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Underground Gas Storage Fields in Crosshairs of Regulators Nationwide

While the long-term political, regulatory and economic ramifications of the three-month-old Aliso Canyon natural gas storage well leak for Sempra Energy and its Southern California Gas Co. (SoCalGas) unit are still unknown, the inevitability of significant, longer term impacts on the gas storage sector nationally is becoming clearer with each day and week that the leak continues. More federal regulation is coming, based on current developments in California and Washington, DC.

A federal presence in an advisory capacity has been involved in the incident since SoCalGas discovered the leak last Oct. 23, but the longer the leak has continued the more pressure has built for a greater federal oversight of gas storage facilities. While nothing formal has been done, sources close to the U.S. Department of Transportation (DOT) indicated to NGI late in January that DOT's Pipeline and Hazardous Materials Safety Administration (PHMSA) could expand its role in overseeing storage operations.

On Friday, Rep. Brad Sherman (D-CA), whose district includes the Aliso Canyon facility, said he had received assurances from Vice President Joe Biden that the Obama administration will help in using existing legal authority in PHMSA to write new national gas storage safety standards. Separately, California's two Democratic U.S. Senators., Dianne Feinstein and Barbara Boxer, called on U.S. Energy Secretary Ernest Moniz to review the cause and response to the SoCalGas gas well leak.

The two senators want Moniz's views on how to best stop the leak, and longer term, "how to prevent future leaks," Boxer told local news media.

Currently PHMSA certifies state programs, such as the oversight of Aliso Canyon by California’s Division of Oil, Gas and Geothermal Resources (DOGGR). And PHMSA engineers have been onsite working with DOGGR and SoCalGas in the ongoing attempts to plug the leak and permanently close the storage well (SS-25).

PHMSA's expanded role in gas storage could come from one of two sources, according to Washington, DC, sources familiar with the agency -- as part of the current proposed four-year reauthorization of the U.S. Pipeline Safety Act, which includes language mandating PHMSA to develop new regulations for storage, or from an ongoing initiative (still not public) within PHMSA to develop new federal storage rules ahead of the reauthorization legislation.

As part of PHMSA's ongoing, multi-year efforts to update its gas transmission rules, the agency is considering an Advanced Notice of Proposed Rulemaking on storage, according to sources following the agency's inner-workings. In seeking stakeholder comments, the agency has asked about underground storage and what should be done in that area in terms of oversight.

There were proposed federal rules for gas storage facilities in the late 1990s, but they were subsequently withdrawn because of pushback from stakeholders, particularly state governments, a PHMSA spokesperson said. "We have a long history in this area. We have participated in the development of so-called 'consensus standards' by the American Petroleum Institute, which conducts a certification process for the industry similar to the federal rulemaking process," the spokesperson said.

Consensus standards don't carry the weight of federal regulations, but they are industry and government agreed-upon best practices in the management of natural gas storage facilities. Even before Aliso Canyon's leak was discovered, the regulation of underground storage was on everyone's radar.

Three years ago, a pair of U.S. senators from Kansas renewed their state's efforts to shift the responsibility for monitoring some interstate underground natural gas storage facilities from the federal government to states, saying the modification would help avoid accidents at such facilities (Daily GPI, April 26, 2013). They alleged that the federal government had failed to do a good job of regulating storage.

The Underground Gas Storage Facility Safety Act of 2012 (S 763), introduced by Sens. Pat Roberts (R-KS) and Jerry Moran (R-KS), would have authorized states to enforce pipeline safety requirements related to wellbores at interstate storage facilities. State inspection plans would require the approval of the Federal Energy Regulatory Commission.

In Kansas, a keen interest in underground storage emerged from an unfortunate incident dating back more than a decade.

A suspected leaking natural gas storage cavern caused two explosions in Hutchinson, KS, in 2001, leveling businesses and killing one man (see Daily GPI, Jan. 29, 2001). Though not conclusive, officials thought the explosions were caused by a natural gas pipe leak at the Yaggy Field storage facility, seven miles northwest of Hutchinson and operated by Kansas Gas Service, a subsidiary of Tulsa-based Oneok Inc. The cavern was one of about 160 in the 3.2 Bcf capacity Yaggy Field. Ultimately, a jury awarded $5 million in damages to plaintiffs in a residential class action lawsuit against Oneok, and storage operations at the 3 Bcf Yaggy salt cavern were discontinued (Daily GPI, Sept. 27, 2004). No damages were awarded to the business class, nor were any punitive damages awarded. The $5 million was covered by insurance, according to Oneok.

Post-Aliso Canyon, industry observers and regulators are assuming that the past deference to the states on the oversight of intrastate gas storage operations will be changed. PHMSA officials have said since the SoCalGas incident that the agency is "reviewing its options."

One Washington, DC, industry expert said that the landscape for the use of natural gas nationally has changed dramatically in the past 20 years, the last seven or eight of which have included the shale boom. "The way we use it, store it and its proximity to people have all changed," the source noted. "The landscape has changed significantly as have the environmental consequences."

PHMSA officials on background will confirm changes are coming, but the "how" is still undetermined. It could be through Congress or it could come from the agency's own initiative.

For the record, PHMSA officials now emphasize that Aliso Canyon was not unregulated because California has rules and regulations for storage. Because PHMSA certifies and audits the state programs, the federal agency has an ongoing technical role and oversight in how states such as California blend state and federal regulations, a PHMSA spokesperson noted.

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