June 2016, Vol. 243, No. 6

Features

Federal Regulator Eyes New Rules for Gas Gathering Lines

The Department of Transportation’s (DOT) Pipeline and Hazardous Materials Safety Administration (PHMSA), the federal agency charged with administering the nation’s pipeline safety program, published a long-awaited notice of proposed rulemaking (NPRM) for gas transmission and gathering pipelines.

Under development for more than four years, the NPRM proposes significant changes to PHMSA’s safety standards for gas pipeline facilities in 49 C.F.R., Part 192. Of particular importance to the upstream and midstream sectors, the NPRM includes a proposal to modify the federal safety standards for onshore gas gathering lines in four significant ways.

First, PHMSA is proposing to change the framework for determining whether a pipeline qualifies as an onshore gas gathering line. Second, it proposes to regulate certain previously exempt, onshore gas gathering lines in rural areas.  Third, PHMSA would like to alter the rules regulating higher stress gathering lines in more populated areas. Finally, PHMSA is proposing that operators of all gas gathering lines, whether regulated or not, comply with certain federal reporting requirements.

While significant questions exist about the rationale for many of PHMSA’s proposals, it is likely the changes proposed in the NPRM would have a lasting effect on producers and midstream companies.

Many historically exempt production and gathering lines would be subject to Part 192 for the first time, many gathering line segments at the end of pipeline systems would need to be reclassified as fully regulated transmission lines and all gathering line operators would be required to submit additional data to PHMSA, increasing the likelihood of further regulatory changes in the future.

Historical Perspective

Congress provided DOT with the authority to regulate the safety of gas pipeline facilities and people engaged in the transportation of gas in the Natural Gas Pipeline Safety Act of 1968. As originally defined in the 1968 Act, the phrase “transportation of gas” included the gathering, transmission, distribution, or storage of gas by pipeline in or affecting interstate commerce, except for the gathering of gas in rural locations. The legislative history indicates Congress added the exemption for rural gas gathering lines to the 1968 Act because the “impressive” safety record of those lines showed there was no need for federal regulation. Accordingly, DOT did not regulate the safety of rural gas gathering lines during the early years of the federal pipeline safety program.

After a quarter-century of experience administering the program, Congress amended the federal pipeline safety laws to allow DOT to regulate the safety of rural gas gathering lines, provided the agency satisfied certain additional requirements. Specifically, in the Pipeline Safety Act of 1992, Congress directed USDOT to issue regulations creating a new definition for the term “gathering line” and establishing safety standards for a subset of so-called “regulated gathering lines.”

Congress also instructed DOT to “consider factors such as location, length of line from the well site, operating pressure, throughput, and the composition of the transported gas . . . in deciding on the types of lines that functionally are gathering but should be regulated … because of specific physical characteristics.”  In other words, Congress authorized DOT to override the historical exemption for rural gas gathering lines, but only in cases demonstrating a need for regulation.

Current Regulations

 In March 2006, PHMSA established new safety standards for onshore gas gathering lines. Those standards, which remain in effect, create a two-step process for determining whether a pipeline qualifies as an onshore gas gathering line and, if so, whether the line is regulated under the federal rules.

First, an operator is required to use the provisions in American Petroleum Institute (API) Recommended Practice 80, Guidelines for the Definition of Onshore Gas Gathering Lines (1st ed., April 2000) (RP 80), to determine if a pipeline meets the definition of an “onshore gathering line.” RP 80 is an industry standard for classifying onshore production operations and gathering lines that PHMSA incorporates into the federal rules by reference, subject to certain additional regulatory limitations.

If a pipeline meets the definition of an onshore gas gathering line, an operator is then required to determine if it qualifies as one of the two categories of “regulated onshore gathering lines” recognized in the federal rules:

• Type A gathering lines include metallic lines with a maximum allowable operating pressure (MAOP) of 20% or more of specified minimum yield strength (SMYS), as well as nonmetallic lines with an MAOP of more than 125 psig, in a Class 2, 3 or 4 location. Operators of Type A lines must comply with all of the requirements for transmission lines, except for the provisions that require accommodation of smart pigs in new and replaced lines and the gas integrity management requirements; operators are also permitted to use an alternative process for complying with the operator-qualification requirements.

• Type B gathering lines include metallic lines with an MAOP of less than 20% of SMYS, as well as nonmetallic lines with an MAOP of 125 psig or less, in a Class 2 location (as determined under one of three formulas) or in a Class 3 or Class 4 location. Operators of any new or substantially changed Type B line must comply with the design, installation, construction, and initial testing and inspection requirements for transmission lines and, if the line is of metallic construction, the corrosion-control requirements for transmission lines.

Operators must include Type B lines in their damage prevention and public education programs; they must also establish an MAOP for these lines, comply with the line-marker requirements for transmission lines, and conduct leak surveys and promptly repair hazardous leaks.

Federal rules do not currently apply to gas gathering lines in rural, Class 1 locations. PHMSA found, based on the data available at the time of the March 2006 final rule, that there was no need for federal regulation, although that determination has been called into question as a result of recent developments in the oil and gas industry, particularly unforeseen changes in the risk profile of gathering lines in the nation’s shale plays.

In August 2011, PHMSA issued an advance notice of proposed rulemaking (ANPRM) asking if it should change its regulations for gas gathering lines. Citing the emergence of large-diameter, high-pressure gathering lines in the nation’s shale plays, the purported difficulty of enforcing the provisions in RP 80 and the limited applicability of the federal rules, PHMSA questioned whether the existing regulations for gas gathering lines continued to be appropriate.

Gas gathering line safety continued to receive additional scrutiny in the years following the issuance of the ANPRM. In the Pipeline Safety, Regulatory Certainty, and Job Creation Act of 2011 (2011 Act), Congress directed PHMSA to review existing regulations for gas and hazardous liquid gathering lines and to prepare and submit a report describing the results of that review and any recommendations for further legislative action.

The U.S. Government Accountability Office (GAO) also released a pair of reports recommending that PHMSA obtain data on federally unregulated gas gathering lines, create a clearinghouse for sharing information on pipeline safety practices, and propose new safety standards to “addres[s] the risk of the larger-diameter, higher pressure gathering pipelines, including subjecting such pipelines to emergency response planning requirements that currently do not apply.”

Overview of Proposal

In April 2016, following an extended period of intergovernmental review and more than four years after issuing the ANPRM, PHMSA published its proposed gas gathering line rules in the Federal Register. PHMSA also released a Preliminary Regulatory Impact Analysis (PRIA) providing additional information on the potential impact, costs, and benefits of those proposals.

New gathering line definition: The NPRM proposes to create a new definition for an onshore gas gathering line, as well as supplementary definitions for onshore production facilities or production operations, gas treatment facilities and gas processing plants. Although the text of the proposals suggest that PHMSA is seeking to codify many of the basic concepts embodied in the existing regulations, the NPRM would eliminate the reference to RP 80 and depart from the functional approach prescribed in that standard in two significant ways.

First, the proposed definition of “onshore production facility or onshore production operation” would end the production function at the furthermost downstream point of measurement for purposes of calculating mineral severance or where the flow stream from two or more wells commingles. RP 80 generally allows operators to extend the production function to locations that are much farther downstream from both of these proposed endpoints. Accordingly, the production function would end at a point much closer to the wellhead if the definition proposed in the NPRM is adopted.

Second, the proposed definition of “gathering line (onshore)” would restrict the use of the incidental gathering designation to (1) pipelines that do not leave property under the control of the gathering line operator or the operator of an adjacent pipeline where custody transfer takes place, or (2) pipelines that do not exceed 1 mile in length and which do not cross a state or federal highway or active railroad. RP 80 does not impose any of these restrictions on the use of the incidental gathering line designation.

As such, the definition proposed in the NPRM would end the gathering function and begin the transmission or distribution function at a point much farther upstream when compared to the current regulations.

PHMSA offers a markedly different view of the potential impact of its proposed changes in the PRIA. The PRIA characterizes the new gathering line definition as “a clarification of the existing requirement” that “is consistent with the original intent of the 2006 rulemaking,” and states that the “[c]ompliance costs for gas gathering pipeline operators would be negligible,” given the comparatively small amount of mileage involved, the reduction of compliance costs for certain lines excluded from regulation and the activities already being undertaken by gathering line operators in accordance with current industry standards and practices.

In other words, the PRIA assumes that the classification of existing production and gathering lines would not be significantly affected by the proposals outlined in the NPRM.

New standards for higher stress lines: The NPRM proposes to regulate Class 1 gas gathering lines with an MAOP that produces a hoop stress of 20% or more of SMYS for metallic lines, or more than 125 psig for non-metallic lines, and that are at least 8 inches in outside diameter. Operators of these lines, designated as “Type A, Area 2” gathering lines in the NPRM, would be required to comply with the safety standards that currently apply to Type B gathering lines. To address one of GAO’s recent recommendations, Type A, Area 2 gathering line operators would also need to comply with the emergency response requirements in Part 192.

PHMSA cites recent developments in the field of natural gas exploration and production as the primary factor justifying these proposed changes. Specifically, the NPRM states that operators are constructing shale gas gathering lines that far exceed historical operating parameters, and that PHMSA did not foresee or consider the risks associated with these kinds of gathering line systems in the March 2006 final rule.

PHMSA also cites GAO’s recent recommendations and a 2010 resolution issued by the National Association of Pipeline Safety Representatives, a trade organization representing state pipeline safety personnel, as providing additional support for the proposals outlined in the NPRM.

The PRIA estimates about 69,000 miles of Class 1 gas gathering lines would become regulated under PHMSA’s proposal, and that the average annual costs of these proposed changes ($12.8-15.3 million) would exceed the average annual benefits ($11.3-14.2 million) over the initial 15-year compliance period.

Because PHMSA has very little safety data on Class 1 gas gathering lines, the PRIA relies on a series of assumptions to determine the potential impact of these proposed changes. That includes drawing on data provided by pipeline operators in the 2006 rulemaking and current proceeding to estimate the amount of mileage affected and compliance costs, and extrapolating from PHMSA data for gas transmission lines to estimate the potential benefits.

Amended standards in Class 2, 3 and 4 locations: The NPRM proposes amending the existing regulation that lists the safety standards for higher stress, onshore gas gathering lines in more populated, Class 2, 3, or 4 locations.

These gathering lines, currently designated as Type A lines, are subject to the requirements for gas transmission lines, except for the integrity management requirements in Subpart O and the provisions relating to the accommodation of inline inspection tools. The NPRM would re-designate these lines as “Type A, Area 1 lines” and add to the list of exceptions to the transmission line requirements to include many of the new proposals offered in the NPRM.

However, two of PHMSA’s most significant proposals are not included among those exceptions, specifically the new regulation for verifying pipeline materials where reliable, traceable, verifiable and complete records are lacking, and the new regulation for verifying MAOP through the use of pressure testing, pressure reductions, engineering critical assessments, alternative technologies or pipeline replacements.

A decision by PHMSA to apply the new pipeline materials and MAOP verification regulations to gas gathering lines would be extremely controversial. The National Transportation Safety Board safety recommendation and provision in the 2011 Act mandating those regulations only applies to certain higher risk transmission lines, and there is no specific evidence cited in the NPRM or PRIA to support extending those provisions to gas gathering lines.

It is possible PHMSA did not intend for these provisions to apply to gas gathering lines, and that the failure to include these requirements in the list of exemptions for Type A, Area 1 gathering lines was an oversight that will be clarified in the final rule.

Extended reporting requirements: The NPRM proposes applying the federal reporting requirements in 49 C.F.R., Part 191 to all gas gathering lines, whether regulated or not. PHMSA states in the NPRM that it intends to use the information collected in these reports to determine if additional or more stringent gas gathering line regulations are necessary in the future.

The PRIA estimates that 344,000 miles of currently exempt gathering lines would be subject to the new reporting requirements, but nonetheless assumes the costs of complying with the new reporting requirements will be relatively insignificant for the 15-year study period, about $137,000-159,000.

Next Steps

After the public comment period closes, PHMSA will review the information submitted in response to the NPRM and decide whether to present its proposal to the Technical Advisory Committee, the 15-member body that reviews and provides non-binding recommendations on PHMSA’s rulemaking proposals.

The last step in the rulemaking process would be the issuance of a final rule containing regulations that have the force and effect of law. While the agency has consistently maintained that the current rulemaking proceeding will be completed by the end of 2016, it is not expected PHMSA will issue any final rules for gas gathering lines before the Obama administration ends in January.

Author: Keith Coyle is a member of Babst Calland law firm’s Washington, D.C. office and a shareholder in the Energy and Natural Resources Group. Coyle advises clients throughout the United States on energy matters, but his practice focuses primarily on the regulation of pipelines and LNG facilities and the transportation of hazardous materials.