American Oil and Gas Reporter - August 2016 - 110

Producers Among PHMSA Objectors
WASHINGTON-Upstream and midstream oil and gas groups concur with the
Pipeline and Hazardous Materials Safety
Administration's goal to improve pipeline
safety with its notice of proposed rule
making, but they differ sharply with the
agency on a number of the particulars.
According to industry representatives,
the proposal's chief demerits include dubious statutory authority, conflict with
other federal regulatory requirements, an
ill-advised thematic shift away from riskand performance-based rules, and a
cost/benefit analysis that misses the mark
by a couple orders of magnitude.
Producer groups express particular dismay
about PHMSA's proposed definition of gathering and production lines, which the associations say ignores a congressional mandate
and threatens to regulate production facilities.
Joint comments by a coalition of national
and state independent producer groups particularly object to PHMSA defining onshore
production facilities as "terminating at the
furthermost downstream point" where:
* "Measurement for the purpose of
calculating minerals severance occurs; or
* "There is commingling of the flow
stream of two or more wells."
Going After Gathering
According to Independent Petroleum
Association of America legal counsel Greg
Russell of Vorys, Sater, Seymour and Pease
LLP, the proposal will upend decades of
precedent and practice under API Recommended Practice 80. "Not only does that
definition ignore PHMSA's jurisdictional
constraints by ignoring the actual function
of the line . . . but it is a complete dismissal
of the traditional understanding of production
operations rightly reflected in RP-80 and
the reality of multiwell horizontal development from a single well pad-where
under the proposed definition, regulated
gathering could begin on the well pad, at
or near the wellhead," he says.
Moreover, suggests Tom Stewart of Oilfield Policy Advisors LLC, who co-chairs
IPAA's pipeline safety task force, no statute
provides PHMSA the authority it is claiming.
"In our comments, we ask only that the
agencies obey the law, regulate as necessary,
yet respect the authorization provided them
by Congress," he remarks. "We all have
mutual goals of protecting the public
interest. But we will fight unwarranted
and intrusive regulators who think they
have the right to rise above the rule of law;
even as we will operate our investments in
America's energy infrastructure to the highest standards possible."

The groups joining IPAA in those
comments include the Colorado Oil &
Gas Association, Independent Oil and
Gas Association of West Virginia, Kansas
Independent Oil & Gas Association, Kentucky Oil & Gas Association, Ohio Oil
& Gas Association, Pennsylvania Independent Oil & Gas Association, Texas
Alliance of Energy Producers, and Virginia
Oil & Gas Association.
Comments by the GPA Midstream
Association note that PHMSA's own estimates for the proposed rule's additional
costs for gathering lines exceed the
agency's projected benefits. Under PHMSA's estimate, it would add $15.1 million
in compliance costs while the upside
would total $14.2 million.
"This proposed rule is a huge expansion
of federal regulation over gathering lines,"
assesses GPA Midstream President and
Chief Executive Officer Mark Sutton.
Underestimated Costs
Sutton is one among many to raise
concerns about the proposal's cost/benefit
analysis. Another is API Midstream Director Robin Rorick, who contrasts PHMSA's calculation that the rule will cost
$597 million over 15 years with the findings of a study by ICF International,
which places the cost at $33.4 billion.
"PHMSA's flawed study grossly underestimates the cost of implementing
these regulations, which will provide little
improvement in safety outcomes," he
charges. "We encourage PHMSA to reassess this proposal, conduct the appropriate data collections and studies that
apply sound science, and then, reissue
proposals that successfully benefit the
environment and public."
The Interstate Natural Gas Association
of America identifies three key provisions
in the rule that it calls on PHMSA to either
remove or modify. It says PHMSA should:
* Allow the use of alternative methods
for validating maximum allowable operating pressure in order to ensure the ongoing development and implementation
of technologies and practices that improve
pipeline safety;
* Withdraw the proposal for hydrostatic pressure testing; and
* Remove overly prescriptive material
verification.
Morover, the American Gas Association
holds, PHMSA's proposal fails to consider
the extensive regulatory and voluntary safety
initiatives in place already, and imposes
prescriptive and burdensome requirements.
"The proposed rule represents a shift

110 THE AMERICAN OIL & GAS REPORTER

away from performance-based regulations,
which recognize the unique characteristics
of each pipeline system, to prescriptive
regulations, which define how an activity
is to take place, regardless of the circumstances or the characteristics of the system," AGA describes. "Natural gas utilities
are concerned that these overly prescriptive
and onerous requirements (will) result in
a rule that is largely unworkable, will
significantly increase costs to residential
customers, and will reduce significantly
the opportunities for operators to undertake
voluntary initiatives targeted at advancing
pipeline safety."
Need More Time
Many groups also question the timeline
in which they have been required to comment, typified by the words of GPA Midstream Vice President of Government Affairs Mathew Hite. "While we appreciate
working with PHMSA on this proposed
rule throughout its lengthy history, GPA
Midstream would have preferred more
time to adequately and more accurately
digest the impacts to our members' operations," he relates. "This is a 500-page
rule with a 500-plus page regulatory impact
analysis that has been in final draft for
years. The stakeholders commenting on
this expansive over-regulation are paying
the price now because this proposal sat on
desks for close to two years.
"We find it very unfortunate that everyone was rushed to provide comments at
the last minute, even after continued requests
for this proposal to be released years ago
when it was ready," Hite says. "A 90-day
period to review and comment on more
than a thousand pages of highly technical
information was clearly insufficient."
Adds API, "Never before has PHMSA
made such an expansive proposal to increase regulation. Moreover, we are not
aware of any other federal agency that
has proposed to double the length of existing regulations or take on so many additional regulatory requirements in a
single rule making, especially with only
90 days to comment."
And if authorities get the rule wrong,
warns IPAA Vice President of Crude Oil &
Natural Gas Regulatory Affairs Susan Ginsberg, a portion of safe and productive sites
and equipment will be rendered unprofitable.
"Energy producers want to do their jobs in
a safe and responsible manner," she assures.
"What PHMSA has proposed would not
further that goal and likely would result in
smaller producers having to shut in production, particularly from marginal wells." ❒
American Oil and Gas Reporter - August 2016

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