The development of new oil and gas in various shale plays around the U.S. has led to a rise in the number of transfers and acquisitions of pipeline assets. Prudent operators have always requested and reviewed documentation as part of their due diligence in making acquisitions, but it is becoming increasingly important that certain records be located during due diligence or factored into the transaction if such records are lacking and must be recreated. Decision makers involved in pipeline acquisitions may only involve pipeline safety managers or counsel late in the process, without sufficient time to include the issue of records as part of the transaction. That can be a costly mistake.
PHMSA regulations require operators to perform random drug testing on a certain percentage of their “covered employees” (i.e. employees, contractors, and contractor employees who perform regulated operations, maintenance, or emergency response functions on a pipeline or LNG facility, 49 C.F.R. Part 199.3). 49 C.F.R. Part 199.105(c). The Agency publishes the minimum percentage of covered employees subject to random drug testing each year, with the percentage to become applicable on January 1 of the calendar year following publication. Id. According to a recent Federal Register Notice, PHMSA has determined that the minimum random drug testing rate for covered employees will remain at the current rate, 25 percent, during calendar year 2015.
PHMSA issued an Advisory Bulletin to announce Guidance on operator requirements to measure integrity management program effectiveness under Part 192 and 195. Issued as a supplement to a 2012 Advisory on the topic, the Advisory and associated Guidance respond to Agency inspections identifying weaknesses in this area and a NTSB recommendation following the San Bruno, California incident to develop and implement effectiveness standards for IM and other performance-based programs. The Guidance appears to impermissibly broaden the Agency’s requirements for IMP programs without pursuing formal notice and comment rulemaking.
Recent legislative and regulatory developments at the federal and state levels signal lawmakers’ increased attention to issues related to the abandonment of oil and gas pipelines. The U.S. House of Representatives is currently considering a bill, proposed earlier this year in the wake of a release of crude oil in the streets of a Los Angeles suburb from an out-of-service pipeline. The bill would amend the federal Pipeline Safety Act to require inspections of pipelines to confirm their status each time they are listed as abandoned or transferred as part of a sale. Just after this bill was introduced in the House, the State of Louisiana passed a law requiring approval from the State Public Service Commission for the abandonment of portions of interstate natural gas pipelines entirely within the State, allowing the Commission to deny such approval if abandonment would cause gas supply inadequacies. Other states, such as North Dakota, have also recently passed legislation concerning proper procedures for pipeline abandonment. These developments reflect the range of issues associated with pipeline abandonment, from public safety to energy supply reliability.
PHMSA extended the comment period for its recent proposed expansion of information that operators must submit to the National Pipeline Mapping System (NPMS). In response to an industry request for additional time, the Agency extended the comment period (which originally expired on September 29th) to December 1, 2014.
Over the past several years PHMSA has issued numerous Advisories and Guidance notices. In fact, the Agency has issued nine times more informal guidance documents than formal rulemakings on pipeline safety issues since January 2012 (6 Notices or Advanced Notices of Proposed Rulemakings, compared to 54 interpretative letters, advisories or guidance). The Pipeline Safety Act comes up for reauthorization next year, and as of this post the Agency has still not proposed rules on four issues that Congress expressly directed PHMSA to address in 2012 (excluding an additional six issues that Congress gave PHMSA the discretion to issue regulations “if appropriate” or “as necessary”). To date, PHMSA has only issued one final rule as a result of the 2011 Pipeline Safety Act Reauthorization (which became effective January 2012).
In response to a request from Congress to study the impact of shale oil and gas development on transportation infrastructure and safety, the Government Accounting Office (GAO) recently published a report commenting on these developments and focusing on DOT’s response to address safety risks posed by rail and pipeline transportation. The report concludes that while DOT is addressing increased risks posed by rail, the Agency should proceed with a rulemaking to address the risks posed by new gathering pipelines in shale development areas.
PHMSA has issued an Advisory Bulletin to alert hazardous liquid and gas transmission pipeline operators of the impacts associated with flow reversals, product changes, and conversions to service. The Advisory, issued in conjunction with newly-published Agency Guidance on these issues, recommends that operators consult existing conversion of service requirements for flow reversals and product changes and undertake additional actions in order to ensure integrity and safety.
While acknowledging in the associated Guidance that the Agency’s recommended practices are not required, PHMSA nevertheless makes a number of suggestions, including that operators consider pressure testing the entire pipeline prior to flow reversals on gas and liquid pipelines and prior to significant product changes on liquid lines. PHMSA also recommends that operators consider taking the following steps prior to reversing flow, product changes, and conversion of service:
- Performance of ILI and hydrostatic pressure with a spike test, “especially if historical records have indications of previous in-service or hydrostatic pressure test failures, selective seam corrosion, stress corrosion cracking, other cracking threats, or other systemic concerns;”
- Validation of material and strength test records, and preparation of plan to obtain any missing material documentation (and if mechanical and/or chemical properties are missing, require destructive tests to confirm material properties of the pipeline);
- Review of the adequacy of sectionalizing valves and leak detection capability;
- Enhancement of communications with stakeholders concerning changes; and
- Submittal of a comprehensive written plan (in reliance on the Guidance) to the appropriate PHMSA regional office for review.
PHMSA identifies certain circumstances in which the Agency believes that it may not be advisable to perform flow reversals, product changes or conversions to service, however, including: grandfathered pipelines; low-frequency ERW pipe, lap welded, unknown seam types and pipe with seam factors less than 1.0; pipelines with a history of failure and leaks related to stress corrosion cracking, corrosion, or manufacturing defects; pipelines operating above Part 192 design factors; or, where the change involves a product change from unrefined products to highly volatile liquids.
The actions noted above are indeed advisory, but the Agency also notes several existing regulatory requirements that may be triggered by flow reversals, product changes and conversion to service projects, including: (1) pre-construction notification provisions of 49 C.F.R. Parts 192 and 195; (2) integrity management notifications for changes on gas systems that “substantially affect” IMP implementation, among other things; and (3) other associated O&M or IMP regulations. As a result of these requirements, the Advisory cautions that operators should be prepared to demonstrate how they have addressed impacts to “O&M, emergency plans, control room management, operator qualification training, emergency responder training, public awareness, spill response, maps and records, and IMP programs and plans.”
Despite the fact that the recommendations are not required by law, as acknowledged by the Agency, the Advisory suggests that operators should develop and document technical justifications for their chosen course of action, particularly if they depart from the Guidance. As operators consider making system changes to accommodate shifts in the market and demand for transportation services, the Agency will likely expect to see that they have addressed these recommendations.
In 2012, following a 2010 oil pipeline accident in Marshall, Michigan, NTSB recommended that API develop a pipeline Safety Management Standard (SMS). SMSs are used in various sectors (aviation, maritime, labor, food management, etc.), and typically follow ISO frameworks. The general intent behind a SMS is to ‘provide a systematic way to identify hazards and control risks while maintaining assurance that these risk controls are effective,’ and they are meant to reflect a ‘businesslike approach to safety.’
As further indication of the Agency’s increased focus on pipeline construction activity, PHMSA will publish an Advisory Bulletin on September 12, 2014 intending to clarify pre-construction notification requirements. Under PHMSA regulations, operators are required to notify PHMSA through the National Registry of Pipeline and LNG Operators not later than 60 days before certain events, including construction of (1) a facility other than a section of line pipe (including replacement, modification, upgrades, etc.) that costs $10 million or more; (2) 10 or more miles of a new pipeline; or (3) any new LNG plant, LNG facility or hazardous liquid pipeline facility. 49 C.F.R. Parts 191.22(c)(1); 195.64(c)(1).