The Department of Transportation’s Office of Inspector General within the (DOT OIG) announced recently that it will audit oversight of liquefied natural gas (LNG) facilities by the Pipeline and Hazardous Materials Safety Administration (PHMSA).  DOT OIG notes that the “self-initiated” audit will assess PHMSA’s oversight of LNG facility compliance with federal regulations.  The OIG noted that it planned to begin the audit this month and that it will schedule an initial conference with PHMSA.  The audit will be conducted at PHMSA headquarters, field offices and select LNG facilities.

The U.S. has become the world’s largest producer of natural gas, and natural gas has now surpassed coal as the primary fuel used to generate electricity.  LNG is processed natural gas that has been condensed to a liquid form (through a process known as liquefaction).  It takes up roughly 1/600th of the volume of natural gas and for that reason, it can be economically stored and transported in specialized equipment.  LNG facilities provide a variety of natural gas services:  (1) to the interstate gas pipeline system or local distribution systems (for vehicular fuel or industrial use); (2) storage for periods of increased (“peak”) demand; and (3) export of natural gas outside the U.S.  Exports of natural gas in the form of LNG have quadrupled since 2016, and the U.S. is on track to become the largest natural gas exporter by 2020.  The Energy Information Agency estimates that LNG exports by 2030 will be five times what they are in 2018 (and the DOT OIG’s audit announcement notes that the Agency’s oversight responsibilities for LNG facilities may increase accordingly).  This is a dramatic contrast to a few years ago when the U.S. imported both gas and LNG.

LNG facilities in the U.S. may be regulated by several federal agencies, including the Federal Energy Regulatory Commission, the U.S. Coast Guard, and PHMSA (among others).  PHMSA is responsible for oversight of the siting, design, construction, operation and security of LNG facilities.  According to the Agency’s website, it currently regulates over 150 LNG plants across 38 states and territories and provides regulatory oversight along with associated state pipeline safety partners.  PHMSA has been responsible for oversight of LNG transportation and storage since Congress passed the Natural Gas Pipeline Safety Act in 1968.  PHMSA has not substantively updated its LNG regulations at 49 C.F.R. Part 193 since the dramatic shift in energy markets, and LNG in particular, brought on by the shale revolution.  From the late 1960s to the mid-2000s, LNG facilities were focused on the import of natural gas and peak shaving.  With the changes in energy markets, these import facilities are being converted to export and new facilities are planned for export, transportation fuel, and transport, including a focus on “small-scale” facilities.  Small-scale LNG generally includes marine fuel (called bunkering), fuel for heavy road transport, and some power generation.  With respect to LNG exports, the refrigeration process presents new technical and safety concerns as compared to the import of LNG (which requires regasification).   For these reasons, among others, some have posited that PHMSA’s LNG rules may be out of date.

U.S. LNG, and export in particular, is slated to be an important piece of the world’s energy portfolio and the industry is working to commission facilities to get those supplies to market.  Given FERC’s role in siting and certificating LNG facilities under Section 7 of the Natural Gas Act, PHMSA is coordinating with FERC to expedite the siting and design review of those facilities for permitting through a new memorandum of agreement.  Once those permitted facilities are constructed and in operation, it will fall to PHMSA and states to oversee safety.  In the 2016 reauthorization of the Pipeline Safety Act, Congress required PHMSA to update minimum safety standards for permanent small-scale LNG pipeline facilities (which is not defined).  That review is ongoing and the Agency has various research and development projects in the works regarding LNG facilities.  Further, PHMSA anticipates issuing a proposed rulemaking with the Federal Railroad Administration on the bulk transport of LNG in rail tank cars in early 2019.  It is unclear, however, whether PHMSA has any further plans at present for purposes of updating its LNG regulations.

With its audit, we expect the DOT OIG to review and comment on the sufficiency of existing 49 C.F.R. Part 193 LNG regulations and agency safety inspections, with a focus on the current uses of LNG such as export, transportation fuel, and transport which were not anticipated when PHMSA’s predecessor agency began regulating these facilities.  The inspections of select existing facilities could further include large-scale export facilities in operation, of which there are currently three.

EPA’s proposed replacement for the Clean Power Plan, dubbed the “Affordable Clean Energy”  rule, or “ACE,” is now open for comment.  In short, the rule requires states to develop efficiency standards for fossil fuel-fired power plants with the intent of reducing greenhouse gas emissions.  Coal-fired power plants, and those involved in the production of coal, have a keen interest in the rule for obvious reasons—ACE targets them directly and could require capital projects costing millions.

Continue Reading EPA’s Replacement for the Clean Power Plan (the Proposed Affordable Clean Energy Rule): Potential Impacts to the Oil and Gas Industry

Hurricane season is upon us, with Hurricane Florence making its way towards landfall in the Carolinas, currently expected to reach the coast by early Friday morning, September 14, 2018.  Tropical storm force winds and heavy rain will reach the coastal areas even before that, and the storm is forecast to bring high winds, torrential rain, power outages and flooding over a multi-state area in the mid-Atlantic and Southeastern regions for several days.  Many of these areas have experienced unseasonable amounts of rain this year, and that has already contributed to several pipeline incidents caused by earth movement.  As pipeline operators prepare for potential impacts of this “monster storm,” operators should look to their own emergency response preparedness plans, known or suspected risks to their systems, as well as to PHMSA’s prior Advisories that provide guidance to the industry under these circumstances.

States of emergency have been declared for North Carolina, South Carolina and Virginia, with mass evacuations ordered on the coast.  The wide swath and strength of the storm, however, will be of most concern as the storm comes inland and drops very large amounts of rain over the Southeast and Mid-Atlantic regions, which encompass considerable pipeline mileage.  In anticipation of the impacts, PHMSA has already announced that it is “prepared to provide any necessary regulatory relief from the Hazardous Material regulations and waive certain pipeline Operator Qualifications/and pre-employment requirements in support of hurricane response and/or recovery.”  And it is likely that the Agency will issue or reissue a version of its prior Advisories regarding potential impacts of hurricanes to oil and gas pipelines, as it did in the aftermaths of Harvey and Irma in 2017.

In advance of the storm’s arrival, PHMSA’s prior Advisories provide some interim guidance to pipeline operators.  Past Advisories have addressed the potential for damage to pipeline facilities caused by hurricanes, warning of adverse effects on operations such as increased risks of earth movement (including landslides), exposed pipe, loss of electricity and access, disruption in service, etc.  The Advisories remind operators that any of these developments may trigger obligations to take appropriate corrective measures, such as increased surveillance or repairs (49 C.F.R. Parts 192.613, 195.401(b)) and underwater inspections (49 C.F.R. Parts 192.613, 195.413).  Further, while the most recently issued Advisories in 2017 largely focused on areas in the Gulf Coast, they also included guidance more generally applicable to pipelines on the East Coast, by encouraging pipeline operators to:

  • Bring offshore and inland transmission facilities back online after a disruption, and check for structural damage to piping, valves, emergency shutdown systems, risers, and supporting systems.
  • Aerial inspections of pipeline routes should also be conducted to check for leaks in transmission systems.
  • Take action to minimize and mitigate damages caused by flooding to gas distribution systems, including the prevention of overpressure of low and high-pressure distribution systems.

Although Agency guidance such as this is not legally binding or enforceable, the Agency refers to the ‘general duty’ provisions in its regulations (such as 192.613 and 195.401).  PHMSA could rely on those general provisions in future enforcement actions if operators fail to take the actions recommended in the Advisory.  There have been instances in the past where the Agency has cited its general duty regulations as the basis for enforcement where operators failed to discover or correct conditions caused by natural forces that could potentially affect safe operations on their pipeline systems.  See, e.g.,  In re Natural Gas Pipeline Company of America, CPF No. 3-2005-1011 (failure to address exposed pipeline at a river crossing); In re ANR Pipeline Company, CPF No. 2-2008-1005W (failure to address undercutting of concrete matting over a pipeline).

As pipeline operators prepare for the hurricane season, and Hurricane Florence in particular, operators should look to their emergency response plans, relevant system characteristics, and consider the recommendations in prior PHMSA Advisories.

As part of its integrity management regulatory scheme, the Pipeline and Hazardous Materials Safety Administration (PHMSA) is requesting comments on a draft risk modeling report.  In certain densely populated or environmentally sensitive areas, PHMSA integrity management rules require the continual evaluation of ways to reduce pipeline threats to minimize the likelihood and consequences of an incident.  Because these rules are performance based, the methodology for analyzing and assessing risk is not prescribed and the industry employs a variety of approaches.  PHMSA’s draft report similarly does not dictate a particular methodology but clearly favors probabilistic and quantitative risk models that may not be practical or effective for many operators.  Operators should take the opportunity to review and comment on the draft report to ensure that their experiences and insights with risk modeling are reflected prior to finalizing the document.  Based on a request from industry trade groups, PHMSA recently extended the comment period an additional 30 days until October 17, 2018.

Continue Reading Draft Pipeline Risk Modeling Report Issued for Public Comment

 

Global energy change through increased use of natural gas and liquefied natural gas (LNG) has been the focus of this week’s World Gas Conference (WGC).  The WGC, sponsored by the International Gas Union, has convened these conferences once every three years since 1931.  This year’s meeting is being held in the U.S. for the first time since the natural gas boom that has occurred over the past ten years.  The U.S. is now the world’s largest producer of natural gas and has begun to export LNG (a dramatic change from only a few years ago, when the U.S. imported both gas and LNG).

Continue Reading Global Energy Change: Increased Use of Natural Gas and LNG

Since 9/11, no new rules or regulations have been promulgated to address pipeline or LNG facility security or cybersecurity. Although the Transportation Security Administration (TSA) recently released an updated version of its “Pipeline Security Guidelines” (Guidelines) that were last issued in 2011, those Guidelines remain advisory.  And both the Department of Homeland Security (DHS) and the Federal Bureau of Investigation (FBI) have made only informal outreach to pipeline and LNG industry as issues have arisen.  As the threat of both cyber and physical attacks on critical energy infrastructure continues, however, some question whether minimal standards for prevention of threats should be in place.  In particular, there has been recent attention by the U.S. Government Accountability Office (GAO), members of Congress, and at least one Federal Energy Regulatory Commission (FERC) commissioner. (See E&E News Article of May 29, 2018).  These discussions, along with recent proposed legislation in the House and the fact that the Pipeline Safety Act is up for reauthorization later this year, are likely to bring these issues into sharper focus.

Continue Reading Pipeline Security and Cybersecurity: Are Guidelines Enough to Protect Critical Infrastructure?


Opposition to new pipeline construction has grown in recent years, moving from public comment to litigation to physical protest and vandalism.  In 2016 alone, several coordinated actions led to trespass and vandalism of pipelines and pipeline facilities in multiple states, some of which were prosecuted as felony criminal acts.  The defendants in several of these cases have raised a “necessity defense” to their actions, and two courts have now allowed that defense to proceed.

Continue Reading Invoking the ‘Necessity Defense’ in Pipeline Sabotage Prosecutions

The Federal Energy Regulatory Commission (FERC) officially announced that it is going to review its policy framework for certification of new interstate natural gas and LNG pipelines in the U.S. and issued a Notice of Inquiry (Notice or NOI).  This is the first time in nearly twenty years that FERC will examine its pipeline review and approval policy, last issued in 1999.  Kevin McIntyre, the current FERC Chairman, said review of the policy is intended to determine ‘whether, and if so, how’ any changes should be made in the evaluation of new pipeline projects.  The NOI establishes a 60-day public comment period, beginning with publication in the Federal Register, thus the deadline for comments is June 25, 2018.

Continue Reading Continuing Review of New Pipeline Projects

The U.S. DOT and 10 other federal agencies signed a Memorandum of Understanding (MOU) on April 9, 2018, which became effective on April 10, 2018.  The MOU[1] is intended to implement Executive Order 13807 (Aug. 15, 2017), which established a “One Federal Decision” policy for infrastructure projects that require authorizations by multiple federal agencies. Under the MOU, a lead federal agency must be designated to be responsible for addressing compliance with the National Environmental Policy Act (NEPA), and the preparation of a single Environmental Impact Statement (EIS). The lead agency will establish a single Permitting Timetable that all federal agencies must follow. The MOU mandates that all federal authorizations must be resolved within 90 days of issuance of the lead agency’s Record of Decision (ROD) on the EIS, with limited exceptions.

There have been problems on large pipeline construction projects in recent years getting all federal agencies to agree on an approach to permitting review and timetables.  The MOU addresses that by requiring all agencies to work on a single approach and timeline, and to develop the policies necessary to do so.  It also requires all environmental review to be complete no later than two years from issuance of a Notice of Intent (NOI) to prepare an EIS for a new project.  Additionally, the MOU specifies three “concurrence points” at which all involved agencies are requested to reach consensus on NEPA project review and approval: (1) Purpose and Need; (2) identification of Alternatives; and (3) selection of the Preferred Alternative.

For new natural gas pipeline construction projects, FERC will continue to be the lead agency preparing an EIS, but any cooperating agencies must now comply with a uniform schedule for review and input.  Although not required by the MOU, state, local and tribal agencies will be invited to voluntarily participate in the single permitting timetable process.

The MOU was welcomed by many as a means to achieve permit streamlining, a concept that Congress has attempted to address over the years, as noted in our prior posts regarding both House and Senate efforts [see prior pipelaws posts, August 4, 2017, July 5, 2017]. It also harkens to President Trump’s January 2017 Presidential Memorandum addressing permit streamlining for domestic manufacturing.  As a representative of the U.S. Chamber of Commerce said of this new MOU, “It shouldn’t take longer to approve a project than to build it.”  Opponents of new infrastructure projects, including pipelines, note that the courts are still deliberating on whether and to what extent large projects need to consider climate change impacts under NEPA.  Challenges such as that are not addressed directly by the MOU, but in theory the MOU will foster a consolidated position by all federal agencies involved.

While the MOU stands to improve the coordination and timing among federal agencies, it is only aspirational, speaking in terms of “goals” and “milestones” that are ultimately non-binding. It may also place more burdens on project applicants, to ensure that all agencies are, in fact, coordinating and adhering to the timetable, etc., and that any disputes are identified and resolved in a timely manner.

In addition, challenges to permits and approvals at the local and state level will be unaffected by this MOU. New infrastructure projects continue to face opposition by environmental or citizen groups, and increasingly states too have posed challenges to large scale projects. For example, as noted in our prior post of July 5, 2017, projects such as Millennium Pipeline Company that received prior FERC approval have found themselves in the U.S. Courts of Appeals addressing state challenges. The Second Circuit recently issued a favorable decision in the Mellennium appeal , however, holding firm to the plain language in the Clean Water Act that the timeline for a state’s action in response to a request for a water quality certification is one year from receipt of the request.

[1] The MOU was signed by the heads of the Department of Transportation; the Federal Energy Regulatory Commission; the Environmental Protection Agency; Department of Energy; U.S. Army Corps of Engineers; Department of the Interior; Department of Agriculture; Department of Commerce; Department of Housing and Urban Development; the Advisory Council on Historic Preservation and the Federal Permitting Improvement Steering Council.


The Gas Pipeline Advisory Committee (GPAC) convened in Washington D.C. at the end of March, 2018, to continue discussions from May and December 2017 regarding PHMSA’s proposed gas and gathering pipeline mega rule (“Safety of Gas Transmission and Gathering Pipelines” [PHMSA-1011-0023]. The meetings included discussion and voting on a number of provisions concerning maximum allowable operating pressure (MAOP), integrity management, definitions and repair criteria.  Most notably, PHMSA announced its intention to divide the original Notice of Proposed Rulemaking (NPRM) into three parts and issue three separate final rulemakings in 2019 [PHMAS PowerPoint]. PHMSA is currently projecting that these three rulemakings will be issued over the course of next year, with the first one focusing on outstanding congressional mandates, as follows::

Part I (expected issuance in March 2019) to address the expansion of risk assessment and MAOP requirements, including:

  • 6-month grace period for 7-calendar year reassessment intervals;
  • Consideration of seismicity for integrity management assessments (fort both threats and preventative and maintenance measures)
  • MAOP exceedance reporting
  • Material verification, MAOP reconfirmation (for those with unknown MAOPs or incomplete records)
  • Expansion of the risk assessment obligation to include areas in non-high consequence areas (HCAs) and moderate consequence areas (MCAs)
  • Related records provisions

Part II (expected issuance in June 2019) to focus on the expansion of integrity management program regulations, including:

  • Adjustments to repair criteria for pipelines in HCAs and non-HCAs
  • Inspections following extreme weather and other events
  • Safety features on in-line inspection launchers and receivers
  • Management of change
  • Corrosion control
  • Other integrity management clarifications and increased assessment requirements

Part III (expected issuance in August 2019) to focus on expanding the regulation of gas gathering lines, including:

  • Reporting requirements
  • Safety regulations for gas gathering lines in Class I locations
  • Definitions

The next GPAC meeting is scheduled for June 12-14, 2018, and it is expected to focus on the NPRM provisions concerning gas gathering pipelines.  As noted in our prior post , the advisory committee meetings are particularly informative to industry and other interested parties concerning the direction PHMSA will take with these final rules.