Custody Transfer

Background

 

Determining whether or not custody transfer (a.k.a. lease custody transfer) has taken place is not always a straightforward task.  EPA has stated that the “custody transfer exemption can vary from facility to facility based on site specific factors” and that “there is no set point for every facility where this exemption applies.”[1]

 

As such, the point of custody transfer will necessarily be a case-by-case decision.  This guidance is intended to assist permit writers in determining the applicability of 40 CFR 60 Subparts K, Ka, or Kb[2] and the appropriateness of an exemption claimed under LAC 33:III.2103.G.2 or 3.[3]

 

In the preamble to Subpart Ka, EPA states the custody transfer exemption “applies to storage between the time that the petroleum liquid is removed from the ground and the time that custody of the petroleum liquid is transferred from the well or producing operations to the transportation system.”

 

In the actual rule texts, Subparts K, Ka, & Kb define “custody transfer” as “the transfer of produced petroleum and/or condensate, after processing and/or treating in the producing operations, from storage tanks or automatic transfer facilities to pipelines or any other forms of transportation.”

 

When Does Custody Transfer Occur?

 

To restate the definition more plainly, custody transfer occurs at the first point “processed or treated” liquids are transferred from a storage tank to any form of transportation (i.e., truck, barge, or pipeline).  Notice that it is the location of processing and treatment operations, in relation to the tanks, which is the deciding factor.

 

Processing and/or Treating

 

As previously stated, produced liquids must be processed and/or treated in order to satisfy the definition of custody transfer.  It’s clear that “processing and/or treating” does not have to be a significant operation such as fractionation.  Processing can include:

 

§          physical separation (removal of excess water),

 

§          sulfur and/or carbon dioxide removal, or

 

§          other chemical treatment.[4]

 

More often than not, it will be removal of excess water than constitutes the “processing” event.

 

Ownership

 

The act of purchasing a product does not factor into the equation.  In one applicability determination, EPA states that Subparts Ka and Kb would not apply to the tanks in question as long as they solely receive oil purchased that is not treated or processed at the lease locations when it is loaded from the lease tanks onto trucks.[5]  This also suggests that the initial gravity separation of the produced natural gas and crude oil/produced water streams (in a phase separator) does not constitute “processing.”

 

Conversely, in another determination, EPA concluded that temporary storage of crude oil at pump stations along a pipeline was after custody transfer, even though change of ownership did not occur between the pipeline and the tanks.[6]

 

Vessels Storing Condensate at Compressor Stations

 

The definition of “custody transfer” speaks to the transfer of produced petroleum and/or condensate.  Condensate is defined as “hydrocarbon liquid separated from natural gas that condenses due to changes in the temperature or pressure, or both, and remains liquid at standard conditions [68°F, 29.92 in Hg].”[7]

 

By definition, condensate does not exist prior to separation from the natural gas stream.  Therefore, vessels located at compressor stations used to store “condensate” are prior to custody transfer.

 

Other Definitions of Custody Transfer

 

“Custody transfer” is also defined in 40 CFR 63 Subparts HH (§63.761) & HHH (§63.1271).  While these definitions are very similar to that established by NSPS, they should only be applied when determining applicability of HH & HHH.  Here, a natural gas processing plant is specifically identified as a point of custody transfer.

 

Summary

 

§          Custody transfer occurs at the first point “processed or treated” liquids are transferred from a storage tank to any form of transportation.  It is the location of processing and treatment operations, in relation to the tanks, which is the deciding factor.

 

§          “Processing and/or treating” does not have to be a significant operation; the simple act of removing excess water constitutes processing.

 

§          A change in the ownership of produced petroleum and/or condensate does not affect the point of custody transfer.

 

§          Vessels located at compressor stations used to store “condensate” formed in the upstream pipeline are prior to custody transfer.

 

§          Other definitions of “custody transfer” exist, but those found in NSPS should be used when determining applicability of §2103.

 

 

[1] Applicability Determination Index (ADI) Control Number 0200064, available at http://cfpub.epa.gov/adi.

[2] See 40 CFR 60.110(b), 60.110a(b), & 60.110b(d)(4).

[3] Regarding §2103.G.2 & 3, “lease custody transfer” is not defined in either §111 or §2103; therefore, the definition of “custody transfer” found in Subparts K, Ka, or Kb and associated applicability determinations should be employed here.

[4] ADI Control Numbers 0200064 & 0000083.

[5] ADI Control Number 0000083.

[6] ADI Control Number NR45.

[7] The definitions in 40 CFR 60 Subparts K, Ka, Kb and 40 CFR 63 Subpart HH are essentially identical.

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