Hours before the deadline to submit its comments on proposed federal rules governing natural gas pipelines, the American Petroleum Institute (API) blasted the rules as “arbitrary and capricious” and urged regulators to go back to the drawing board, in part for overstating the benefits and underestimating the costs to the oil and gas industry.

Last March, the Transportation Department’s Pipeline and Hazardous Materials Safety Administration (PHMSA) issued a 549-page notice of proposed rulemaking (NPRM) which could potentially add thousands of miles of gathering lines to its purview (see Daily GPI, March 21). Two months later, PHMSA extended the deadline to file comments to Thursday (see Daily GPI, May 10).

API Midstream Director Robin Rorick said that while the organization supports regulations to improve pipeline safety and is willing to work with the National Transportation Safety Board (NTSB), the NPRM “does not appropriately address the intent of the NTSB recommendations or appreciably advance pipeline safety, and is over-reaching” in its current form.

“API has no issue with regulations that further pipeline safety. But the proposals address unsubstantiated concerns and are not supported by established research,” Rorick said at a press conference Thursday.

Rorick added that Congress — through its passage of the Pipeline Safety, Regulatory Certainty and Job Creation Act of 2011 — had asked PHMSA to study and collect data on gathering lines before developing regulations, but “it is API’s opinion that this effort was not substantially completed, thus the justification for the vast number of proposed requirements on gas gathering line operators is unwarranted.”

Not driven by risk-based approach

According to Rorick, PHMSA’s proposal is contrary to its own statutory directives and existing regulatory framework. It is not driven by a risk-informed approach targeted at eliminating the most significant risks posed to public safety and the environment.

“For example, current rules prescribe safety requirements for pipeline facilities and the transportation of gas, to ensure that sensitive high-consequence areas [HCA] are protected,” Rorick said. “PHMSA’s proposed changes will fundamentally undermine the current risk-based philosophy necessary for a successful integrity management program to protect these HCAs.

“Never 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 rulemaking, especially one with only 90 days to comment.”

Underestimated costs, overestimated benefits

PHMSA estimated that over a 15-year period, the total cost to implement the rule changes would be approximately $597 million and provide $3.2-3.7 billion in benefits. But a study conducted by ICF International for the API estimates the costs to industry will be about $33.4 billion, with benefits ranging from $305.9 to $568.2 million.

“The regulatory impact assessment completed with NPRM significantly underestimates the costs that would be required to implement these proposed regulations,” Rorick said. “The benefits provided are also grossly inaccurate…PHMSA accounting [found] roughly $3 billion of benefits are supposed cost savings to industry, not safety or environmental benefits.”

More concerns over definitions

API also has issues with some of the technical merits of PHMSA’s proposals. Specifically, Rorick said regulators want to abandon API Recommended Practice 80 (ARP80), also known as “Guidelines for the Definition of Onshore Gathering Lines.”

“They want to replace ARP80 with over-simplistic and expansive definitions that do not provide any additional safety benefits and extends PHMSA’s jurisdiction over production assets, an area where they have no expertise,” Rorick said. “Production assets are already effectively regulated by other agencies like state oil and gas offices.

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

The abandonment of ARP80 and the new repair criteria, Rorick said, show “PHMSA’s apparent lack of considering all consequences that could occur with such drastic changes to the regulations. For all of these reasons, API firmly believes that taken together the proposed changes are arbitrary and capricious, and contrary to the law.

“We encourage PHMSA to conduct the appropriate data collections and studies necessary to issue sound pipeline safety regulations, and then reissue proposals that successfully benefit the environment and the public.”

An issue over inches

Rorick added that API believes PHMSA arbitrarily picked eight inches as the smallest diameter pipeline needing regulatory oversight. Sixteen inches in diameter makes more sense, he said.

“While we’re comfortable with the pressures that they picked, eight inches is an incredibly small diameter and doesn’t seem to have any sort of risk-based approach,” Rorick said. “As an industry, we feel that addressing the risk appropriately would give you a 16-inch or larger diameter pipeline that should be regulated…

“Let’s be clear. It’s not that eight-inch gathering lines are not regulated. In fact, they are heavily regulated if they’re in HCAs or heavily populated areas.”

According to API calculations, Rorick said the cost of regulating eight-inch diameter gathering lines to its smallest member companies — some 2,200 firms — would roughly equal their estimated annual revenues from gathering fees. “The approach that they’re taking could significantly curtail production growth in this country,” Rorick said.

Another area of concern relates to maximum allowable operating pressure (MAOP), an important subject as regulators and the industry try to avoid another disaster such as the pipeline rupture and explosion in San Bruno, CA, in 2010 (see Daily GPI, Sept. 15, 2010).

“Their approach is very rigid,” Rorick said. “If the industry doesn’t have [material] records, they would like to just start digging up lines everywhere to be able to verify the MAOP. We think there are much more effective ways to get that information, [including] in-line inspection technologies and hydrostatic testing.

“The rule as proposed is establishing a one-size-fits all [solution]. We’re going to end up impacting a lot of landowners and disturbing a lot of public areas as we dig up lines.

Lawsuit a possibility

During a Q&A session with reporters, Rorick declined to say that API wouldn’t file a lawsuit against regulators over the proposed changes.

“I’m not going to take anything off the table,” Rorick said. “Our hope is that we are able through the rulemaking process here to provide comments, that PHMSA takes our comments seriously — which I believe they will — and make significant changes to the rule, and that we can get a rule out that makes sense both to us as well as to the regulator.”

AGA comments

Last month, officials with the American Gas Association (AGA) outlined several areas of concern over the proposed rules (see Daily GPI, June 23). But in a statement Thursday, AGA issued additional comments that echoed some of the concerns of API.

“AGA and its members believe that PHMSA’s proposal fails to consider the extensive existing regulatory and voluntary safety initiatives in place and imposes prescriptive and burdensome requirements on operators that, in the end, will likely not address the perceived regulatory pipeline safety benefits,” AGA said Thursday.

“The proposed rule represents a shift 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. Natural gas utilities are concerned that these overly prescriptive and onerous requirements result in a proposed rule that is largely unworkable, would significantly increase costs to residential customers, and would significantly reduce the opportunities for operators to undertake voluntary initiatives targeted at advancing pipeline safety.”

PHMSA oversees 2.6 million miles of pipeline across the United States.