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.

On September 7, 2018, a jury in a California state court found Plains All American Pipeline guilty on 9 criminal counts, stemming from a release of 140,000 gallons of crude oil from a Plains pipeline near Santa Barbara in 2015. Media across America reported on the criminal verdict in the Plains case, and certain commenters predict that the verdict could further energize pipeline opposition groups around the country. The case may be viewed best, however, as somewhat of an anomaly: a broadside of state legal requirements brought after an oil spill to a sensitive environment in California.

Continue Reading Industry Impact from Criminal Verdict in Pipeline Oil Spill

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.

The Pipeline and Hazardous Materials Safety Administration (PHMSA) has published an Advanced Notice of Proposed Rulemaking (ANPRM) requesting comments on existing requirements for gas transmission pipelines following population growth.  This notice is the result of previous Agency requests for comment, Congressional mandates, Agency workshops, and industry comments dating back nearly a decade.  The proposed rulemaking could provide industry with additional options when population increases trigger class location changes, and thereby avoid costly pipe replacement or pressure testing.

Continue Reading Proposed Revision to Class Location Requirements When Population Increases

In a letter issued to the Reporters Committee for Freedom of the Press (RCFP) and E&E News last week, PHMSA’s new Chief Counsel Paul Roberti announced its intention to publicly post advance notice of hearings requested by operators.  As reported by E&E News and reflected in the letter, PHMSA will now post hearing scheduling letters to the enforcement activity page on its website.  To the extent the press (and presumably the public) is interested in attending, PHMSA asks that a request be submitted in advance for consideration.  This decision potentially brings the Agency and the industry one step closer to opening hearings to the public.

Just a few months ago, PHMSA approved a request from the media (E&E News) to attend a hearing in the Agency’s Southwest Region offices as reported in our prior post of March 22, 2018.  This marked the first time that a PHMSA administrative hearing was opened to the public, even if only partially (it was closed following a break).  As we noted at that time, “While this does not likely signal an official policy change on behalf of the Agency, it nonetheless suggests that PHMSA could make the decision to open administrative enforcement hearings to the public in the future, on a case by case basis.” The decision to post hearing scheduling letters is in keeping with that prior observation, and does not constitute a blanket grant of public access to all hearings.

Requests for hearings are filed in response to administrative enforcement actions issued by PHMSA to address issues of fact and law, including in response to Notices of Probable Violations, Corrective Action Orders, Emergency Orders and Proposed Safety Orders.  PHMSA hearings are, by regulation, “informal.” 49 C.F.R. Part 190.211(e). As a result, the rules of evidence do not apply and the hearings are, in effect, formal meetings (there is no express language in the Pipeline Safety Act or its implementing regulations that governs public participation in the enforcement context).  The purpose of that approach is to facilitate a frank discussion of the issues and to encourage the possibility of resolution, within the context of applicable law.  Consistent with that purpose, and following recent discussions with us, PHMSA’s Office of Chief Counsel recently confirmed its willingness to engage in pre-hearing discussions to explore settlement of some or all issues in advance of a hearing (in a letter issued the same day as the letter to RCFP and E&E).  That approach is similar to pre-trial conferences that are required by federal and most state laws in litigation.  Notably, pre-trial conferences are not open to the public.

Even if opened for public attendance, administrative enforcement hearings are not ‘public hearings.’  There is no allowance for public participation in the form of questions or statements.  The purpose of the hearing is for the parties to explain and argue their respective positions on questions of fact and law, as moderated by a Hearing Officer.   PHMSA enforcement hearings are held in Agency offices, with limited space.  A request by third parties to attend hearings could present logistical challenges and potentially interfere with PHMSA’s obligation to ensure public safety where hearings are addressing imminent safety issues.  Delays in scheduling of hearings due to the need to post hearing scheduling letters and handle requests for public attendance, and arrange logistics for hearing space, could affect the Agency’s ability to address safety issues in an efficient manner.

The public has a right to know what federal agencies do, and that right is given effect through the Freedom of Information Act (FOIA), which was relied upon as the basis to allow public attendance at the PHMSA hearing in March.  Information presented in advance of and during a hearing is frequently subject to protection from disclosure under FOIA, however, as enforcement or settlement confidential, security sensitive or protection of confidential commercial information.  That consideration could add further complexity to logistics planning for a hearing.

We will continue to monitor these developments closely.

 

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

A recent Report to Congress mandated by the most recent amendments to the Pipeline Safety Act was released by the Government Accountability Office (GAO), reviewing federal and state responsibilities and resources for inspection of pipelines that transport product across state lines.  Increases in funding have allowed the federal agency charged with regulating pipeline safety, the Pipeline and Hazardous Material Safety Administration (PHMSA or the Agency), to expand its own inspection workforce and reduce its reliance on state agents.  The Report to Congress finds that the Agency has not assessed future workforce needs, however, to determine the appropriate level of state participation.

Continue Reading State Participation in Interstate Pipeline Inspections: GAO Recommendations

The Congressional Review Act (CRA) has been in the news of late, yet few people know its history, purpose or challenges.  Although used only once in its first 20 years, the Act was resurrected at the outset of the Trump Administration.  In the first four months of 2017, the new Administration used the CRA to withdraw 14 rules promulgated late in the Obama Administration.  There is an effort now to try to use the CRA to nullify even older rules, promulgated over the past 20 years, which could threaten to create more uncertainty for the regulated community.

Continue Reading The Congressional Review Act May Be Coming Soon to a Rule Near You


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