The “most significant” and what likely will prove to be the “most expensive” rule mandating periodic inspections of interstate and intrastate natural gas pipelines will be posted to the web site of the Department of Transportation’s Office of Pipeline Safety (OPS) Friday and published in the Federal Register on Monday (Dec. 15), according to OPS and pipeline company officials.

The much-awaited rule comes one year after President Bush signed into law pipeline safety legislation, requiring inspections of pipes in the riskiest high-consequence areas within five years and the less-risky areas in the next five years, as well as re-inspections every seven years. All baseline inspections will be required to be completed by 2012. High-consequence areas are places where the most injuries and/or property damage could occur if a pipeline ruptured and exploded.

It’s estimated that 5-10% of the interstate gas pipeline system (up to 20,000 miles) is located in high-consequence areas. But because the areas are scattered throughout the U.S. interstate system, it’s expected that as much as 60-70% of interstate pipeline mileage could be involved in the inspections, according to pipe officials. Approximately 50,000 miles of transmission lines owned by local distribution companies (LDCs) are located in high-consequence areas and will be subject to mandated inspections as well.

Because they traverse more high-consequence areas, gas pipelines on the East Coast will feel the brunt of the OPS rule more heavily than pipes in the West, pipeline officials agreed. Pipelines have one year before they must submit to the OPS their compliance plans with the agency’s pipeline integrity rule, which is expected to be about 50 pages long.

As for its impact on industry, this will be “the biggest rule” issued since the federal government began regulating pipeline safety in 1970, said Terry Boss, senior vice president of environmental and safety for the Interstate Natural Gas Association of America (INGAA).

This is the “[most] expensive rule…that DOT has ever passed” with respect to gas pipeline safety, requiring “on the order of billions of dollars” from both interstate and intrastate pipelines to comply with it, said Andy Drake, director of pipeline integrity and operational compliance for Duke Energy, and chief industry liaison on the pipe safety initiative with DOT. It will mean a “pretty considerable increase in operating costs per year” for gas pipelines, he noted, adding that the costs associated with the downtime to inspect pipelines also could be much higher than were originally estimated.

INGAA, which represents interstate gas pipelines, estimates the direct costs of the new rule to pipes will be $2.8 billion over the next 20 years. Direct costs include capital expenses and costs associated with inspections and the development of pipeline integrity management plans to comply with the rule, said Boss.

But he believes “probably significantly more” indirect costs will be incurred when pipelines are forced to reduce capacity on their systems during inspections, which Boss anticipates will affect basis differentials.

Although not mandated, more pipelines are expected to switch to mechanical smart pigs to inspect the interior of their pipe systems as a result of the rule, which will require a number of them to modify their systems to accommodate the devices, Boss and Drake said. This will be a “pretty significant undertaking if you haven’t done these type of [inline] inspections” in past years, Drake noted. He said Duke Energy has been using pigging devices in its pipe inspections for 15-20 years.

The “vast majority [of Duke’s system] is piggable now,” Drake said, adding the rest of its network will likely be modified to accommodate smart pigs. Duke Energy has 12,000 miles of transmission pipeline, which runs through 1,700 separate high-consequence areas. Its U.S. pipes include Texas Eastern Transmission, Algonquin Gas Transmission, East Tennessee, Market Hub Partners in Egan, LA, Maritimes & Northeast and Gulfstream.

Boss and Drake estimate that approximately up to 25% of the interstate system currently is being inspected or is capable of being inspected with smart pig technology, and they project the figure could shoot to 60% as a result of the new OPS rule. Drake believes the remainder of the pipe grid falls into two categories: facilities that probably could be made piggable but would require extensive modifications, or facilities that are not piggable at all.

These two groups would probably use direct assessment or hydrostatic testing techniques to inspect their pipeline systems, which are more labor-intensive because they require pipe to be dug up, Drake and Boss noted. These techniques also only allow for “localized” inspection of pipes, as opposed to smart pigs which are capable of inspecting greater lengths.

The cost for Duke Energy to comply with the OPS rule will be “on the order of millions of dollars per year,” said Drake, who noted it would have been far more if the company hadn’t been using smart pigs already. “We’re finding that on the second or third generational runs [of the smart pigs]” through Duke’s pipes that “exponentially” there are less defects and this means less costs to the company.

The “big unknown” at this point is whether the costs associated with modifying pipelines’ systems to accommodate smart pigs will result in higher customer rates, he said. “Somewhere these costs will resurface,” but where and how is the “big unknown.”

The rule will be posted to Friday.

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