October 2019 Industry Digest

WASHINGTON–The U.S. Environmental Protection Agency and U.S. Army Corps of Engineers are repealing a 2015 rule that extended the definition of “waters of the United States” under the Clean Water Act. The agencies say they also are recodifying the regulatory text that existed before the 2015 rule, which they report will end the regulatory patchwork that required implementing two competing CWA regulations.

“The CWA gives the federal government jurisdiction over ‘navigable waters,’ which are defined as ‘waters of the United States,” says EPA Acting Administrator Andrew Wheeler. “Over time, the scope of jurisdiction has expanded from truly navigable waters and their major tributaries to eventually capture isolated ponds and channels that flow only after it rains. As the definition expanded, so too has Washington’s power over private property and the states’ traditional authority to regulate their land and water resources.”

Wheeler adds the finalized rule fulfills a key promise made by President Donald Trump and sets the stage for a new WOTUS definition that will provide greater regulatory certainty for farmers, landowners and developers.

Army Assistant Secretary for Civil Works R.D. James says before the two agencies signed the final rule, various judicial decisions had stitched together a patchwork of regulations across the country. The repeal re-establishes national consistency by returning all jurisdictions to the regulatory framework that existed before the 2015 rule.

The two agencies say they jointly have concluded the 2015 rule contains multiple substantive and procedural errors to warrant the repeal. Among them, they hold, is the extent to which the rule approaches the limits of the agencies’ constitutional and statutory authority, absent a clear statement from Congress. They also cite the rule’s:

• Failure to implement the legal limits on the scope of agency authority under the CWA as intended by Congress and reflected in Supreme Court decisions;
• Failure to adequately recognize, preserve and protect the primary responsibilities of states to manage their own land and water resources; and
• Inclusion of procedural errors and a lack of adequate record support relating to its distance-based limitations.

EPA and the Corps proposed a new definition in December 2018 that they say clearly will define where federal jurisdiction begins and ends in accordance with the CWA and Supreme Court precedent. In the proposal, the agencies indicate they are providing a clear definition of the difference between federally regulated waterways and those waters that rightfully remain solely under state authority.

WASHINGTON–The U.S. Department of the Interior has released its final environmental impact statement for its planned lease sale in the Arctic National Wildlife Refuge. The EIS, one of the final regulatory hurdles before the sale can proceed, lists as its preferred option the one with the most acreage available for development and the fewest restrictions, the department says.

ANWR leasing was enabled under the Tax Cuts and Jobs Act of 2017, signed by President Donald Trump on Dec. 22, 2017. The act directs the secretary of the Interior, through the Bureau of Land Management, to establish two area-wide leasing sales, not less than 400,000 acres each, along ANWR’s Coastal Plan. According to DOI, it also authorizes as much as 2,000 acres, or 0.01% of the refuge’s 19.3 million acres, for surface facilities.

“After rigorous review, robust public comment and a consideration of a range of alternatives, today’s announcement is a big step to carry out the clear mandate we received from Congress to develop and implement a leasing program for the Coastal Plain, a program the people of Alaska have been seeking for more than 40 years,” says Interior Secretary David Bernhardt.

BLM next will prepare a record of decision for the lease sale. The agency says it may be published no earlier than 30 days after the official notice of availability for the EIS is published in the Federal Register.

According to the EIS, the government considered three action alternatives, with a range of acreage made available for leasing–from 51% to 100% of the 1.56 million-acre Coastal Plain. The alternatives also included lease stipulations and required operating procedures to mitigate impacts on resources and their uses. The chosen alternative offers the opportunity to lease the entire program area, with the fewest acres with no surface occupancy stipulations.

The American Petroleum Institute praises the EIS release, saying the United States needs domestically produced oil and natural gas for decades to keep the nation’s economy and security strong.

Now is not the time to dramatically limit access to U.S. energy resources, asserts API Vice President of Upstream and Industry Operations Erik Milito. “More than 100,000 Alaska jobs are attributable to investment and activity by the natural gas and oil industry, representing 32 percent of all Alaska jobs and 35 percent of all Alaska wages,” he describes.

“The Coastal Plain provides a key opportunity to develop domestic energy with significant reliance on existing infrastructure, thus reducing the overall cost and environmental footprint of new development,” Milito says.

WASHINGTON–The U.S. Pipeline and Hazardous Materials Safety Administration on Sept. 24 announced three final safety rules that it says will impact more than 500,000 miles of onshore gas transmission and hazardous liquid pipelines. The rules also will enhance its authority to issue an emergency order to address unsafe conditions or hazards that pose an imminent threat to pipeline safety, PHMSA says.

“These are significant revisions to federal pipeline safety laws and will improve the safety of our nation’s energy infrastructure,” says U.S. Transportation Secretary Elaine L. Chao.

Don Santa, president and chief executive officer of the Interstate Natural Gas Association of America, responds, “The natural gas pipeline industry is pleased to see the completion of this major update. We are proud to have worked for several years with a broad array of stakeholders . . . to build consensus on this important rule.”

Santa notes that earlier this year, INGAA partnered with the American Gas Association, American Petroleum Institute, American Public Gas Association, Pipeline Safety Coalition and the Pipeline Safety Trust in outlining support for the rule changes.

PHMSA says the rules expand risk-based integrity management requirements, enhance procedures to protect infrastructure from extreme weather events and require greater oversight of pipelines. The final rules address congressional mandates from the Pipeline Safety Act of 2011 and recommendations from the National Transportation Safety Board, the agency adds.

According to PHMSA, the gas transmission rule requires operators of transmission pipelines constructed before 1970 to reconfirm their lines’ maximum allowable operating pressures, and updates reporting and records retention standards.

The hazardous liquid rule encourages operators to make better use of all available data to understand safety threats and extends leak detection requirements to all nongathering hazardous liquid pipelines, the agency continues. In addition, the rule requires operators to inspect affected pipelines following an extreme weather event or natural disaster to address any resulting damage.

Finally, PHMSA says, the “Enhanced Emergency Order Procedures” final rule adopts the provisions of a 2016 interim final rule that established temporary emergency order procedures in accordance with a provision of the Protecting our Infrastructure of Pipelines and Enhancing Safety (PIPES) Act of 2016. An emergency order may impose emergency restrictions, prohibitions, or other safety measures on owners and operators of gas or hazardous liquid pipeline facilities, PHMSA explains.

All three final rules were published in the Oct. 1 Federal Register.

WASHINGTON–The U.S. Department of Commerce on Sept. 4 announced affirmative preliminary determinations that exporters in China and Mexico were illegally dumping certain fabricated structural steel products in the United States at margins up to 141.38% and 30.58%, respectively.

On the same day, Commerce announced a negative preliminary determination in a concurrent anti-dumping investigation of certain fabricated structural steel from Canada.

The merchandise covered by the investigations, Commerce says, is carbon and alloy fabricated structural steel used in commercial, office, institutional and multifamily residential buildings; industrial and utility projects; parking decks; arenas and convention centers; medical facilities; and ports, transportation and infrastructure facilities.

As a result of its preliminary determination, Commerce says it is instructing U.S. Customs and Border Protection to collect cash deposits from importers of the specified products, based on the preliminary rates noted. The agency adds that it plans to announce final determinations in these investigations around Jan. 24, 2020.

Commerce identifies the petitioner in the case as the American Institute of Steel Construction Full Member Subgroup (Chicago). It adds that imports of fabricated structural steel from China and Mexico in 2018 were valued at $897.5 million and $622.4 million, respectively.

AUSTIN, TX.–The Interstate Oil & Gas Compact Commission is on record opposing the Green New Deal, according to an announcement by Texas Railroad Commission Chairman Wayne Christian.

Christian says IOGCC adopted a resolution he introduced at the compact’s annual conference, held Aug. 25-27 in Medora, N.D.

The Green New Deal, Christian says, “would cripple our state’s economy by banning the extraction of fossil fuels. As a statewide elected official charged with overseeing our state’s natural resource development, it is my duty to stand up for Texas’ 10th Amendment rights.

“Over my dead body will I allow out-of-state forces to eliminate jobs, decrease state revenue and increase the cost of living on the constituents I represent,” Christian adds.

IOGCC Resolution 19.081 notes that being the world’s largest producer of crude oil and natural gas enhances national security and saves “hard-working families hundreds of dollars a year in energy costs.”

Furthermore, “Fossil fuels have dramatically improved the quality of life for humans, and the average lifespan of people in industrialized countries has roughly doubled,” the resolution states.

It goes on to say, “The Green New Deal violates the principle of cooperative federalism by implementing massive regulations at a national level, which will limit the ability of states to control their own destiny regarding the exploration and production fossil fuels, now therefore, be it resolved that the IOGCC urges the president of the United States and the Congress to oppose the Green New Deal or any substantively similar legislation, and support allowing states to continue to develop their own energy policies.”

WASHINGTON–Nexus Gas Transmission registered a split decision in a lawsuit involving its 256-mile natural gas pipeline running from eastern Ohio to southeastern Michigan. The U.S. District Court for the District of Columbia ordered the Federal Energy Regulatory Commission to explain why it used contracts with foreign shippers serving foreign customers to justify approval of its operating certificate.

A group of plaintiffs asked the court to vacate a government order authorizing the pipeline and block the company from acquiring needed rights-of-way through eminent domain. According to court documents, the plaintiffs complained the government’s inaction allowed Nexus to run the pipeline through their properties and gave the company the right to condemn easements over their objections.

The ruling in City of Oberlin, Ohio v. FERC, rejected most of the allegations raised by Oberlin and the Coalition to Reroute Nexus, a group of landowners. The judges agreed FERC failed to adequately justify its determination that it was lawful to credit Nexus’s contracts with Canadian shippers as evidence of market demand for the interstate pipeline, court documents indicate.

Nexus began the permitting process in November 2015. FERC authorized the pipeline two years later, and it began service in 2018, moving 1.5 billion cubic feet a day of shale gas to the Midwest and Canada, court documents say. Nexus is a 50/50 partnership between DTE Energy and Enbridge Inc. According to the court, Nexus signed transportation contracts with several entities–including two Canadian companies and four affiliates of the pipeline’s sponsors.

On Oct. 2, 2017, Nexus began condemnation actions, and two months later an Ohio district court ruled the company held eminent domain power, court documents say.

FERC rebuffed Oberlin and the landowners in a July 25, 2018, order that denied their requests for a rehearing, saying it found Nexus’s contracts were evidence that the pipeline served unmet market demands. The commission also approved the company’s proposed 14% return on equity and determined the project didn’t represent a significant safety risk. In September 2018, the plaintiffs filed suit in the D.C. court.

The district court decided Nexus’s contracts weren’t strong evidence of market demand because a substantial portion were dedicated for export, and ruled FERC failed to answer whether those export agreements were sufficient to satisfy “public use” requirements. Section 7 of the Natural Gas Act authorizes FERC to issue certificates of public convenience and necessity for “the transportation in interstate commerce” but the court notes it has explicitly refused to include foreign commerce in its interpretation of interstate commerce.

The ruling notes it has remanded the order back to the commission without vacating it, holding that it is plausible FERC can supply the required explanations. It adds that shutting down an operating pipeline will be quite disruptive.

DENVER–A federal judge in Denver has followed the lead of federal judges in three other states and ruled that a climate nuisance lawsuit brought by local governments against oil companies may be heard in state court.

On Sept. 5, Judge William J. Martinez in the U.S. District Court for the District of Colorado denied the defendants’ motion to move the lawsuit to federal court. In 2018, the city of Boulder, Co., along with the Boulder and San Miguel county commissions, filed a lawsuit in Boulder County District Court against ExxonMobil and Suncor Energy, seeking damages the local governments claimed they suffered as a result of greenhouse gases emitted by the defendants.

The defendants contended the case belonged in federal court, court documents indicate, but Judge Martinez rejected the defendants’ arguments that:

• Federal question jurisdiction exists for “civil actions arising under the Constitution, laws or treaties of the United States;”
• The claims are completely pre-empted by the federal government’s foreign affairs power and the Clean Air Act;
• Causes of action that arise “from incidents occurring in federal enclaves” also may be removed to federal jurisdiction;
• The conduct that forms the basis of the plaintiffs’ claims was undertaken at the direction of federal officers; and
• Federal courts have jurisdiction over cases and controversies “rising out of or in connection with any operation conducted on the Outer Continental Shelf (that) involve exploration, development or production of minerals.”

Published reports note that federal judges in California, Rhode Island and most recently, Maryland (see “Judge Lets Climate Suit Remain In State Court,” AOGR, September 2019), also have remanded climate nuisance lawsuits to state jurisdiction.

In two federal court rulings on the merits of climate lawsuits:

• The U.S. District Court for the Northern District of California dismissed a lawsuit brought by the cities of San Francisco and Oakland, Ca., against BP, Chevron Corp., ExxonMobil, ConocoPhillips and Royal Dutch Shell (AOGR, July 2018, pg. 14).
• The U.S. District Court for the Southern District of New York dismissed New York City’s lawsuit against the same five oil producers (AOGR, August 2018, pg. 20).

WEXFORD, PA.–The Pennsylvania Independent Oil & Gas Association is suing the PA One Call system over the way it charges facility owners for providing contractors’ work location requests or “dig” notices. PIOGA says PA One Call’s municipal activity fee charges all facility owners for dig notices in each municipality in which the owners have registered their lines, regardless of whether their lines are within a proposed work site.

The association says its Commonwealth Court filing describes the charges to four PIOGA producer members participating in the PA One Call system. It notes the percentage of notification relating to the members’ lines ranged from 0.3% to 7.0% of the dig notices billed for the applicable time periods.

PA One Call uses mapping technology to pinpoint where a contractor’s proposed work site and facility owner’s lines intersect, but doesn’t use this technology to determine how much to charge facility owners for its operations costs, PIOGA says. In addition, PA One Call doesn’t charge contractors any of its operation costs, instead charging fees ranging from $125 to $1.70 a year per contractor for the contractor’s unlimited use of the service.

According to PIOGA, Pennsylvania’s Underground Utility Line Protection Law doesn’t require or authorize PA One Call to charge all facility owners for all dig notices or to charge only facility owners for all its operation costs.

“What PA One Call’s municipal activity rate structure ignores is that facility owners such as PIOGA’s members bear the economic burden of participating in the PA One Call system, and a significant part of that burden relates to dig notices that have nothing to do with the locations of their lines and facilities,” PIOGA writes. “On the contrary, the public utility, political subdivision and municipal authority facility owners do not bear the economic burden of PA One Call’s charges because their ratepayers, customers or residents do.”

Kevin Moody, PIOGA general counsel and vice president for government affairs, says the association’s allegations about the law’s different treatment of public utilities and its member companies is confirmed by the new Public Utility Commission enforcement fee it assesses on PA One Call. The association says the law prohibits PA One Call from assessing its public utility facility owner members for any portion of the PUC enforcement fee to be recovered from PA One Call.

“Safety is priority number one of our members and the oil and gas industry,” says PIOGA President and Executive Director Dan Weaver. “We do all that we can to protect our workers, neighbors and the environment. As good stewards, our members should not be punished by unfair cost allocations, when the services rendered are beneficial to all parties involved.”

ODESSA, TX.–The Permian Basin International Oil Show has named the Executive Committee for its 2020 iteration, which will be held Oct. 20-22 at the Ector County Coliseum in Odessa.

The committee’s leaders include Tommy Pipes of Platinum Pipe Rentals, who serves as president of the Board of Directors, and Steve Castle of Cowboys Resources Corp., the immediate past president. The vice presidents are Martin Graves of Insulation Products Inc., Larry Richards of Van Zandt Controls LLC, and Stephen Hill of Hill’s Specialty Co. Inc.

Anthony Fry of A.D. Fry Co. Inc. continues to serve as executive director, with John Sparkman of Capitol Oil Well Services serving as the executive director’s assistant. PBIOS says past-Presidents John Dinger, Douglas Duff, Kirk Edwards, Don Gregory, “Woody” Gregory, “Bro” W. Hill, Steve Holifield Sr., Ray Peterson, L. Dave Robbins, Monnie Sparkman, Larry Wadzeck and Joe Young are part of the committee, as are Roy Bobbitt and Steve Greenhill as committee members.

Although the show is a year away, Board and Executive Committee President Pipes says he is seeing strong interest from exhibitors. “We are sitting on top of the best oil-producing region in the nation and maybe the world. That does not change because a few rigs have come in,” he comments.

Many of the show’s exhibitors and attendees have been coming for 40, 50 or 60 years, Pipes adds. “PBIOS is the place where people with big new ideas have the opportunity to put them on display and reach upstream, midstream and downstream professionals from around the world,” he says. “It is a great way to discover new technologies, meet and interact with potential vendors, and exchange knowledge.”

HOUSTON–Trafigura Trading LLC, a wholly owned subsidiary of Trafigura Group Pte Ltd, has begun shipping Permian Basin crude oil to the Corpus Christi/Ingleside area through the Cactus II Pipeline system. It will have the ability to transport as much as 670,000 barrels a day of crude oil.

The company says the pipeline is underpinned by a significant long-term volume commitment Trafigura announced early in 2018, and represents that initial commercial service of Cactus II, with its deliveries connecting to export service to Europe and other ports.

“Trafigura is at the forefront of connecting the American barrel to the global market,” says Kevin Jebbitt, head of crude trading for Trafigura. “Thanks to our worldwide network, we can demonstrate to U.S. producers a unique ability to place barrels with end customers around the world, from the Mediterranean to the Far East. West Texas Intermediate is fast becoming a global benchmark again, having shown its relevance to the physical markets.”

According to media reports, Cactus II is one of three Permian basin pipelines set to come on line by the end of 2019, with expectations of a 2.5 million barrel a day jump in take-away capacity from the current 3.9 MMbbl/d. In addition to Cactus II:

• Epic Midstream has started its Y-Grade project, a temporary crude service on its natural gas liquids pipeline. The pipeline, capable of moving 400,000 bbl/d, will be converted to NGL use when its permanent crude oil pipeline with an initial capacity of 600,000 bbl/d comes on line in 2020 (AOGR, Sept. 2019, pg. 16).
• Phillip’s 66 says its Gray Oak Pipeline will begin moving 900,000 bbl/d from the Permian Basin to Gulf Coast markets later this year.

The new transportation capacity is cutting discounts out of the basin, with Brent trading only $4 a barrel over West Texas Intermediate Cushing in early August, down from $10-$20 discounts paid by Permian producers in recent years.