Suncor Energy Inc.’s (SU Quick QuoteSU - Free Report) plants and refinery in Commerce City are facing renewed scrutiny from two government agencies for alleged non-compliance with air emission laws. The U.S. Environmental Protection Agency (“EPA”) and the Colorado Department of Public Health and Environment (“CDPHE”) issued a Notice of Violation last week based on findings from a 2023 inspection finalized in an EPA report on Jan 26. This notice marks the initial step in a federal-state enforcement process.

Alleged Violations and Regulatory Background

Clean Air Act Violations: The recent notice has resulted from an October 2023 inspection led by the EPA, with participation from CDPHE officials. The agencies allege that Canada's premier integrated energy company has violated several critical environmental standards, including the Clean Air Act’s benzene waste and other hazardous air pollutant standards, the Clean Air Act’s performance standards and Title V permitting rules, the Colorado Air Pollution Prevention and Control Act, Colorado Air Quality Control Commission regulations and SU’s Title V operating permits issued by CDPHE under the Clean Air Act.

These allegations suggest that an Alberta-based oil and gas company has been or is improperly emitting hazardous air pollutants, such as benzene — a highly flammable chemical that can disrupt human cellular functions, according to the Centers for Disease Control and Prevention (“CDC”).

Historical Context of Violations: This is not the first time SU has faced pollution accusations. In February, an enforcement package highlighted air pollution violations from July 2019 to June 2021. Additionally, in June, three environmental justice and conservation groups announced their intent to sue Suncor under the Clean Air Act. The current notice includes violations that trace back to 2021, detailing incidents that posed potential environmental pollution concerns.

Detailed Allegations and Environmental Concerns

Benzene and Hydrocarbon Emissions: According to the Notice of Violation released on Monday, SU failed to maintain controlled benzene levels below 6 mg/year in the refinery’s wastewater, contravening the Clean Air Act. Hydrocarbon emissions are also a significant issue. Inspectors observed hydrocarbons venting into the atmosphere from internal floating roof tanks, with optical gas imaging (OGI) cameras capturing "visibly large plumes" wafting from the tanks into the ambient air.

Inspection Findings: The EPA inspection team identified several critical issues, including contractors failing to inspect tanks properly, unaddressed corrective actions for tanks with "black liquid accumulated on the floating roof" and faulty rim seals, vacuum breaker vents, pontoon covers and roof vents on some tanks.

In the 2023 inspection, three tanks were found with cracks that emitted hydrocarbons when viewed with an OGI camera. The team observed that the tanks have a "nitrogen blanket that purge" vapors into carbon canisters but could not find a flow indicator to verify the routing of these vapors.

Potential Health and Environmental Impacts

Benzene Exposure Risks: Benzene, a common hazardous air pollutant identified in SU’s violations, poses severe health risks. According to the CDC, benzene exposure can lead to blood disorders, immune system damage and an increased risk of leukemia. Chronic exposure, even at low levels, can cause significant health issues. This highlights the importance of strict compliance with air quality standards.

Impact on Local Communities: The alleged emissions from SU's refinery raise concerns for the health and well-being of nearby communities. Long-term exposure to hazardous air pollutants can exacerbate respiratory issues, cardiovascular diseases and other health problems. Environmental justice groups have highlighted the disproportionate impact on low-income and minority communities, who often live closer to industrial sites and face higher pollution levels.

Regulatory Response and Next Steps

Federal and State Enforcement Process: The joint notice by the EPA and CDPHE provides SU an opportunity to discuss the specifics of the alleged violations. This dialogue is an important part of the federal-state enforcement process, which will allow the company to present its case and potentially negotiate a resolution. However, failure to address the issues adequately could result in further legal action and substantial penalties.

Suncor’s Response and Actions: SU is expected to review the findings and develop a comprehensive plan to address the identified issues in response to the Notice of Violation. This plan should include corrective actions for the specific violations and long-term strategies to improve air quality management and compliance with environmental regulations.

Conclusion

The recent allegations against SU highlight the ongoing challenges in regulating air emissions and ensuring compliance with environmental laws. The enforcement actions by the EPA and CDPHE mark the importance of stringent oversight and proactive measures to protect public health and the environment. As the federal-state enforcement process continues, SU must address the violations comprehensively and commit to higher environmental standards.

Zacks Rank and Key Picks

Currently, SU carries a Zacks Rank #3 (Hold).

Investors interested in the energy sector might look at some better-ranked stocks like Sunoco LP (SUN Quick QuoteSUN - Free Report) , SM Energy Company (SM Quick QuoteSM - Free Report) and Coterra Energy Inc. (CTRA Quick QuoteCTRA - Free Report) , each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Sunoco is valued at $5.7 billion. It is a major wholesale motor fuel distributor in the United States, distributing over 10 fuel brands through long-term contracts with more than 10,000 convenience stores, ensuring consistent cash flow.

SUN’s extensive distribution network across 40 states provides a robust and reliable source of income and the Brownsville terminal expansion should add to its revenue diversification.

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