The People of America's Oil and Natural Gas Indusry

Pipeline Regulations Could Impact Production

Mark Green

Mark Green
Posted July 7, 2016

We frequently post on the potential risk to U.S. energy production and the benefits the American energy revolution is generating for the economy and individual households from the administration’s regulatory push and government red tape (see here, here and here). There might not be a better current example of the potential regulatory impact on U.S. energy than new rules for natural gas transmission and gathering lines proposed by the Pipeline and Hazardous Materials Safety Administration (PHMSA).

Consider: According to a study by ICF International, measuring the impact of PHMSA’s proposals, for 2,200 small pipeline companies across the country the annual cost of complying with the new regulations would come close to what the companies earn from gathering line fees. That’s impact – impact on small businesses and impact on energy development associated with the work those companies do.

API Midstream Director Robin Rorick talked about the PHMSA proposals and ICF’s findings during a conference call with reporters. Rorick said ICF’s analysis showed – in addition to impacting small firms – federal officials have significantly underestimated the cost of their proposals and that the estimated benefits also are “grossly inaccurate.” Rorick:

“[T]he proposal itself suggests that implementation costs would be surprisingly low, $597 million, and greatly outweighed by an equally surprising high estimate of benefit, between roughly $3.2 billion and $3.7 billion. By PHMSA’s own accounting though, roughly $3 billion of the benefits are supposed cost savings to industry, not safety or environmental benefits. … ICF International evaluated the benefits and cost impacts of the proposed rule and found that when properly accounted for, the total cost of the proposed rule increases by almost two orders of magnitude from $597 million to $33.4 billion to achieve safety and environmental benefits of approximately $437 million.”

Rorick said API supports regulations that improve safety. Though the pipeline sector has a 99.999 percent safety rate, he said, industry’s goal is zero incidents. Yet, the PHMSA proposal discards a risk-based approach for a prescriptive one that could “fundamentally undermine the current risk-based philosophy necessary for a successful integrity management program.” Rorick said as written the rule doesn’t allow for flexibility on the part of operators:

“PHMSA proposes repair criteria for certain pipeline conditions, but does not allow an operator to conduct proper the engineering analysis to determine the actual threats to the pipeline, thus potentially forcing the operators to unnecessarily dig up piping.”

He said PHMSA arbitrarily chose to regulate 8-inch gathering lines. Taking a risk-based approach – to ensure safety where there’s the greatest potential risk to people and/or the environment – industry asserts that the focus should be on 16-inch diameter lines. Rorick returned to the possible impact on small businesses:

“If you were to regulate 8-inch diameter gathering lines, the annual compliance costs for those smallest companies would [nearly] equal their estimated annual revenue from gathering. … In other words, for 2,200 firms the annual compliance costs with this rule on gathering lines would nearly equal the revenue that they get from gathering fees. It does seem arbitrary, highly capricious … And it also seemed like the approach that they’re taking could significantly curtail production growth in this country.”

Pipelines are one of the safest ways to transport oil and natural gas, and the United States has about 320,000 miles of natural gas pipelines safely transporting the fuel – 99.999 percent safe. This pipeline infrastructure is critically important to the growth of U.S. energy development. Rorick urged PHMSA to do more data collection and study to issue sound pipeline safety regulations that will properly manage this infrastructure without unnecessarily impacting energy production:

“This isn’t an objective of ours to get out of regulation. In fact, we support the development of regulations that are efficient and effective. But the way that these regulations are written is incredibly expansive and it does overreach and it will have an impact on production.”


ABOUT THE AUTHOR

Mark Green joined API after a career in newspaper journalism, including 16 years as national editorial writer for The Oklahoman in the paper’s Washington bureau. Mark also was a reporter, copy editor and sports editor. He earned his journalism degree from the University of Oklahoma and master’s in journalism and public affairs from American University. He and his wife Pamela live in Occoquan, Va., where they enjoy their four grandchildren.