and benzo(a)pyrene (preliminary estimates of potential carcinogenic risk
reductions from radium exposure are discussed in a separate section below). Average
excess lifetime cancer risk under the Baseline "current" option is 4.5 x 10"7 for existing
sources and 6 x 10'7 for new sources. For the evaluated BAT options, lifetime excess risk
ranges from none (Zero Discharge) to 2.5 x 10'7 for selected option (Flotation All). For
NSPS, lifetime excess risk ranges from none to 3.3 x 10'7 for the selected option.
Monetized benefits from reduced cancer risk at average exposure levels are small for
both BAT and NSPS, as shown in Table 6-4. Incremental benefits amount to between
$5,900 to $59,700 per year for BAT and between $7,800 to $79,700 per year for NSPS.
For the selected option, incremental annualized BAT benefits range from $5,900 to
$29,900 per year, and NSPS benefits range from $7,800 to $39,800 per year.
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Table 6-4
Excess Cancer Case Reduction Benefits due to Produced Waters
(Moderate Fish Harvest) (1)
Regulatory Scenario
Baseline
Flotation All
Zero 3 Miles Gulf and Alaska (4)
Zero Discharge Gulf and Alaska
Baseline
Flotation All
Zero 3 Miles Gulf and Alaska
Zero Discharge Gulf and Alaska
-' >,,V '« ** - ''„'
',, ,'A, V' ,,'<''
Annual Excess Cancer Cases
„, Incremental
Total Reduction (2)
Monetized Benefits (3)
(Thousands of 1991 dollars)
Low
High
: ;S; 'j iAT ProdnW Waters ' ' " "'"-
•• V-. •> -t 7 H- * -, ff f & f f ...
0.006
0.003 0.003
0.002 0.004
0 0.006
$5.9
$7.8
$11.8
$29.9
$39.8
$59.7
tfSPS Produced Waters
0.008
0.004 0.004
0.003 0.005
0 0.008
$7.8
$9.8
$15.7
$39.8
$49.8
$79.7
(1) Arsenic, benzene, and benzo(a)pyrene only, does not include risk reductions associated with
radium or other pollutants controlled by the regulation.
(2) Relative to baseline.
(3) Cancer cases avoided valued at $1.97 million to $9.96 million.
(4) Improved gas flotation for all other platforms.
Reduced Lead Exposures
Lead exposures from recreationally-harvested finfish are also reduced through the impact
of {he produced waters regulatory options. The associated benefits are as high as
$114,000 per year for BAT and $145,000 per year for NSPS at zero discharge. For the
selected option, benefits amount to between $20,900 and $77,700 per year for BAT and
between $26,700 and $99,300 for NSPS.
RCG/Hagler, Bailly, Inc.
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6-13
Radium-Related Benefits8
For the purposes of this RIA, EPA has used the very limited amount of data available
concerning radium concentrations in edible fish tissue, and human exposure levels
consistent with fish consumption patterns for recreational anglers, to develop a highly
preliminary, order of magnitude estimate of the benefits from the options considered.
The data upon which this estimate is based, however, are not definitive for risk
assessment or for making regulatory decisions.
Limited industry data, drawn from a preliminary draft report by Continental Shelf
Associates to the American Petroleum Industry (CSA, 1992), indicate mean
concentrations of ^Ra of 0.18 pCi/g and ^Ra of 0.91 pCi/g in fish fillets and edible
portions of crabs. These concentration data pertain only to observations drawn from
around two offshore production platforms in the northern Gulf of Mexico, and, as such,
may not accurately reflect actual conditions throughout the Gulf. Nonetheless, for the
purposes of developing an initial and highly preliminary risk assessment, human exposure
to rig-impacted finfish was derived by the Agency based on recreational effort and
harvest data for anglers who fish around platforms in the relevant Gulf states (assuming
half of the anglers share their harvest with another individual). A population of roughly
900,000 persons were estimated exposed to offshore catch within three miles.9 The
Agency's carcinogenic slope factors for 226Ra and 228Ra are used to estimate lifetime
cancer risk associated with the ingestion of radium-contaminated seafood.10 Based on
the very limited amount of fish tissue concentration data, the central tendency individual
risk is estimated to be on the order of 10'5.11
Assuming that fish tissue concentrations of radium are reduced to zero under the zero
discharge regulatory options, for both BAT and NSPS the estimated risk level and
preliminary exposure scenario result in 0.128 cancer deaths avoided per year under the
8 Calculation of benefits associated with the Zero 3 Miles Gulf and Alaska and Zero Discharge Gulf and
Alaska options for radium are described in EPA memorandum dated September 25, 1992, from Alexandra
Tarnay to Mahesh Podar.
9 A more complete description of the derivation of the number of recreational anglers offehore in the
Gulf is found in RCG/Hagler, Bailty (1993).
10 Carcinogenic slope factors and the calculation of lifetime risk of cancer are described in an EPA
memorandum dated December 6,1991, from John Mauro to Alexander Tarnay.
11 This risk level is associated with total radium concentrations in fish tissue, reflecting the contribution
of radium from both produced waters and background.
RCG/Hagler, Bailty, Inc. -
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__i 6-14
Zero 3 Miles Gulf and Alaska option.12 The benefits of avoiding these excess cancer
deaths are estimated at between $0.5 million and $2.6 million per year. Under the Zero
Discharge Gulf and Alaska option, a preliminary estimate of 0.26 cancer deaths are
avoided per year for both BAT and NSPS, corresponding to combined BAT and NSPS
benefits of between $1.0 million and $5.2 million per year.13
Summary of Results: Produced Water
The quantified and monetized benefits are based on reduced human health risks by way
of exposure to selected carcinogens (arsenic, benzene and benzo(a)pyrene),
radionuclides, and lead through the consumption of recreationally harvested finfish. The
estimated benefit levels are relatively modest, as shown in Table 6-5 for existing
platforms and NSPS. It is important to note, however, that these quantified and
monetized values omit several important benefits. These omitted benefits include (but
are not limited to): (1) Lead-related risk reductions for women and for men other than
those between the ages of 40 and 59; (2) Lead-related health effects other than those
evaluated; (3) Recreational and commercial fishery benefits; (4) Any potential health risk
reduction or other benefits as may be associated with produced water impacts on
commercially harvested shrimp; and (5) Any nonuse values or ecologic benefits that may
be associated with the regulatory options.
6.5 COMPARISON OF MONETIZED BENEFITS TO COSTS
The combined human health benefits of regulating drilling fluids and cuttings and
produced water for the selected options (3 Mile Gulf/California and Flotation All) are
between $28 and $104 million per year in 1991 dollars.14 In addition, under an
alternative, pH-dependent leach scenario, benefits of the selected options may amount to
12 If, however, the concentrations of radium found in clams at a site far from oil and gas activity off
Florida's Gulf Coast (see section 6.6.2, below) are representative of background radium levels, and radium
concentrations are not reduced to zero under the regulatory options, the number of avoided deaths, and thus
benefits, will be overestimated.
13 Radium-related risk reduction benefits were also estimated for the selected option for produced waters
(Flotation All); however, these were based on estimated reductions in fish tissue concentrations rather than
the actual fish tissue data from CSA (1992). The preliminary rough estimate of lifetime risk reductions for the
Flotation All option are on the order of 10'7 to 10"8, yielding monetized benefits ranging from $7,500 to $37,400
per year for existing sources and NSPS combined.
14 Benefits estimates are for the Gulf of Mexico only. Ninety-nine percent of existing oil and gas
structures are located in the Gulf.
RCG/Hagler, Bailly, Inc.
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6-15
Table 6-5
Total Monetized Benefits for Produced Waters
(Thousands of 1991 Dollars)
Gulf of Mexico
Regulatory Option
Existing Sources
Baseline
Flotation All
Zero 3 Miles Gulf and Alaska
Zero Discharge Gulf and Alaska
$29.8 - $122.5
$278.7 - $1,417.5
$542.4 - $2,773.2
$39.0 - $161.6
$298.7 - $1,464.3
$554.8 - $2,824.8
over $600 million per year. These benefit estimates do not include several categories of
potential benefits, such as recreational fishing, commercial fishing, nonuse benefits, and
other potential health-related benefits. The total annualized costs (1991 dollars) of the
selected options are estimated to be $121.9 million for the Gulf region in Year 1 and
$32.2 million in Year 15.15 Costs are projected to decline steadily after Year 1 as
existing platforms cease operation. Assuming a straight-line decline in existing BAT
projects over the 15-year time frame, benefits could begin to exceed costs as earlv as
Year 9 (Kaplan, 1992a).
Drilling Fluids and Cuttings
Monetized human health benefits that result from the proposed regulatory options for
drilling fluids and drill cuttings are based on reduced lead exposure and arsenic-related
carcinogenic risks. The lead-related benefits dominate the results (accounting for more
than 99 percent of the benefits). Benefits are reported for a saltwater leach scenario.
An alternative pH-dependent leach scenario results in significantly higher benefit levels
(see RCG/Hagler, Bailly, 1992).
For the selected option, estimated benefits of $28.1 to $103.6 million per year compare
to estimated annualized costs of $18.8 million. Incremental benefits from the evaluated
options for drilling fluids and cuttings range from as much as $103.6 million per year for
3 Mile Gulf/California to as much as $110.5 million per year for Zero Discharge.
15 Costs throughout this chapter are for the Gulf of Mexico only, in order to present appropriate figures
for comparison to benefits. They therefore differ from the total costs for all regions presented in Chapter 5.
RCG/Hagler, Bailly, Inc.
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6-16
Estimated annualized costs of the regulatory options for the Gulf of Mexico range from
$18.8 to $142.4 million.
Produced Water
Monetized human health benefits that result from the proposed regulatory options for
BAT and NSPS produced waters are based primarily on reduced lead exposure, and
arsenic-related and other carcinogenic risks. Incremental benefits for produced water are
significantly lower than costs.
For the selected option, benefits of between $69,000 and $284,000 per year compare to
estimated Year 1 costs of $103 million and Year 15 costs of $13 million. Incremental
benefits from the range of evaluated options for produced waters vary from as much as
$284,000 per year for Flotation All (BAT and NSPS) to as much as $5.6 million per year
for Zero Discharge. First-year costs of the evaluated options are estimated to be
between $103 and $755 million and Year 15 costs are estimated to be between $13 and
$376 million.
6.6 ANALYSIS OF NON-MONETIZED BENEFITS16
An assessment of quantified, non-monetized water quality benefits compares projected
water column and sediment pore water pollutant concentrations resulting from discharges
at the current level of treatment, and for evaluated options, to acute and chrome marine
and human health (fish consumption only) criteria/toxic values.
Under CWA Section 403(c) and its implementing regulations (40 CFR 125.120-125.124),
EPA shall determine whether a marine discharge will cause unreasonable degradation of
the marine environment based on a number of factors, specified in Section 125.122(a).
One of these factors is "marine water quality criteria" developed pursuant to Section
304(c)(l) The criteria are not enforceable limitations, as is the case with state water
quality standards. Rather, they are guidelines that are considered in the assessment of
potential water quality or human health impacts as one of 10 factors considered by EPA
in making a Section 403 determination.
These criteria are federal guidelines developed from laboratory and other pollutant-
specific data for the protection of marine water quality and human health due to
consumption of organisms. For the preparation of this analysis for the RIA, in addition
to published or proposed water quality criteria, toxic benchmarks also were calculated for
16 This analysis summarizes more detailed assessments of non-monetized benefits presented in Avanti
(1993).
RCG/Hagler, Bailly, Inc.
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•-••- ; " . 6-n
pollutants for which no criteria or updated recalculations were available (refer to the
environmental analysis presented in Avanti, 1993, for futher details). These toxic
benchmarks represent estimates of pollutant-specific criteria based on available published
literature. However, these toxic benchmarks have not been subject to the formal
promulgation process, including public comment.
This assessment projects exceedences of these values by drilling fluids, drill cuttings, and
produced water discharges. The quantified, non-monetized benefits identified for the
selected options include: (1) for drilling fluids and drill cuttings, elimination of the
projected aquatic life and human health toxic values exceedences within 3 miles from the
shore and reduction of projected impacts beyond 3 miles from shore; and (2) for
produced water, reduction of projected impacts.
The assessment of quantified, non-monetized impacts also reviews and summarizes case
studies of localized impacts found near oil and gas drill sites and platforms located in the
Gulf of Mexico, off Southern California, and in Alaskan waters. Discharged drilling
fluids and drill cuttings cause contamination of sediments with heavy metals and
hydrocarbons. Documented biological effects include elimination and inhibited growth of
seagrasses, declined abundance in benthic species, altered benthic community structure,
decreased coral coverage, and bioaccumulation of heavy metals. Biological impacts from
single wells occur on a scale from several hundred meters to several kilometers; chemical
impacts have been noted from several to tens of kilometers. Produced water discharges
are shown to cause contamination of sediments with polynuclear aromatic hydrocarbons
(PAH), metals, and radioniclides, local elimination and depressed abundance of-benthic
species, and alteration of benthic communities. Studies do not indicate that larger-scale
(more than several hundred to a thousand meters) impacts occur. However, these
studies are not adequate to conclude that regional-scale impacts do not occur.
6.6.1 Water Column and Pore Water Quality
The potential effects on water quality of selected effluent discharges from this industrial
subcategory have been analyzed. Drilling fluids and drill cuttings are discharged in large
quantities and have demonstrated the capability to produce adverse benthic impacts.
Produced water is released in large volumes and contains varying levels of trace metals
and organic pollutants. Therefore, these waste streams have a high potential for adverse
water quality effects. Analyses conducted for these waste streams include assessments of
water quality in the water column for both drilling muds and produced water; sediment
pore water quality was analyzed for drilling fluids (and adherent cuttings). These
assessments are conducted for the current baseline and for each of the regulatory options
considered for both drilling fluid and produced water waste streams. Water quality
benefits from the regulatory options considered arise from reductions in the number
RCG/Hagler, BaUly, Inc.
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6-18
and/or degree of projected exceedences of EPA's water quality criteria/toxic benchmarks
for aquatic life and human health (fish consumption only).
Drilling Fluids and Cuttings
Water column water quality benefits for drilling fluids are based on projected
concentrations of subcategory-wide pollutants at the edge of a 100-meter mixing zone and
comparison of these projected levels to EPA's marine water quality criteria or toxic
benchmarks. Predictions of pollutant concentrations are based on EPA's estimates of
subcategory-wide pollutants in these waste streams and estimates of drilling mud dilution
based on results of model runs of the Offshore Operators Committee (OOC) Mud
Discharge Model. The soluble portion of metals present in drilling fluids discharges is
considered in the determination of benefits. The percentage of metal leached at
seawater pH and weakly acidic pH (pH 5.0-5.3) are used to establish a range for the
amount of metal available for intake by biota. Dilution of the pollutants in the discharge
plume at the edge of the 100-m mixing zone is applied against the effluent concentration.
The projected pollutant concentrations are then compared to EPA's marine water quality
criteria or toxic benchmarks for aquatic life and human health (fish consumption only).
An issue of continuing comment and uncertainty is drilling fluid trace metal contarninant
bioavailability. Two views on this issue are: (1) seawater extraction (pH 7.5 - 8.0) is^the
more appropriate technique for estimating bioavailability, or (2) a weak acid extraction
(pH 5.0 - 5.3) is more appropriate. The Agency believes the weak acid extraction to be
a scientifically defensible basis for projecting potential impacts of drilling fluids, although
the Agency has conducted analyses based on both approaches to present the full range of
potential impacts. However, to present a conservative projection of benefits, the
quantified and monetized benefits assessment in this RIA is based primarily on seawater
extraction leach data rather than the weak acid leach rate scenario.
Pore water quality benefits for drilling fluids and cuttings are assessed by projecting the
concentration of the subcategory-wide pollutants in the sediment at the edge of the 100
meter mixing zone. The projections of pollutant concentration are derived from studies
in which barium levels in the sediment were measured at various distances from the
discharging structures; all measured pollutants in the drilling fluids and cuttings are
assumed to be distributed in a manner consistent with barium's distribution at 100
meters. The pore water concentration of each pollutant is calculated from the sediment
concentration at 100 meters using equilibrium partitioning (Koc * f^) for organics and
percentage leach for metals. The projected pore water concentrations are then
compared to EPA's marine water quality criteria or toxic benchmarks to determine the
nature and magnitude of the water quality exceedences.
The results of these analyses are presented below. More detailed discussion of water
column and pore water quality benefits, and considerations in estimating these benefits, is
RCG/Hagler, Bailly, Inc.
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".. . '•• __ 6-19
presented in The Environmental Analysis of the Final Effluent Guidelines for the
Offshore Oil and Gas Industry (Avanti, 1993).
Several factors affect the scope and reliability of these data and analyses.
*• First, for water column benefits, it is difficult to generalize about plume
behavior of discharged drilling fluids in the Gulf of Mexico. An effort has
been made to be conservative with respect to protecting water quality,
primarily by basing results on the maximum authorized discharge rate (1000
bbl/hr) for a range of water depths. Conceptual and practical limitations
(necessary ambient data) are responsible for a limited ability to model the
fate of these discharges in shallow (<5 m depth) water.
> Second, only listed, toxic pollutants have been included for both water
column and benthic benefits. Other nonconventional pollutants are likely "
to be present on a case-by-case basis, and may be a substantial source of
potential environmental impacts. The exclusion of these pollutants could
result in the underestimation of potential environmental benefits in the
RIA.
> Third, average pollutant concentrations are used throughout, rather than
more conservative estimates, such as the upper 90th or 95th percentile
concentrations. Using large-scale average concentrations can lead to
underestimating impacts particularly if threshold-type effects are involved,
such as for systemic toxicants.
> Finally, because of both the variation in organic carbon content on a Gulf-
wide basis and the uncertainties associated with KOC values, calculations for
sediment benefits should be considered as a first-order approximation.
Produced Water
In the development of the RIA, the benefits associated with the regulation of produced
water are assessed, using gas flotation technology or zero discharge. Water column water
quality benefits for produced water are based on predictions of concentrations of
pollutants at the edge of a 100-meter mixing zone and comparison of these levels to
EPA's marine water quality criteria or toxic benchmarks. Predictions of pollutant
concentrations are based on EPA's estimates of the average concentrations of these
pollutants in produced water and estimates of produced water dilution based on the
results of CORMIX model runs. Numerous water column scenarios were developed,
based on various flow rates and water depths. Input data and assumptions generally
represent average case current speed, density structure, and effluent density conditions.
RCG/Hagler, Bailly, Inc.
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6-20
The discharge modeling is subject to opposing uncertainties and assumptions. Using
model runs limited to 5- to 40-meter water depths may underestimate available dilution
for waters deeper than 40 meters and overestimate dilution for waters shallower than 5
meters. Discharge rates were examined over the range of 50 to 73,580 bbl/day, which
include most platforms, including average platforms. However, a few larger central
processing facilities discharge at rates twice as high as the maximum rate modeled.
Conversely, the limitation on potential ambient conditions is evident and discharges in
very shallow water (1-2 meters) or under usually stagnant or stratified conditions are not
included.
Similar to the case for drilling fluids, a second consideration is that using only listed toxic
pollutants restricts the number of potentially important pollutants. Their presence could
have an impact on water quality and/or living resources. Likewise, average pollutant
concentrations, which can lead to an underestimate of potential benefits at a local level,
are used throughout this assessment.
Biocides in produced water also are not considered in this RIA. The potential impacts of
biocides could not be assessed because necessary and sufficient data on the materials
used, their chemical and toxicological properties, and their usage levels and frequencies
are not available.
Results
Federal water quality criteria or toxic benchmarks for marine organisms acute effects,
marine organisms chronic effects, and human health for fish consumption (Versar, 1992)
are compared to the projected incremental concentration of pollutants in the water
column (for drilling fluids, drill cuttings, and produced water), and the sediment pore
water (for the drilling fluids and drill cuttings).
Drilling Fluids and Cuttings
Drilling fluid pollutant concentrations at the edge of the 100 meter mixing zone are
projected at three water depths - 5 meters (13th percentile of wells drilled), 19.8 meters
(median depth for wells drilled), and 50 meters (79th percentile of wells drilled) at the
maximum discharge rate (1000 bbl/hr) authorized under existing NPDES general permits.
These are then compared to water quality criteria/toxic benchmarks to determine which
pollutants exceed the criteria/benchmarks and the magnitude of the exceedence. Drilling
fluid pollutant concentrations were projected for the soluble portion of trace metals in
drilling fluids; using leach factors based on both a pH 5 extraction and a mean seawater
pH extraction. The magnitude of water quality exceedences, (the factor by which the
water column pollutant concentration exceeds the water quality criterion/benchmark
value) is presented in Table 6-6 for pollutants for which at least one exceedence is
projected. A blank cell indicates that the water quality criterion/toxic benchmark is not
exceeded at that discharge profile.
RCG/Hagler, Bailly, Inc.
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Under current conditions, as many as 10 exceedences (6 marine chronic, 2 marine acute,
2 human health for fish consumption) are projected due to drilling fluid discharges of
1000 bbl/hr in 5 meters water depth; this is based on the assumption of a pH 5
extraction. This drops to 8 exceedences (6 marine chronic, 1 marine acute, 1 human
health for fish consumption) under the recommended option in areas in which discharges
are allowed, and, of course, no exceedences within the zone in which discharge is
prohibited. Given the differences in solubility of metals, in a seawater pH extraction the
current water quality impacts analysis projects 4 exceedences (3 marine chronic, 1 human
health for fish consumption) at the edge of the 100 meter mixing zone for discharges in 5
meters water depth. This incidence of exceedences drops to 2 (1 marine chronic, 1
human health for fish consumption) under the proposed BAT/NSPS option for those
waters in which drilling fluids may still be discharged. The incidence of exceedences in
the zone in which discharge is prohibited drops to zero.
To assess potential water quality impacts for the benthos, projected pore water
concentrations of pollutants in drilling fluids and cuttings discharges at the edge of the
100 meter mixing zone are also compared to EPA's marine water quality criteria/toxic
benchmarks. The projections of pollutant concentrations are derived from studies in
which barium levels in the sediment were measured at various distances from the
discharging structures (Petrazzuolo, 1983; Boothe and Presley, 1985). The assumption is
made that pollutants within drilling fluids and cuttings behave in a manner consistent with
barium's behavior and would be found in the same compositional ratio (based on model
well calculations of EPA/EAD) at 100 meters as they are found in the discharged fluids.
A range of exceedences is projected because different levels of barium are found at the
edges of the 100 meter mixing zone at the sites studied, which supported from 1 to 25
wejls, on a single drilling structure. Pore water quality analyses were performed for
drilling fluids and cuttings discharges from exploration and development platforms, based
on the mean and maximum barium concentrations projected at 100 meters from the
discharge. Tables 6-7 and 6-8 provide the projections of pore water quality exceedences
for drilling fluid and cuttings discharges using mean seawater extraction for trace metals
and using pH 5 barite extraction for trace metals, respectively. Under current baseline
conditions, for exploration wells having 1 or 2 wells, the number of exceedences projected
ranges from 5 (4 marine chronic, 1 human health for fish consumption) based on mean
seawater metal extraction, to 13 (7 marine chronic, 3 marine acute, 3 human health for
fish consumption) based on pH 5 barite extraction of trace metals. Pore water quality
was also projected at the edge of the 100 meter mixing zone of the largest development
platform included in these studies — a 25-well site, sampled 5.5 years after cessation of
discharge. The projected exceedences at that site range from 12 (8 marine chronic, 2
marine acute, 2 human health for fish consumption) to 20 (9 marine chronic, 8 marine
acute, 3 human health for fish consumption) under mean seawater metal extraction and
pH 5 barite extraction scenarios, respectively.
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For the selected option (Zero Discharge, 3 Miles) the water quality exceedences within 3
miles drop to zero. In waters beyond 3 miles, the number of projected pore water
quality exceedences drop to between 3 (2 marine chronic, 1 human health for fish
consumption) for mean seawater extraction and 11 (7 marine chronic, 3 marine acute, 1
human health for fish consumption) based on the mean barium concentration at 100
meters determined for exploration wells for pH 5 barite extraction , and between 9 (6
marine chronic, 2 marine acute, 1 human health for fish consumption) and 17 (9 marine
chronic, 5 marine acute, 3 human health for fish consumption) based on the maximum
barium concentration determined at 100 meters for the modeled development platforms,
again depending on the teachability of the trace metals.
Produced Water
Produced water pollutant concentrations are projected at the edge of a 100 meter mixing
zone based on four selected flow rates for produced water, discharging in four different
water depths — 5 meters, 15.2 meters (median depth), 30 meters, and 60 meters. The
flows used included 160, 760, 2830, and 9890 BPD, which respectively represent the 42nd,
50th, 85th, and 100th percentiles of the number of offshore structures. Projected
concentrations are then compared to water quality criteria/toxic benchmarks to determine
which pollutants exceed criteria/benchmarks and the magnitude of these exceedences.
The magnitude of water quality exceedences (the factor by which the water column
pollutant concentration exceeds the water quality criterion/benchmark value) is presented
in Table 6-9 for pollutants for which at least one exceedence is projected. A blank cell
indicates that the water quality criterion/toxic benchmark is not exceeded at that
discharge profile.
The table indicates that at the shallowest selected water depth (5 m) and highest selected
discharge irate (9890 BPD), as many as 16 water quality exceedences (9 marine chronic, 3
marine acute, 4 human health for fish consumption) are projected due to produced water
discharges under current conditions. Under the recommended BAT/NSPS option and
the same depth and flow conditions, the number of projected exceedences drops to 11 (5
marine chronic, 2 marine acute, 4 human health for fish consumption). The projected
water column water quality benefits can be determined at the various depths and
flowrates by comparing the number of projected exceedences under current conditions
and under the BAT/NSPS option.
RCG/Hagler, Bailly, Inc.
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6-28
6.6.2 Produced Water Radioactivity Study
In 1991, the Agency conducted a limited study of three offshore oil and gas platforms
located off the coast of Louisiana. The purpose of the study was to generate data on
radium concentrations in the produced water, generate basic data on distribution of
radium around the platforms in the water column and sediments and to make a
preliminary estimate of risk to human health from the consumption of fish and shellfish
harvested in the vicinity of produced water discharges. The results of the study may be
found in EPA 1993.
6.63 Case Studies
An extensive review of the literature to identify and review potentially applicable field
impact studies was undertaken by EPA to document impacts caused by drilling and
production discharges. A total of 1,169 potentially relevant studies were identified for
this RIA This total includes more than 800 of the potentially relevant studies that were
identified in the 1991 RIA Industry submitted 29 studies during the comment period,
while the remainder of the potentially relevant studies were either recently completed
studies or were identified via more detailed literature searches than were conducted for
the 1991 RIA. Only field studies that assessed environmental impacts in the offshore
subcategory were summarized for this RIA (3 studies that had been included in the 1991
RIA were dropped because they addressed coastal subcategory sites). This evaluation
resulted in 30 relevant studies whose summaries are included in this RIA.
Results of this updated review of potentially applicable field impact studies are discussed
below. This review found that localized biological effects (<500 meters to several
kilometers) were observed for drilling and production wastes, and that regional-scale
impacts in sediment chemistry could be inferred. Regional-scale biological or ecological
alterations, however, have not been demonstrated. Five areas of discussion relevant to
the ability of these studies to demonstrate conclusive adverse environmental impacts at
anything other than local scales are discussed below.
These comments are not so much directed at the studies conducted, which were often
state of the art and/or resource limited, but are intended to give greater weight to the
limitations of their observations of impact due to the natural, anthropogenic, technical,
and cost factors that all act separately or together to reduce our ability to demonstrate
the type and extent of environmental changes from discharges of this industrial
subcategory. The comments below are offered to give the findings of these studies some
perspective and to address the level of confidence we can have when we make or accept
statements about the limited nature of the documented impacts of these discharges.
One source of concern in evaluating field studies of offshore oil and gas discharges is the
type of study design used to detect potential environmental alterations. In the Gulf of
RCG/Haglcr, Bailly, Inc.
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;•'• - _ , •",. ..; • . . . . - . 6-29
Mexico, where drilling has occurred for decades, a host of rig monitoring studies have
been conducted, i.e., studies of single exploratory well operations. Several factors
contribute to the reduced ability of such studies to detect changes. One factor is the
absence of necessary reference values. That is, studies often did not have comparative
annual or temporal reference data ("baseline" or pre-drilling conditions) to evaluate
drilling programs less than a year in duration. The lack of such comparative data
introduces uncertainty in any observed changes because of the potential contribution of
seasonal effects. Also, in many studies spatial reference stations were either not used or,
as more often was the case, an assumption was made that stations located at 1 kilometer
or 2 kilometers from the discharge site could validly serve as reference stations. However,
most often there was no analysis or consideration of these "reference" stations with
respect to their comparability to the discharge site, their independence from drilling-
related effects of the discharge site, or their independence from the effects of other
nearby drilling or production activities.
Also, related to this concern about study design is the historical insistence on the
selection of exploratory sites, at which only one well was drilled, for impact studies. This
approach necessarily reduces our ability to detect environmental changes when compared "
to multiple-well development facilities. For the expedience of cost effectiveness, the
effort to measure environmental changes should be pursued in cases where the potential
magnitude of change would be the greatest, and thus most easily detected. Specifically, if
changes due to drilling discharges were to be examined, a development drilling platform
with 24+ wellslots would afford a better study site than a single-well, exploratory site
because of the greatly increased pollutant loadings and concomitant potential for causing
adverse environmental changes. Yet, although sediment chemistry at development sites
has been studied, primarily after the fact, no benthic biological studies of development
drilling have occurred in the Gulf of Mexico. One such study has been initiated offshore
of southern California. A hard bottom study has begun, but a soft bottom study has been
suspended because the scheduled placement of the platform has not occurred. ,
The second and third sources of concern in evaluating offshore oil and gas case studies
are related-natural, sampling, and analytical variability is one concern; statistical power is
the other. Because of high levels of natural, sampling, and analytical variability and high
costs inherent to marine field studies, the statistical power of such studies is limited.
Thus, many studies have shown "no effect" or have shown statistically significant adverse
effects to a limited spatial extent (several hundred meters). These statements, however,
also should be considered in light of the limiting question: "How large an effect could be
observed?" The answer for most studies is that the magnitude of change that would be
required in order to statistically observe such a change have ranged from "large" for
chemistry data to "very large" for biological data. For example, one of the most
sophisticated and well-funded studies conducted sampled 60 photoquadrants per station
per cruise. However, because of the combined types of variability involved, this relatively
large effort resulted in the ability of the study to statistically detect 70 percent changes or
RCG/Hagler, Bailly, Inc.
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6-30
greater (reductions) in coral coverage. This level of detectability gives some measure of
definition to and confidence in the conclusion that "No statistically significant changes
were noted."
The fourth source of concern in evaluating these case studies is the issue of "background"
or the reference value against which changes are measured. This consideration applies
both to the spatial and temporal changes. For example, drilling fluid components have
been shown to be regionally dispersed: studies have found large mass transport (up to
95 percent of discharged particulates) beyond 3 kilometers of the discharge site and
document the transport of solid components at least 35 miles from the discharge point.
Thus, defining sampling stations at 1 kilometer or 2 kilometers distant from a discharge
site as reference stations may not be a very sound assumption. In studies thorough
enough to address the issue of nearby drilling activity, the study invariably identifies other
previous or concurrent well-drilling operations, ranging from single wells being located
from 500 meters to a few kilometers from the discharge point to multiple (225) wells
drilled within a 10-mile radius of the study area. Both situations cast serious doubt on
the establishment of a true "background" level for comparative purposes.
The fifth and last source of concern in evaluating any field impact study is the issue of
confounding factors, which is an inherent problem of all field studies and has accounted
for some uncertainty concerning environmental changes related to oil and gas discharges.
This factor was and is a significant one in the Gulf of Mexico, where heavy ship traffic,
and commercial fishing, and the large influence of the Mississippi River have confounded
study plans and the interpretation of their results.
Given the wide distribution of mud components, the situation is akin to that of acid
precipitation impacts assessment - there are great difficulties (technical and financial) in
measuring low-level, regional-scale effects at meaningful levels of statistical power and in
ascribing cause-effect relationships. Assessing large scale, low-level impacts is very
difficult in such cases. When even large effects (e.g., >50 percent) may often go
unnoticed or unprovable, assessing more subtle changes is nearly impossible in any way
other than extrapolation. Nonetheless, total impacts at the 1-10 percent effect level that
occur over many square, kilometers, and which cannot be statistically resolved and thus
are not documented, may easily exceed the total impacts associated with changes at the
50-100 percent effect level that can be documented within a few hundred meters of a
discharge.
In view of the above discussion, it is perhaps surprising to find any evidence of
documented adverse impacts due to drilling and production wastes. Evidence is largely
based on alteration of pollutant concentrations in sediments, which although easier to
demonstrate, is of uncertain ecological significance. However, localized adverse
biological effects have been noted; these findings should be appropriately weighted in
light of the considerations discussed above.
RCG/Hagler, Bailly, Inc.
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•- ' , : ' ' 6^31
Results
Drilling Fluids and Cuttings
A review of the available literature identified 23 field impact studies that were analyzed
for their findings on the environmental effects of drilling fluids and cuttings discharges.
A synthesis of this review is provided below. This review suggests that these discharges
.are capable of producing localized impacts. These discharges have not been shown to
result in regional-scale impacts; however, in view of comments discussed above these
studies may not be sufficient to conclude regional-scale impacts are not occurring. A
tabulated summary is provided in Table 6-10.
Modeling of drilling fluid plume dispersion and field, studies of discharge plumes indicate
that, in general, plume dispersion is sufficient to minimize water quality impacts and
water column toxicity concerns in energetic, open waters of the OGS. This generalization
does not necessarily extend to shallow water or to the benthos (see below).
In shallow water areas (i.e., less than 5 meters), field data on plume dispersion are
limited, and may not be sufficient to conclude that water colurnn effects.present only a
minor potential concern. Some modeling data suggest water quality and toxicity
parameters could be adversely affected under shallow water conditions. In water depths
of less than 5 meters, the reliability of most models that are suitable for application to
drilling fluid discharges comes into question. Also, resuspension is not addressed by
these models and becomes a relatively more important process in shallow water. Thus,
the potential water column impacts of those discharges in shallow waters is not known
with any degree of confidence.
The principal impacts of these discharges are benthic effects, due to the very high solids
content of drilling fluids (10 percent to 70 percent solids by weight). Benthic community
changes have been hypothesized to be due largely to physical effects. However, no
studies have quantitatively discriminated between impacts from physical effects (altered
sediment texture) and chemical effects (sediment-associated toxics). It is reasonable to
assume that both effects occur, and that either could predominate, depending on the
characteristics of the discharged mud. : .
RCG/Hagler, Bailly, Inc.
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Studies of Dril
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The most clearly documented point source effect of these discharges has been alterations
in sediment barium (Ba), a tracer for drilling fluids solids. (Because all metals except
chromium are transported in the same way as Ba, Ba is used as an indicator of the
presence of other toxic metals.) Observations on sediment alterations from field studies
of both single-well and multiple-well facilities include:
*• Increases in Ba levels of 2-fbld to 100-fold above background at the
discharge site, with typical values of 10-fold to 40-fold
* Average measured background levels are reached at 1,000-3,000 meters;
single transect values have been elevated at up to 8,000 meters
» Increases in Ba fall off logarithmically with distance from the discharge site;
regression analyses project background levels are achieved at 2,000-20,000
meters.
Increases in a suite of other trace metals associated with drilling fluids (As, Cd, Cr, Cu,
Hg, Pb, Zn) have also been variously observed. These increases:
>• Are of a lower magnitude than seen for Ba (generally not more than 5- to
10-fold above background)
+ Are more spatially limited, when compared to background levels, than seen
for Ba (generally within 250-500 meters of the discharge site)
> Are noted consistently as a group but are variable for any specific chemical
among the various studies.
Observations of the long-term, regional scale fate of drilling fluid solids indicate that the
materials may be very widely dispersed over large areas. Dispersion is related directly to
bottom energies of the receiving water (shallow waters being more energetic than deeper
waters).
> In shallow water (13-34 meters) only about 6 percent of discharged Ba was
accounted for within a 3 kilometer radius of three discharge sites; in
contrast, for three discharge sites in deeper waters (76-102 meters), 47
percent to 84 percent of the discharged Ba was found within a 3 kilometer
radius.
> At these same six sites, Ba concentrations 3 kilometers from the discharge
sites ranged from 1.2 to 2.9 times predicted background at the shallow
RCG/Hagler, Bailly, Inc.
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6-38
water sites and at the deep water sites ranged from 2.0 to 4.3 times
predicted background.
»• Drilling fluid solids can be transported over long distances (35-65
kilometers) to regional areas of deposition, albeit at low concentrations,
based on a study of eight wells.
Biological effects have routinely been detected statistically at distances of several hundred
meters. Less routinely, effects have been observed at greater distances (1-2 kilometers).
These effects more typically are found to fall into one of two categories: those that are
statistically significant at the level of individual stations but cannot be integrated into an
easily defined pattern or those that are not statistically significant at the level of
individual stations but do form significant correlations at larger levels of integration.
Specific observations are as follows:
> The most affected community appears to be seagrasses. Data on
seagrasses are limited to a single study of a seagrass species near its
biographic limits, but it documented damage much more severe than in any
other study to date. Seagrasses were completely absent within 300 meters
of the discharge site, and were only 25 percent recovered at a distance of
3.7 kilometers from the discharge site.
>• Fauna also have been affected, including changes in abundance, species
richness (number of species), and diversity. Taxa include annelids,
mollusks, echinoderms, and crustaceans.
»• Alterations to benthic community structure are virtually always observed
within 300 meters of the discharge site. However, changes have been noted
in some cases at 500-1,000 meters.
»• Changes have been ascribed to purely physical alterations in sediment
texture and to platform-associated structural effects (i.e., from the fouling
community — marine life fixed to underwater structures) more frequently
than to toxic effects. These causes are plausible, but there are no
systematic studies of their relative contribution to observed impacts. Also,
alterations due to physical causes may not be any less adverse than those
due to toxic pollutants, and may be more persistent
>• Bioaccumulation has been observed for a suite of metals (Ba, Cd, Cu, Hg,
Ni, Pb, V), but the magnitudes of this effect are usually low (i.e., less than
a factor of 5).
RCG/Hagler, Bailfy, Inc.
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6-39
> Elevated Cd, Cu, and Fe levels in white shrimp (commercially important)
out to 1000 m.
Produced Water
When viewed as a whole, limited field studies of the impacts of produced water show
that their contaminants can accumulate in sediments, disturb benthic fauna, and can
potentially bioaccumulate. Factors that influence the degree to which the affects will be
observed include site-specific parameters such as discharge volume, effluent contaminant
levels, water depth, and hydrologic mixing. However, these factors apparently operate in
a complex manner, and cannot easily be used to predict the potential extent of
contaminant changes. r
A review of the seven studies indicates that localized benthic impacts occur and may
extend up to several kilometers, although water column impacts to biota have been
observed beyond 500 m in a high energy environment A finding of this review is that
such impacts can be highly dependent on the specific characteristics of the site. A
tabular summary of the findings of these studies is presented .in Table 6-11 and is
discussed below.
The high energy environment mentioned above, was the subject of two recently
completed studies of a produced water discharge to the California territorial sea.
Produced water is discharged from a diffuser located in 10-12 meters of water, about
200-300 m from shore, at a rate of 16,000 bbl/day. Both studies observed impacts to
biota near the outfall and to distances up to 1000 m. One study documented benthic
community density as inversely proportional with distance from the outfall with the
exception of polychaetes, typically an opportunistic species. Chronic (life-cycle) impacts
were highly correlated to distance from the outfall for mussels (out to 1000 m or
greater).
RCG/Hagler, Baffly, Inc.
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The other study of this site identified acute and chronic toxic effects to pre-competent
(the initial 5-7 days of the planktonic phase) Red Abalone larvae. Survivorship during
the critical developmental stage referred to as settlement by competent larvae (the 2-5
week period following the initial planktonic phase) was reduced by 50 percent within 10
m of the outfall and 30 percent within 100 m. Larvae that were released in the
competent phase were unaffected by distance from the outfall, demonstrating the effect
of the discharge on the critical pre-competent life stage. Distance-dependent reductions
in the completion of larval metamorphosis were observed between 5 m and 500 m from
the outfall. These results were corroborated by laboratory analysis, using appropriately
diluted aliquts of the same produced water.
A study of a produced water discharge site in the Gulf of Mexico (Eugene Island, Block
18) was completed in 1991. The discharge of approximately 21,000 bbl/day of produced
water into 2-3 m of water was evaluated. Elevated Ba, Al, Gr, V, Zn, and Cd was
detected in sediments out to 1000 m from the outfall. PAH values were elevated in a
distance-dependent relationship from the outfall out to 1000 m. Sediment cores
indicated that radionuclides (210Pb) were elevated from 1.4 to 2.1 times higher than
"natural" waters.
Biota were impacted to distances up to 300 m from the outfall. Reductions in both the
numbers of species and individuals were documented to be below background levels.
The author of the study noted that differences in biological assemblages were related to
distance from the discharge, not to sediment grain size, organic content, or seasonal
differences.
Two production platform sites located on the upper continental shelf were studied in
1986. One facility discharged 2,750 bbl/day into 1.8-3 m of water, while the other facility
discharged 1,570 bbl/day into 8 m of water. It was found that at the deeper water (8 m)
site, background levels of petroleum hydrocarbons were found at all but the 20 m
sampling sites, although sediment hydrocarbon levels could also be interpreted as
indicative of a patchy distribution of sediment contamination. At the shallow water (1.8-3
m) site, elevated PAH concentrations occurred from 300-1,000 m from the outfall.
Sediments were particularly contaminated with phenanthrene, exhibiting average levels at
100 m sampling stations at least 85 times background (i.e., 85 x the average level
observed at the 1,000 m stations). Interpretation of data from this study is complicated
by the occurrence of two other produced water outfalls and a development drilling
platform within the sampling grid at one of the study sites.
A study of a production platform located in 20 meters of water on the South Texas OCS
was conducted. The study site was located in a highly active oceanographic area.
Current data and surficial sediment data indicate considerable movement of fine-grained
material at the site, serving as a potential mechanism for transporting contaminated
RCG/Hagler, Baffly, Inc.
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6-46
sediments from the site. Also, the discharge rate at the platform was relatively low (600
bbl/day) compared to values observed in EPA's 30 platform study (a mean of 4,011 •
bbl/day excluding central processing facilities, a mean of 9,577 bbl/day including such
facilities).
Alterations in benthic fauna (depressed abundance) were observed at stations located
within 100 meters of the platform. Also, petroleum hydrocarbon levels in fish tissues
collected near the platform were measured in two species that actively fed on the
platform's fouling community, one species that fed much less on the community, and one
highly mobile species unlikely to feed on the fouling community. Tissue levels of
petroleum hydrocarbons corresponded to the use of the fouling community as a food
source.
Two case studies were completed in early 1992 that focused on documenting the extent
of radionuclide contamination in sediment and biota near three produced water outfalls
on the central Gulf of Mexico OCS (Steimle Associates, 1992; Continental Shelf
Associates, 1992). Impacts detected in these studies at the Eugene Island Block 189,
Ship Shoal Block 169, and South Timbalier Block 52 platforms are included in Table 20.
A screening-level risk assessment commissioned by the U.S. Department of Energy was .
conducted using, in part, data from these two studies (Brookhaven National Lab, 1992).
Two analytical approaches were used in the analysis: a direct assessment using measured
concentrations of radium in organisms, and a predictive modeling approach.
For platform workers, the direct risk assessment found potential individual lifetime risks
that may exceed 1 x 10"4 for only one of the maximum fishing platforms. This estimate
(<1.2 x lO^4) is inflated because the calculations were based on whole fish. In the
predictive assessment for platform workers, one scenario had predicted individual lifetime
risks greater than 1 x 10"4 (1.1 x 10"4) the 25,000 bbl/day discharge, with the maximum
radium concentrations (600 pCi/1 Ra-226 and 600 pCi/1 Ra-228), and the maximum
number of fishing days (200).
The direct risk assessment for recreational fisherman estimated potential individual
lifetime risks for the three offshore outfalls that ranged form 1.4 x 10'5 to <3.3 x 10'5 for
fishermen ingesting 20 g per day, and <6.4 x 10'5 to <1.5 x 1Q-4 for the ingestion rate of
93.3 g/day. Only one value may represent risk greater than 1 x 1Q-4 (South Timbalier,
maximum ingestion rate, <1.5 x. 10"4), and this risk estimate is inflated because it is
based on whole fish.
Based on the limited data available, and the conservative assumptions and worst-case
modeled scenarios presented, lifetime risks to the most sensitive subpopulations
(platform workers and recreational fishermen) appear to be small. Risks are not
RCG/Hagler, Baffly, Inc.
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: 6-47
expected to exceed 1 x 1Q-4, even under worst-case situations. Background concentrations
of radium are expected to present a lifetime risk of approximately 8 x 10'7 to 4 x 1Q-6 for
platform workers and 5 x lO'7 to 2 x 1Q-6 for recreational fishermen.
6.6.4 Other Non-Monetized Benefits
The non-quantified, non-monetized benefits assessed in this RIA are increased
recreational fishing use and enjoyment, increased commercial fishing benefits, improved
aesthetic quality of the near-platform waters, and benefits to threatened or endangered
species that inhabit the Gulf of Mexico.
While no direct changes are anticipated in the abundance or composition of the offshore
recreational fishery, recreational fishing benefits may accrue to society because of the
regulations in three indirect ways:
> There are no data to indicate the degree to which fishing levels or utility
may be constrained by the perception that the Gulfs fisheries, particularly
for those species caught near rigs, pose a risk to health; to the extent the
regulation changes those perceptions, recreational fishing values may
increase.
> To the degree that the regulation improves the aesthetic quality of the
near-platform waters frequented by anglers, they may .increase the average
consumer surplus associated with a fishing day, and/or might induce higher
levels of participation.
> While no analytically discernable direct improvements to the target fishery
are attributable to the regulations, it is conceivable that more subtle
ecosystem impacts may arise that could enhance the fishery. (For example,
the guidelines may reduce pollutant concentrations, positively affect lower-'
level organisms in the food chain, improve reproductive success, increase
the ability to avoid predation, improve growth.)
Absent data to further evaluate these hypotheses, any prediction of potential recreational
fishing benefits is speculative. However, given the extremely high value of the activity if
the regulations do have any positive impact on recreation, then the benefits will be
appreciable. For example, even if the impacts are limited to only a 0.1 percent increase
m recreational value, the regulation's recreational fishing benefits would still be on the
order of $12 to $14 million per year (RCG/Hagler, Bailly, 1991).
RCG/Hagler, Bailly, Inc.
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6-48
Other potential benefits not related to health risk reductions include nonuse benefits
associated with environmental improvements in water quality, which have been shown to
be potentially significant in magnitude. A review of the literature by Fisher and Raucher
(1984) revealed that in freshwater settings such benefits were generally no less than 50
percent of the associated recreational values. Additionally, the regulation may have a
beneficial impact on two federally-designated endangered species, the Kemp's Ridley
Turtle and the Brown Pelican, for which the Gulf of Mexico is part of their habitat.
Although there are no data to indicate adverse impacts on these species, given that the
bioconcentration of pollutants in fish tissue is sufficient to pose some risks to human
health, it is possible that the regulations will reduce stresses on these endangered
populations.
Finally, the commercial fishery in the Gulf of Mexico is a vital component of the regional
economy While there are data to suggest correlations between oil and gas extraction
activities and fisheries catch statistics, definitive causal relationships cannot be developed.
As described above for recreational fishing, absent evidence of fishery mortality
associated with offshore oil and gas effluent, no direct links can be established between
the proposed regulations and commercial fishery benefits.. However, indirect impacts on
the size or composition of the fishery, or on consumer demand for Gulf fishery products,
may generate commercial fishery benefits. There are no data with which to evaluate the
likelihood or potential magnitude of such benefits.
6.7 LIMITATIONS
A number of significant categories of benefits have been excluded from this analysis
First, the monetized health benefits (Avanti Corporation, 1993; RCG/Hagler, Badly, Inc.,
1993) are based "on a limited set of contaminants controlled by the regulation (selected
carcinogens and lead) for which the necessary effluent, transport and fate, and health
effects data exist. Second, for lead, the Agency has only been able to address a limited
set of the adverse health impacts associated with the contaminant. Third, those lead-
related health risks that have been quantified and valued in this section have been
applied to small subsets of the exposed population. Finally, some of the valuation
concepts applied are highly conservative (e.g., valuing reductions in some adverse health
impacts according to the medical costs avoided rather than the willingness-to-pay to avoid
the health effect).
Predictions could not be made to quantify direct impacts of current discharges and
proposed regulations on composition and abundance of finfish and shellfish population,
recreational fishing and other recreational activities, commercial fishing, or nonuse
benefits Therefore, the quantified, monetized results in this RIA focus almost
exclusively on the benefits associated with a limited set of health risk reductions.
RCG/Hagler, Bailly, Inc
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7-1
7.0 OVERVIEW OF FULL SOCIAL BENEFITS AND COSTS
As a supplement to the analysis of compliance costs and selected health-related benefits
presented in Chapters 5 and 6, this chapter provides an overview of a full social
accounting of benefits and costs of the effluent guidelines for offshore oil and gas.
Table 7-1 provides an overview, or "ledger" of these social costs and benefits, with
empirical and conceptual information included as available or appropriate. The text
below provides brief descriptions of these social costs and benefits. Where applicable,
the text briefly identifies issues related to the conceptual appropriateness of including
these items in a proper economic analysis. Also described, as applicable, are empirical
estimates of their magnitude.
7.1 SOCIAL COSTS
Cost estimates for many categories of social costs are available in the Economic Impact
Analysis of Effluent Limitations Guidelines (ERG, 1993a).
7.1.1 Direct Compliance Costs
As estimated for the RIA effort, these include the expected capital and O&M costs
borne by the industry to comply with the selected regulatory options (inclusive of the
direct costs of barging and land disposal of muds and cuttings). These costs are
estimated to range from $32.2 to $121.9 million per year, varying according to the
number of existing and new projects required to comply with the guidelines in each year.
7.1.2 Welfare Effects of Increased Compliance/Production Costs
For producer surplus, a loss to domestic producers may be realized to the extent the
supply (marginal cost) curve is shifted upward (i.e., inward) due to the guidelines.
For consumer surplus, given the size of the competitive global market for oil and gas,
global market prices are not likely to be impacted by the regulations. Therefore, no price
impacts would be anticipated on final oil and gas products domestically. Hence, no
consumer surplus impacts are anticipated.
RCG/Hagler, Bailly, Inc.
DRAFT FINAL - December 17, 1992
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7-2
Table 7-1
Social Benefit-Cost Ledger for Offshore Oil
and Gas Effluent Guidelines
Social Costs1 : ,:
1.
2.
3.
4.
5.
6.
7.
l
Direct compliance costs: $32.2 to $121.9 million per
year
Welfare effects of increased costs
a) Producer surplus loss (decrease in revenues in
excess of marginal costs [supply curve]):
projected total 15-year production loss of 15
million BOE
b) Consumer surplus (no impact anticipated — no
change in world market price of oil and gas)
Regional/sectoral employment loss (job dislocation
from reduced platforms activity)
a) Direct job losses: because regulations would be
expected to cause shutdown in only very few
cases, job loss is expected to be minimal
b) Impacts on support industries (e.g., rig
construction and maintenance services,
geophysical and other services): since well
operations purchase and operate disposal
equipment, they are anticipated to bear costs
(included under Compliance Costs); therefore, no
negative impacts on service industries are
anticipated
Government revenues lost (pecuniary impact)
a) Federal — tax revenues lost: $12 to S41 million
per year; loss from lower lease bids: $22 to $72
million per year
b) State — loss from lower lease bids: $1.9 to $6.3
million per year
Balance of trade/energy security (increased U.S.
market share for imported oil and gas): because
production declines over the entire 15-year period do
not exceed 0.2 percent, the change in the balance of
trade expected from this regulatory effort will be
insignificant relative to other factors
Risks and costs posed by transport and disposal of
muds and cuttings
a) Barge traffic
b) Transfer
c) Land disposal
Lost potential to create aquatic habitat as cuttings
that would otherwise be disposed of offshore are
transported to land
Social Benefits "
1. Monetized direct health risk reduction
benefits — lead and cancer-related health
effects for subcategories considered: $28.2
to $103.9 million per year
2. Unquantified, non-monetized direct human
health benefits
a) Lead uptake via sediment and food
chain
b) Lead risks to women (all ages) and
men (other than 40-59 years old)
c) Leads risks for health end points other
than those covered by item 1, above
• d) Carcinogenic and systemic risks not
included in item 1 above
3. Unquantified and non-monetized benefits
apart from human health
a) Recreational angling (consumer
surplus)
b) Commercial fishing (consumer and
producer surplus)
c) Ecologic and nonuse benefits
(consumer surplus)
4. Regional/sectoral employment gain
a) Job creation — direct and indirect —
from pollution control and waste
handling: activity for support services
will increase temporarily due to the
need to retrofit 2000 existing facilities
b) Job creation and tax revenues from
enhanced recreation and tourism
(indirect, pecuniary impact) '
5. Increased oil and gas reserves (to extent
exploration reduces near-term extraction
and consumption)
Cost ranges reflect minimum (Year 15) and maximum (Year 1) costs based on number of facilities affected.
RCG/Hagler, Bailly, Inc.
DRAFT FINALT-December 17, 1992
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7-3
7.13 Regional/Sectoral Employment Loss
To the extent that offshore exploration and production activities decline due to the
regulations, then some direct job loss/dislocation may be anticipated in the oil and gas
sector in the impacted regions (i.e., the Gulf states). Additional, indirect employment
impacts may be felt in sectors that support the oil and gas sector, and via a ripple effect
through the regional economy as a whole.
Conceptually, any such employment impacts are not relevant for a proper benefit-cost
analysis. Although job dislocations impose hardships on those impacted, they reflect an
"optimal" reallocation of productive resources away from an externality-causing activity
(in which productive resources such as labor and capital are over-employed, and
production is too high from the social welfare perspective, absent internalization of the
externality). Furthermore, the job losses will be counterbalanced by employment stimulus
in the pollution abatement and other sectors that will realize demand growth due to
compliance efforts by the oil and gas sector. Therefore, the impact on employment is a
socially optimal adjustment, and reflects a pecuniary (distributional) impact rather than a
true social cost.
7.1.4 Loss of Tax and Lease Revenues by State and Federal Governments
Near-term reductions in lease and tax revenues may be anticipated to the extent that
exploration and/or production are curtailed due to the regulation. The estimated
combined impact on revenue losses to state and federal governments is between $36 and
$119 million per year. This impact, although of potential fiscal importance to the
impacted government entities, does not warrant inclusion in a properly designed benefit-
cost analysis. First, the losses in revenue reflect a pecuniary rather than a real cost, and
such distributional or transfer payments do not belong in a true benefit-cost calculus. (If
such costs are counted both for the industry (e.g., decreased income) and for the
government (e.g., decreased tax revenues from affected firms), then double-counting will
occur.) Second, while the revenues may be foregone in the near-term, they are actually
being postponed rather than foregone entirely. This is because the price of oil and gas
will rise over time as energy resource stocks become depleted, and rising long run prices
will induce exploration and/or production, yielding future development of the oil and gas
resources for which extraction may be temporarily postponed due to the regulation.
7.1.5 Balance of Trade and National Energy Security
To the extent that domestic production is curtailed due to the regulations, the loss will be
made up by increasing importation of foreign petroleum supplies. This may have
implications for the national trade balance and "energy security." Production declines
RCG/Hagler, Bailly, Inc.
DRAFT FINAL - December 17, 1992
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7-4
due to the regulation, however, are expected to be insignificant relative to other factors
affecting the balance of trade. Additionally, as noted in section 7.1.4 above, any oil and
gas production foregone in the short run due to the regulations will not be "lost," but
merely will be postponed. Thus, the impact will be merely temporal, with any adverse
trade balance impacts experienced in the near-term counterbalanced by the contribution
postponed development will provide to the trade balance in the future. Likewise, oil and
gas left untapped now will be available to meet potential future energy security needs.
7.1.6 Risks and Costs Posed by Transport and Disposal of Drilling Fluids and Cuttings
The transport, handling and ultimate land-based disposal of drilling wastes may impose
financial costs and risks on society. The compliance-related expense of these activities
has been included in the direct compliance cost estimates provided in Chapter 4.
Additional costs may be associated with land-based disposal of muds and cuttings; initial
research, however, reveals that land disposal will not be a problem in terms of landfill
capacity, as it appears that disposal facilities exist with applicable permits in place and
waiting for these wastes (pers. comm., Gary Petrazzuolo, Ayanti Corp.).
It is conceivable that transport of muds and cuttings and other waste handling/transfers
will create opportunities for accidental releases and spills, thereby posing environmental
risks and the possibility of human casualties. One issue associated with potential risk is
whether there would be an increase in Offshore Supply Vessel (OSV) traffic. From 1969
to 1989 the accident rate for OSVs in U.S. ports for the Gulf of Mexico was 2.6 per
thousand trips. Accidents include collisions, groundings, fire, explosion, and capsizing.
Spills might be expected to occur in roughly one to ten percent of these accidents (pers.
comm., Virgil Keith, ECO, Inc.). The accident rate does not include spills from on-
loading and off-loading. However, analysts (pers. comm., Kavanaugh, Petrazzuolo, Keith)
have pointed out that the same OSVs that routinely carry supplies from shore to
platforms can, on their return to shore, carry containerized muds and cuttings. Hence,
there may be minimal (if any) increases in OSV traffic and, therefore risks of accidents.
A second issue concerns the possibility of accidents on land when muds and cuttings are.
trucked from ports to landfills for disposal, or the possibility of accidents associated with
increased crane activity both at platforms and at ports. On land, additional truck traffic
would be associated with a proportionate increase in accidents, causing damages, injuries
and, possibly, environmental risks.
A final risk-related issue is that if spills occur, the muds and cuttings released will pose
risks. However, absent transport to shore, all muds and cuttings will end up in the
marine environment. Thus accidents may result in a less than complete elimination of
releases within 3 miles of shore, and it is true that should accidental releases occur in
RCG/Hagler, Bailly, Inc. DRAFT FINAL - December 17, 1992
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7-5
near-coastal waters, then the harm posed may be greater than had the wastes been
released at the originating platform further offshore.
7.2 SOCIAL BENEFITS
7.2.1 Monetized Direct Human Health Benefits
These are the benefits already described in Chapter 6 (predominantly related to reduced
exposure to lead). The estimated monetized benefits amount to between $28.2 and
$103.9 million per year.
7.2.2 Unquantified and Non-monetized Direct Human Health Benefits
These benefits are also described in Chapter 6, and include lead-related risk reductions
to women (of all ages) and males other than those between the ages of 40 to 59 years.
Not included in the analysis are any indirect human health impacts, such as the increased
well-being and decreased stress posed on the family members of those who otherwise
would have been stricken with an adverse health effect. Also excluded from the analysis
are any productivity gains to be realized throughout the economy due to a healthier
(reduced incidence of adverse health effects) and brighter (fewer IQ-impaired) work
force.
7.2.3 Unquantified and Non-monetized Benefits Apart from Human Health
As described in Chapter 6, these include potential beneficial impacts on the recreational
and/or commercial fisheries, and any aesthetic, fionuse, or ecologic benefits.
7.2i4 Regional/Sectoral Employment Gains
As noted under the discussion for section 7.1.3 under social costs, this benefit reflects the
counterbalancing of potential job losses in the oil and gas sector through the economic
stimulus provided in other sectors due to demand created by regulatory compliance
expenditures. Additionally, any increased recreational or tourism impacts may have
positive ripple effects through lodging, dining and other sectors. As previously described,
such pecuniary benefits, because they reflect transfer effects rather than real benefits or
costs (unless new employees would otherwise be unemployed), do not belong in a
national benefit-cost analysis.
RCG/Hagler, Bailly, Inc.
DRAFT FINAL - December 17, 1992
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7-6
7.2.5 Increased Oil and Gas Reserves
As described above under social costs (sections 7.1.4 and 7.1.5), to the extent that
production is curtailed due to the regulations, then the stock of future oil and gas will be
increased. Accordingly, reductions in near-term extraction activities preserve
opportunities for future development of reserves.
7.3 CONCLUSIONS
This chapter examines the range of categories that might be evaluated in a full social
accounting of the benefits and costs associated with the effluent guidelines. In additional
to direct compliance costs discussed in this chapter and in Chapter 4, losses to domestic
producers (producer surplus loss) may be incurred to the extent the marginal cost curve
shifts upward as a result of the guidelines. Other cost categories discussed (e.g., tax
revenues), while reflecting potentially important distributional impacts, do not belong in a
true benefit-cost analysis because they represent transfers of costs or benefits generated
(and accounted for) elsewhere. Additional impacts, notably sectoral employment losses
and gains, appear to cancel one another out; they furthermore should be viewed as
distributional impacts, not true social costs, in a national analysis absent conditions of
high unemployment. Finally, while monetized estimates are not available for all benefit
categories, a range of potentially significant benefits-recreational and commercial fishing,
ecologic and nonuse values, and additional health benefits—are discussed in this chapter
and in Chapter 6.
RCG/Hagler, Bailjy, Inc.
DRAFT FINAL - December-17, 1992
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. ' • . . 8-1
8.0 REFERENCES
Abt Associates, Inc. (with WMA, Inc.). 1991. Final Regulatory Impact Analysis of
National Primary Drinking Water Regulations for Lead and Copper. Prepared for the
Office of Drinking Water, U.S. EPA, Washington, D.C
Avanti Corporation. 1993. Environmental Analysis of the Final Effluent Guideline.
Offshore Subcategory. Oil and Gas Industry. Volume I - Modeled Impacts. Volume II -
Case Study Impacts. Prepared for the Standards and Applied Science Division, Office of
Science and Technology, U.S. EPA, Washington, D.C.
Continental Shelf Associates, Inc. 1992. Measurements of Naturally Occurring
Radioactive Materials at Two Offshore Production Platforms in the Northern Gulf of
Mexico. February 27, 1992 preliminary data report Prepared for American Petroleum
Institute. Jupiter, FL.
Eastern Research Group, Inc. 1993a. Economic Impact Analysis of Effluent Limitations
Guidelines and Standards of Performance for the Offshore Oil and Gas Industry.
January 1993 final report. Prepared for U.S. EPA, Office of Water. Lexington, MA
Eastern Research Group, Inc. 1993b. Cost-Effectiveness Analysis of Effluent
Limitations Guidelines and Standards of Performance for the Offshore Oil and Gas
Industry. January 1993 final report Prepared for U.S. EPA, Office of Water.
Lexington, MA
Kaplan, M. 1992a. Letter to Mahesh Podar, Office of Science Technology, Office of
Water, U.S. EPA, Washington, D.C. December 2, 1992.
Kaplan, M. 1992b. Letter to Mahesh Podar, Office of Science Technology, Office of
Water, U.S. EPA, Washington, D.C. November 2, 1992.
RCG/Hagler, Bailly. January 1993. The Economic Benefits of Effluent Limitation
Guidelines for Offshore Oil and Gas Facilities. Final report, prepared for the Office of
Science Technology, U.S. EPA, Washington, D.C.
RCG/Hagler, Bailly. 1991. The Economic Benefits of Proposed Effluent Limitation
Guidelines for Offshore Oil and Gas Facilities. January 24, 1991 final report, prepared
for the Office of Water Regulations and Standards, US EPA* Washington, DC.
RCG/Hagler, Bailty, Inc.
DRAFT FINAL - December 17, 1992
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8-2
Science Applications International Corporation. January 13, 1993. Offshore Oil and Gas
Industry Analysis of Cost and Contaminant Removal - Drill Cuttings and Drilling Fluid.
Submitted to U.S. EPA, Engineering and Analysis Division, EPA Contract No. 68-CO-
004, SAIC No. 01-0830-03-0097-000. McLean, VA
U.S. EPA. 1993. Produced Water Radioactivity Study. Final draft. Prepared by S.
Cohen & Associates, Inc. for the Office of Radiation Programs and Office of Water,
Contract No. 68D90170.
U.S. EPA. 1989a. Monetized Health Benefits of Regulating Sewage Sludge Use and
Disposal. Final report prepared by Abt Associates, Inc. for the Office of Policy Analysis
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APPENDIX A
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A-l
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Continental Shelf Associates, Inc. 1984. Environmental Monitoring Program for
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• A-3
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