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PHMSA Issues Interim Final Rule Regarding the Regulation of Underground Natural Gas Storage Facilities

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On December 14, 2016, the Department of Transportation’s Pipeline and Hazardous Materials Safety Administration (“PHMSA”) issued an interim final rule (“IFR”) that addresses safety issues related to downhole facilities, including well integrity, well bore tubing and casing at underground natural gas storage facilities. The IFR incorporates by reference two of the American Petroleum Institute’s (“API”) Recommended Practice standards, API Recommended Practices 1170 and 1171. The IFR also mandates certain reporting requirements for operators of underground natural gas storage facilities. Operators of natural gas storage facilities will have one year from the effective date of the IFR to implement this first set of PHMSA regulations governing underground storage fields.

Adoption of API Recommended Practices

API Recommended Practices 1170 and 1171 govern recommended practices for salt cavern facilities and depleted oil and gas reservoirs and aquifer reservoirs, respectively. PHMSA is adopting the API Recommended Practices 1170 and 1171 as mandatory standards but will permit operators to deviate from API Recommended Practices if they provide sufficient justification in their program or procedural manuals that compliance with a provision is not practicable and not necessary for the safety of a particular facility. In addition, operators may submit an application for a special permit that would waive a given requirement or extend a deadline applicable to its facility if PHMSA determines that such waiver would not be inconsistent with safety standards.

Reporting and Notification Requirements

PHMSA will also require operators of natural gas storage facilities to submit annual reports, incident reports, safety-related condition reports and data for a national registry. Additionally, PHMSA is revising its regulations to require operators to notify PHMSA at least 60 days prior to certain events, such as construction of a new facility, well drilling, well workover, change of the primary entity responsible for the facility and acquisition or divesture of the facility.

Applicability

The minimum federal standards will apply to all interstate and intrastate facilities and will allow state regulators to go above and beyond the minimum federal standards to require additional or more stringent safety safeguards at intrastate facilities. Under the IFR, all intrastate transportation-related underground storage facilities will be inspected either by PHMSA or by a state entity that has authority to regulate these facilities under a certification filed with PHMSA.

Implications

According to the IFR, the “rapid incorporation of API [Recommended Practices] 1170 and 1171 . . . provides PHMSA with an immediate tool to begin inspection and enforcement for interstate underground storage facilities and provides the foundation for states to begin adopting the minimum federal standards for intrastate underground storage facilities for prevention and response to future incidents.” For facilities that are not already implementing API Recommended Practices 1170 and 1171 and certain recordkeeping practices, the costs associated with compliance may be significant. PHMSA Administrator Marie Therese Dominguez has also indicated that the IFR is only “the first step in a multiphrase process to enhance the safety of underground natural gas storage.”

The full text of the IFR is available here. The IFR will become effective effective on January 18, 2017.

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