PHMSA has issued an interim final rule (IFR) to establish – for the first time ever – minimum federal standards for underground natural gas storage facilities. The IFR imposes significant new requirements in a short timeframe for “downhole facilities,” including wells, wellbore tubing and casings at underground natural gas storage facilities. The IFR addresses construction, maintenance, risk management and integrity management procedures for these facilities and incorporates the requirements of recent API industry Recommended Practices (RPs) 1170 for salt caverns storing natural gas and 1171 for storage in depleted hydrocarbon reservoirs and aquifer reservoirs. In addition, the IFR requires underground gas storage operators to prepare and file annual reports, incident reports, safety-related condition repairs and register their facilities in the PHMSA operator registry.
Effective Date & Comment Period
The IFR becomes effective on January 18, 2017 (within 30 days of publication in the Federal Register on December 19, 2016). Public comments on the Interim Final Rule will be accepted until February 17, 2017 (60 days after publication in the Federal Register). Some time after that, PHMSA will issue a Final Rule, which may include modifications to the IFR regulations.
Background
Several recent high profile underground natural gas storage incidents, the most notable of which was the October 2015 Southern California Gas Company’s Aliso Canyon leak. That incident prompted an Interagency task force to study federal regulations of these facilities as a statutory mandate that PHMSA to establish minimum federal standards. In addition, PHMSA issued an advisory bulletin in February of 2016, urging operators to take certain actions to ensure pipeline safety and integrity of these facilities, including complying with industry standards, and convened public meetings on these issues. In November of 2016, PHMSA proposed a pipeline user fee assessment and rate structure to fund a training program for inspectors providing oversight on underground storage facilities and for inspection protocols as well as frequently asked questions and other guidance materials.
Underground natural gas storage facilities are a key component of the nation’s natural gas pipeline system and operate to facilitate load balancing and provide flexibility to meet demand fluctuations. There are an estimated 400 facilities across more than 30 states, 80% of which store gas in depleted oil and gas fields, while the remaining 20% store gas in aquifers and salt caverns. Each storage facility typically has dozens, if not hundreds, of injection/storage wells. Leaks at such facilities like the one in Aliso Canyon has the potential to create profound safety and environmental impacts. According to PHMSA, the piping at these facilities is joined by threaded couplings instead of welds, making it more susceptible to breaks. In addition, the piping generally does not have corrosion-resistant internal or external protective coating. Up until now, only certain surface pipelines at such facilities were subject to PHMSA regulations (depending on the facts) and intrastate facilities were subject to a varying patchwork of state regulations.
The jurisdictional delineation between PHMSA and OSHA at midstream processing facilities, which may contain underground gas storage, has been the subject of a Midstream Facility Safety Subcommittee comprised of agency and industry representatives. With respect to underground storage at midstream processing facilities, PHMSA’s 2015 FAQs touched upon the issue (noting that associated piping is subject to Part 192 but that states regulating underground storage regulate the storage facilities themselves) but largely avoided the topic of how far PHMSA jurisdiction extended at those facilities.
Overview of IFR Requirements
“[A]s an urgent first step in preventing” incidents similar to Aliso Canyon, the IFR requires that operators “rapidly” comply with API standards 1170, Design and Operation of Solution-mined Salt Caverns used for Natural Gas Storage, and 1171, Functional Integrity of Natural Gas Storage in Depleted Hydrocarbon Reservoirs and Aquifer Reservoirs. Under a new regulation at 49 C.F.R. Part 192.12, new underground gas storage facilities (constructed after July 18, 2017) must meet all applicable requirements of the industry standards, while existing facilities (as of July 18, 2017) must meet portions of the standards that address operations, maintenance, integrity, emergency response and recordkeeping requirements, as well as other related activities (i.e., Sections 9-11 of API RP 1170 and Sections 8-11 of API RP 1171). Existing storage facilities have 12 months to comply with the requirements, or until January 18, 2018.
Notably, PHMSA adopted the API recommended practices as mandatory requirements (“i.e., API provisions containing the word ‘should’ or other non-mandatory language will be considered mandatory”). Operators will be permitted to deviate from these requirements only where they provide a “sufficient technical and safety justification in their program, or procedural manuals as to why compliance with a provision of the recommended practice is not practicable and not necessary for the safety of a particular facility.” Specifically, the justification must be technically reviewed and documented by a subject matter expert to ensure that there will be no adverse impact on design, construction, operations, maintenance, integrity, emergency preparedness and response, and overall safety and must be dated and approved by senior company management.
The incident, safety-related condition reporting and operator registration requirements will be effective on January 18, 2017, with the first annual report due by July 18, 2017. PHMSA and its state partners certified to regulate intrastate pipeline facilities will monitor implementation of these rules, and once the 49 C.F.R. Part 192.12 inspection requirements become effective (January 18, 2018) PHMSA will begin inspecting and enforcing these requirements. Any deviations from the industry standards will be evaluated by PHMSA during these inspections, “taking into account whether the operator’s procedures reflect sound engineering principles and achieved acceptable performance as demonstrated by annual reports and incident data.” We understand that PHMSA Eastern Region Director Byron Coy will be leaving his post to head up the Agency’s Underground Natural Gas Storage program.
Industry trade groups INGAA, API and AGA supported adoption of the API “recommended practices” (API RP 1170 and 1171 were issued in September of 2015, one month before Aliso Canyon), but the RPs as issued did not go so far as to endorse making all recommended practices mandatory for all operators (many are simply recommendations for operators to consider). In addition, INGAA has already expressed concerns that the 12 month compliance timeframe is “unrealistic,” contrasting it to the 10 year implementation period for the gas transmission integrity management rulemaking.
This is PHMSA’s second interim final rule in the past two months, a potentially troubling trend by the Agency to avoid advance notice and comment rulemaking prior to issuing final regulations. The Agency explained, however, that it may modify the IFR in issuing a final rule and is accepting comments through February 17, 2017. We recommend that affected operators consult their trade groups and consider filing comments.