Washington Watch: Pipeline Safety and LNG Challenges

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Washington Watch Steven WeilerIt’s late spring in Washington, D.C. The cherry blossoms have come and gone, and cool rain has been replaced with heat and humidity. And, as you might expect, the new hot topics in the District are coming from Capitol Hill and regulatory agencies, where Congress is grappling with major energy legislation and key regulators are addressing pipeline safety and liquefied natural gas (LNG) issues.

“The only difference between death and taxes is that death doesn’t get worse every time Congress meets.”
— Will Rogers

Congress

Three different legislative topics merit mention this month.

First, in late April, progress was made on key pieces of energy legislation. First, in late April, the Senate passed a bipartisan energy bill, S. 2012, Energy Policy Modernization Act of 2015, by a vote of 82-12. While noteworthy, the bill must now be reconciled with its House counterpart, HR 8, North American Energy Security and Infrastructure Act of 2015, which contains similar titles, but was not passed without Democrat support after efforts by a bipartisan coalition failed. This angered Democrats and earned a veto threat from President Obama. The outlines of the House and Senate bill are similar, but there are significant differences in the provisions. Further, the Senate bill only addresses five topics (efficiency, infrastructure, supply, accountability and conservation reauthorization); the House bill addresses these five topics and more. As a result, a conference committee made up of members from both chambers will try to reconcile the two different bills.

Second, in January 2015, Rep. Bill Johnson (R-Ohio) introduced HR 351, the LNG Permitting Certainty and Transparency Act, which would streamline LNG export approvals. Specifically, the bill would require that the Department of Energy take no more than 30 days after completion of an environmental impact statement to issue a final decision on an application for NGA Section 3 authorization to construct, expand or operate an LNG export project. Legislative progress had been slow, until April 2016, when Rep. Jim Bridenstine (R-Okla.) proposed HR 351 as an amendment to the defense appropriations bill during markup. The appropriations bill (with the LNG amendment) passed the House Armed Services Committee by a vote of 60-2. A similar provision is included the HR 8. But for the reasons discussed above, the defense appropriations bill might before HR 8 and S. 2012 are reconciled.

Third, in April, H. 5050, the Pipeline Safety Act of 2016, was unanimously passed by the full House Energy and Commerce Committee. HR 5050 represents a bipartisan effort to identify and resolve weaknesses in pipeline safety laws by: 1) targeting mandates for Pipeline and Hazardous Materials Safety Administration (PHMSA) to increase transparency and accountability, complete overdue regulations and improve pipeline safety; 2) tightening provisions under which PHMSA may issue emergency orders; 3) providing transparency and interagency reviews to the regulatory process, and 4) increasing inspections for some underwater oil pipelines.

“I believe there’s only one regulation in life that works: failure.”
— Rick Santelli

PHMSA

On May 5, PHMSA extended the comment period on a notice of proposed rulemaking, until July 7, to revise the safety regulations applicable to onshore gas transmission and gathering pipelines; the proposed rule does not address gas distribution infrastructure. Gathering lines are pipelines that transport gas from production wells to a central collection point in the field and then on to treatment plants separate natural gas liquids and impurities to create pipeline quality natural gas or, alternatively, directly to transmission lines. Previously, these gathering lines were relatively small diameter pipelines operated at low pressures, but today the diameter of many gathering pipelines is just as large as transmission lines, and these lines are now operated at high pressures. Transmission lines range in size from several inches to several feet and are operated at pressures up to and over 1,500 psi.

Why is PHMSA proposing the new regulations? The natural gas industry has changed since the safety regulations were adopted. For example, production increased by 33 percent between 2005 and 2013, due primarily to improved technology involving directional drilling and hydraulic fracturing. Indeed, shale gas production has increased tenfold in the last decade and now accounts for half of the US production. During the same time, offshore production levels have dropped. Further, increased production of natural gas has led to lower prices and, with that, a shift to increased use of natural gas as a fuel source to generate electric energy and the exportation of LNG. These changes have stressed the existing infrastructure. Rather than build new pipelines, compression is often used to increase the operating pressure and, as such, increase throughput. Increased pressure, however, could expose previously hidden defects in the pipeline system.

What are these proposed regulations? As a general matter, they address four congressional mandates from the Pipeline Safety, Regulatory Certainty and Job Creation Act of 2011, one GAO recommendation, and six National Transportation Safety Board recommendations, most significantly removing the exemption from certain pipeline safety regulations for pipelines built before 1970 when the pipeline safety regulations were developed. But it is now believed that hydrostatic testing of the grandfathered pipelines would have likely expose the defective pipes which led to past pipeline failures and explosions.

Speaking of pipeline failures, PHMSA, on April 29, issued a Corrective Action Order requiring Texas Eastern Transmission to immediately explore what caused an explosion on its 30-in. gas pipeline near Salem, Pennsylvania. In the meantime, PHMSA shut down the failed pipeline and three nearby pipelines. The failed pipeline was constructed in 1981 and consists of 0.404-wall thickness, X65 grade double submerged arc-welded pipe coated with a fusion bond expoxy with a tapecoat coating of girth weld joints. Although the cause of the incident is not known, a preliminary investigation identified evidence of corrosion. PHMSA issue a Corrective Action Order to address urgent situations arising out of an accident, spill or other significant, immediate or imminent safety or environmental concern.

On May 18, PHMSA will hold a public workshop on LNG regulation ns. The reason is simple: the LNG market is evolving due to the abundance of natural gas, new technologies, and new applications for the use of LNG, but the majority of LNG facilities in service today were constructed in the 1970’s. Existing regulations may not adequately address process safety practices, and technologies that have developed in the last forty years.

Federal Energy Regulatory Commission

FERC recently granted NGA section 3 authorization for two different liquefied natural gas projects in Louisiana, one involving Magnolia LNG LLC (Magnolia) and the other involving the expansion of Cameron LNG LLC (Cameron), which was previously known as Hackberry LNG LLC.

Before describing the projects, a regulatory refresher might be helpful. Authorization under NGA section 3 is required to import or export natural gas and the facilities used for such transaction. But the regulatory oversight is bifurcated: the Department of Energy’s Office of Fossil Energy (DOE/FE) issues authorization for the import/export of the commodity, that is, the natural gas and LNG, while FERC has “the exclusive authority to approve or deny an application for the siting, construction, expansion or operation of an LNG terminal.”

On April 15, FERC authorized Magnolia to construct and operate an LNG terminal and liquefaction facilities to export approximately 8 million metric tons per annum (MTPA) with a maximum operating capacity equivalent to pipeline receipts of up to 1.4 billion cubic feet (Bcf). Magnolia’s facilities will include two full containment storage tanks; four LNG trains each with a nominal capacity of 2 MTPA, LNG vessel berthing, mooring and loading facilities; and LNG truck loading facilities.

Magnolia’s terminal will receive natural gas via a connection with an existing interstate pipeline owned and operated by Kinder Morgan Louisiana Pipeline LLC (KM Louisiana), which also received NGA section 7(c) certificate authorization to construct and operate the necessary modifications to its pipeline facilities and a new compressor facility.

The DOE/FE previously granted Magnolia export authorization, beginning with up to 4 MTPA to any country with which the United States has a Free Trade Agreement in place, and then later authorization for up to another 4 MTPA.

On May 5, FERC authorized Cameron LNG to expand its current operations that export up to 772 Bcf of domestically produced natural gas or the equivalent of 14.95 MTPA. Cameron’s existing liquefaction project (located the west side of the Calcasieu Ship Channel in Cameron and Calcasieu Parishes, Louisiana) currently consists of four LNG storage tanks and three liquefactions trains, but FERC is now authorizing Cameron to construct and operate a fifth LNG storage tank and two additional liquefaction trains. The project expansion would allow Cameron to export an additional 515 Bcf per year of domestically produced natural gas and increase the LNG terminal’s export capability to approximately 1.29 trillion cubic feet per year of domestically produced natural gas.

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