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Legal and Regulatory: Not All Pipelines are Created Equal

The natural gas industry is generally broken into three sectors: upstream, midstream and downstream.

Upstream is the first stage and involves exploration and production. The midstream stage is associated with the processing, storing, transporting and marketing of natural gas; the final stage, downstream, is after production through the point of sale. Upstream development in the Marcellus and Utica shale plays has surpassed the midstream takeaway capacity, so there is accelerated midstream construction in an effort to move the energy source to market.

“We are at a crossroads. The industry has been widely successful at poking holes in the ground to see and understand what energy lies beneath our soil.  However, we need to move this shale, oil and gas through pipelines to other shipment points. These pipelines need permitted and this process opens a whole landscape of legal concerns which are not historically new, but are relatively new to this region,” related Tejas Gosai, Founder, Shale Media Group.

Not all pipelines are created equal. First off, there are three primary types of pipelines: gathering, transportation and distribution. Rick Stouffer, Editor, Gas Business Briefing, a Division of Platts, explained, “The gathering line, a small diameter line, which comes from the well itself, flows the product to a treatment or processing facility that ‘cleans’ the oil or gas. From those facilities, larger massive interstate transportation pipelines, typically with 42 to 48 inch diameters, employ high pressure to make the refined products flow between cities and even countries.” Finally, smaller diameter distribution pipelines transport the product to the consumer.

Cara C. Davis, Principal, The Law Offices of Cara C. Davis, says, “Securing gathering pipelines can be an interesting process depending on whether or not the concerned landowners own their oil and gas rights.  Generally, if the landowners are oil and gas owners, and their interests are leased, they are much more apt to executing the necessary documents. On the other hand, when the landowners are only the surface owners, it can be more complicated to the extent that the incentives to cooperate are different. As part of the upstream process, well before midstream is reached, our title attorneys act as a system of checks and balances. Well-operators avoid many obstacles by negotiating around adverse conditions discovered during the title process, including already existing rights-of-way.”

Potential liability issues are always of paramount concern, which is why well-operators routinely rely on title attorneys to render opinions. Davis also added, “It is also important for midstream pipeline companies and well-operators to craft contracts that address complex issues relating to title, regulatory affairs and the environment that shouldn’t rear their ugly head, but inevitably will.” Once titles are cleared, permits for the pipelines can be addressed and issued.

Different pipelines have various regulations and require different permits. Also, every state has its own regulations, in addition to national regulations, which fall under the Federal Energy Regulatory Commission (FERC) for Interstate Transmission Lines receiving a Certificate of Public Convenience and the U.S. Department of Transportation Pipeline and Hazardous Materials Safety Administration.

For example, Stouffer relayed, “There is no rule of thumb for pipeline permitting. They are all different and often terrain-dependent. For example, a big problem for pipeline development in Pennsylvania is that we have a lot of streams and creeks, which all need permitted. The pipelines must either go over or under them. A lot of companies from outside the area didn’t realize how many small streams and creeks we have and how big of a deal this is.”

“As horizontal directional drilling became commonplace, companies were pressured to bore under streams versus trenching through them or going over them; however, if subsurface conditions aren’t conducive, the drilling muds may be forced upward into the streams.  Each crossing should be evaluated for the least impactful crossing technique,” explained Jim Daley, PMP, Director of Environmental Services, NGE. 

In discussing other environmental protections, Daley stated, “The FERC process is a rigorous one because it entails conformance with the National Environmental Policy Act (NEPA) and related Council on Environmental Quality (CEQ) regulations, which require  Environmental Assessments (EA) or Environmental Impact Statements (EIS) and have a significant focus on natural resources, wetlands, cultural resource impacts and threatened or endangered (T & E) flora and fauna, including bats, snakes, mussels or even particular plant species.”

Some midstream companies have a robust regulatory permitting staff, while others will hire an environmental consultant to assist with some elements like environmental screenings to look for known T & E species or habitats. Daley related, “For example in Pennsylvania, if there is potential habitat for the Massasauga rattlesnake, the company would need to coordinate with the Fish and Boat Commission (FBC) and possibly perform studies that would include placement of metal sheets on the ground to attract snakes to warmth under these sheets. If the building of a pipeline would affect the habitat of an endangered species, such as the federally listed Indiana bat, which hibernates in the winter and can roost under loose tree bark the rest of the year, it can delay a project by six to eight months.”

The amount of time required to obtain a permit varies on the type of permit, the circumstances surrounding it and the agencies involved. For example, according to Daley, the Pennsylvania Department of Environmental Protection’s (DEP) Erosion Sedimentation Control General Permit typically takes about one to two months of preparation, working on items like erosion sediment control and pipeline restoration plans. Once submitted, the decision is generally rendered in 30-60 days. However, Daley says in some instances where the U.S. Army Corps of Engineers also becomes involved in issuance, it can take up to five months to acquire.

Mike Krancer, Former Secretary of the PA DEP, and Partner, Blank Rome LLP, explained, “Our objective is to have the most efficient, timely review possible with all appropriate safety measures. We have something in Pennsylvania called the Permit Decision Guarantee, which requires the DEP to assess how to best make timely permitting decisions and provide clear expectations for applicants to improve the application quality. Our people do everything possible for intense permit coordination to meet the various needs involved.”

As for safety, the PA Public Utility Commission (PUC) adopted the Gas and Hazardous Liquids Pipelines Act, also known as the Pipeline Act or Act 127, in 2011. Krancer pointed out that many companies were and still are ahead of their time, going beyond what is required for pipeline construction.

Both Krancer and Daley also brought up public safety concerns that stem from major pipeline explosions like the 2011 explosion in Allentown, PA. “That incident, and many like it, stemmed from nearly 100 year-old cast-iron pipe. These old systems are the most vulnerable,” expressed Krancer. Daley added, “The problem isn’t with the strict monitored and regulated, recently constructed lines, but rather the old underground infrastructure. We now need to invest in and replace this old underground infrastructure.

One thing is for certain, from their size to their purpose, no two pipelines are exactly alike. When you add in the legal and regulatory requirements associated with their environmental and safety permitting that is certainly the case.

"Legal and Regulatory: Not All Pipelines are Created Equal," by Kristie Kubovic, Director of Communications, Shale Media Group, was published on January 3, 2014.