The Interagency Task force on Natural Gas Storage Safety formed last April in response to the massive prolonged Aliso Canyon gas leak, recently issued its report on the safety and reliability of underground natural gas storage. The report responds to a Congressional mandate in the recent reauthorization of the Pipeline Safety Act. It includes numerous (44) recommendations to industry to reduce the likelihood of leaks at underground natural gas storage facilities and minimize the impacts of leaks when they occur. These recommendations are not binding, but PHMSA is required to consider them in issuing final rules pursuant to 2016 Pipeline Safety Act amendments. The report recommendations primarily address well integrity, risk management, and data gathering and recordkeeping, which are likely to be incorporated in PHMSA’s forthcoming interim final rule to establish minimum federal standards. The Agency plans to issue an interim final rule before the end of this year. As this will be a new area of regulation for the Agency, industry should be mindful of the various legal issues regarding jurisdiction, state regulation and preemption, and dual jurisdiction, among others.
Underground natural gas storage facilities are a critical component in the delivery of natural gas by pipeline nationally. They are used to facilitate load balancing on interstate and intrastate pipelines and provide flexibility to accommodate daily and seasonal demand fluctuations. The majority of these facilities store natural gas in depleted oil and gas fields (80%), while the remainder store gas in aquifers and salt caverns. There are approximately 400 active facilities, across more than 30 states. According to the report, roughly half are interstate facilities while the other half are intrastate, a distinction which may evolve as the agency issues and enforces minimum standards in the years to come.
While the report found that incidents at these facilities are rare, they may have significant potential consequences and require additional measures to ensure the long term safe and reliable operation of these facilities and gas distribution. Toward that end, the Task force recommends that operators phase out wells with single point of failure designs (wells with gas that solely flows through production tubing and well casing) and undertake monitoring and well integrity evaluation programs as operators transition to modern double barrier well design standards. With regard to risk management, the Task force recommends the development of comprehensive risk management plans that are reviewed periodically and measured for effectiveness. Specifically, the report recommends that PHMSA consider incorporating the following recent (2015) industry standards into mandatory Part 192 regulations (1) API RP 1171, Functional Integrity of Natural Gas Storage in Depleted Hydrocarbon Reservoirs and Aquifer Reservoirs and (2) API RP 1170, Design and Operation of Solution-mined Salt Caverns Used for Natural Gas Storage. These industry standards were only issued recently in 2015 as the product of a joint effort begun prior to the Aliso Canyon incident by natural gas trade groups, INGAA and AGA, in participation with PHMSA and state agencies to inform the debate on whether federal regulations for underground natural gas storage was necessary. Further, the recommendations focus on data gathering, including air monitoring and inventory control, to inform subsequent rulemakings and analysis on well locations and characteristics.
Current PHMSA federal gas pipeline safety Part 192 regulations do not apply to storage wells and associated downhole wellbore tubing. As a result, the roughly 200 interstate facilities are not currently regulated and intrastate facilities are subject to a patchwork of varying levels of regulation across the states. Whether Part 192 regulations apply to the surface piping up to the wellhead at these facilities is a fact specific question. The 2016 Congressional reauthorization of the Pipeline Safety Act requires that PHMSA issue minimum regulatory standards for underground storage facilities by June 22, 2018 and PHMSA is planning to issue an interim final rule by the end of this year. Interim final rules are effective immediately upon publication and in most cases, the agency will stipulate that it will alter the rule if warranted by public comments along with a comment deadline. The Agency has signaled that it will incorporate the above API industry standards, which includes mandatory and recommended standards, and PHMSA is considering making the recommended (non-mandatory) provisions of those standards mandatory under Part 192, except where operators provide sufficient justification. Whether the interim final rule will include a phase-in period for operators to come into compliance with these standards is not clear.
Both gas storage and midstream processing are aspects of the oil and gas transportation network that PHMSA has not historically regulated because products were not considered to be in transportation at those locations and operations, or they were otherwise subject to longstanding facility exemptions. In past the past few years, however, the Agency has through guidance and enforcement attempted to expand its jurisdiction over these types of facilities. With respect to midstream processing, PHMSA created a Midstream Facility Safety Subcommittee comprised of agency and industry representatives which led to the successful resolution of overlapping federal agency jurisdiction, through a series of FAQs intended to provide more certainty and clarity with respect to where PHMSA and OSHA jurisdiction starts and stops at those facilities. While one of those FAQs touched upon underground storage at midstream facilities (noting that associated piping is subject to Part 192 but that states with regulation of underground storage regulate the storage facilities themselves), the agency largely avoided the topic of how far PHMSA jurisdiction extends at underground natural gas storage facilities.
As the Agency expands its regulatory reach to underground natural gas storage, there are a variety of legal issues to consider, including state versus federal jurisdiction, preemption (e.g., one federal district court has already held that Congress conveyed exclusive jurisdiction over interstate gas storage facilities to FERC and PHMSA, not states), and potentially overlapping jurisdiction of various federal agencies. By statute, PHMSA has pipeline advisory committees which review proposed regulatory initiatives to assure the technical feasibility, reasonableness, cost-effectiveness and practicability of each proposal. 49 U.S.C. 60115. PHMSA has indicated that it does not intend to present the underground natural gas storage interim final rule to the Gas Pipeline Advisory Committee. In looking toward a long term final rule, the Gas Advisory Committee and the cooperative approach of forming Subcommittees to address and resolve industry concerns may be a practical solution – in addition to formal notice and comment rulemaking process – to ensure that future regulation of underground natural gas storage will be appropriate for the applicable facilities, well-vetted, and capable of implementation in practice. Meanwhile, some 30 states have already begun regulating underground natural gas storage facilities.