August 2019 Industry Digest

NEW ORLEANS–The question of whether the government can set aside private land in Louisiana as critical habitat for the dusky gopher frog, miles from where the endangered species actually lives, ended in July with more of a whimper than a bang, according to a report from the Independent Petroleum Association of America.

IPAA says the U.S. District Court for the Eastern District of Louisiana in New Orleans approved a consent decree in which the U.S. Fish & Wildlife Service agreed to drop the critical habitat designation for the Louisiana land.

According to court documents, the case–Weyerhaeuser Co. v. U.S. Fish & Wildlife Service–began in June 2012 when USFWS designated 1,500 acres in Louisiana (Unit 1) as critical habitat under Section 4(b)(3)(A) of the Endangered Species Act because the land contained ephemeral ponds perfect for the frog’s recovery.

The property owners challenged the designation, but lost first in the Eastern District of Louisiana in August 2014 and then in the U.S. Court of Appeals for the 5th Circuit in June 2016 and again in February 2017.

The plaintiffs argued the habitat designation was an overreach because their property would not support the frog without extensive and costly modifications, published reports recall. IPAA had worried the designation “has no basis in law, and may threaten economic development activities and job creation across the country” (AOGR, March 2017, pg. 20).

Indeed, in a dissent from the 5th Circuit’s majority decision in 2016, Judge Priscilla Owen argued, “If the ESA permitted the actions taken by the government . . . vast portions of the United States could be designated as ‘critical habitat’ because it is theoretically possible . . . that land could be modified to sustain the introduction or reintroduction of an endangered species.”

In November 2018, the U.S. Supreme Court overturned the critical habitat designation and remanded the case to the 5th Circuit to consider the meaning of habitat under the ESA. The 5th Circuit then sent the case to the Eastern District of Louisiana, court documents note.

However, the court dodged that order by approving the consent decree between the USFWS and the plaintiffs “without determination of any issue of fact or law.”

“No part of this consent decree shall have precedential value in any litigation or in representations before any court or forum . . . as it relates to the June 2012 final rule and the vacating of the designation of Unit 1 (as critical habitat),” wrote Judge Martin Feldman for the majority.

However, an analysis published by E&E Environment does point out what it calls “a more decisive victory for landowners on a secondary issue: whether USFWS’s economic analysis is subject to judicial review.”

E&E Environment explains USFWS had argued its cost/benefit analysis supporting its refusal to exclude the 1,500 Louisiana acres was not subject to judicial review. The Supreme Court ruled that it was.

BISMARCK, N.D.–North Dakota and Montana are petitioning the U.S. Department of Transportation to overturn a law passed by the state of Washington that prohibits the unloading of crude oil at the state’s refineries with a vapor pressure greater than 9.0 psi.

The attorneys general of the two states argue U.S. laws pre-empt Washington’s in two respects: it is an obstacle to federal hazardous material transportation legal and regulatory regimes, and it is not substantively the same as federal regulations governing the classification and handling of crude oil in transportation.

Washington Governor Jay Inslee signed SB 5579 on May 5. The bill, introduced by Senator Andy Billig, D-Spokane, prohibits Washington facilities from loading or unloading crude oil into or from a rail tank car, or storing crude oil produced in the Bakken, unless it meets the vapor pressure requirement. The bill also requires facilities to provide the state with information on the crude oil they receive (AOGR, May 2019, pg. 33).

Calling Washington’s actions a “de facto ban on Bakken crude,” the two states are asking the Pipeline and Hazardous Materials Safety Administration, which holds authority over interstate rail transportation issues, to declare SB 5579 pre-empted by federal law.

North Dakota says it ships 166,700 barrels of Bakken crude to Washington refineries every day, about 10% of the state’s overall daily production, with 60 percent of all crude leaving the state by rail.

“Washington’s new law was designed to target Bakken oil precisely,” the petition states. “The shale revolution–and in particular the extraction of crude oil from the Bakken–has driven the overall uptick in transport of crude oil by rail. Washington’s vapor-pressure limit is to target Bakken crude because Bakken crude has higher vapor pressure than some other petroleum crude oils. Washington’s new requirements also are impossible to satisfy–at least, not without creating a sprawling new rail, road and facility infrastructure in North Dakota, all to treat Bakken crude to Washington’s satisfaction.”

The two states note that in addition to negatively impacting their oil and gas industries, Washington’s law will reduce revenues from North Dakota’s oil extraction tax that funds the state’s education system and drinking water infrastructure development, as well as Montana’s taxes on oil production.

“The impacts will be felt well beyond North Dakota and Montana as well: Washington’s law sets a troubling precedent where one state with access to particular transportation routes can dictate national and foreign energy policy by restricting or removing other states’ ability to move their natural resources and other hazardous materials,” the petition warns.

WASHINGTON–Two health groups are taking the Trump administration to court over its Affordable Clean Energy (ACE) rule.

The American Lung Association and the American Public Health Association filed a lawsuit July 8 in the U.S. Court of Appeals for the District of Columbia Circuit, asserting ACE does not fulfill the requirements of the Clean Air Act to protect the health of Americans, according to a statement released by the two organizations.

Contending that the Environmental Protection Agency “has legal authority and obligation under the CAA to protect and preserve public health and welfare, including by regulating carbon dioxide pollution from coal-fired power plants,” ALA and APHA argue, “In repealing the Clean Power Plan and adopting the ACE rule, EPA abdicates its legal duties and obligations.”

They add, “In addition to increasing the carbon dioxide pollution that fuels climate change, independent research predicts the ACE rule will result in some fossil fuel plants running more often and delaying their retirement, which would mean increased emissions of dangerous pollution as compared with the Clean Power Plan, and even as compared to no rule at all.”

EPA published its final ACE rule and repeal of the CPP in the July 8 Federal Register. At the time it released its prepublication notice on June 19, EPA estimated ACE, when fully implemented, would result in a 35% reduction in U.S. power sector CO2 emissions below 2005 levels.

Unlike the CPP, which was adopted by EPA in August 2015 under President Obama but stayed by the U.S. Supreme Court in February 2016 (AOGR, March 2016, pg. 107), ACE does not set specific CO2-reduction goals, but authorizes states to establish unit-specific standards of performance that reflect the emission limitation achievable through applying best system of emission reduction technologies (AOGR, July 2019, pg. 29).

AUSTIN, TX.–A Texas county court has determined the state constitution authorizes the process under which the Texas Railroad Commission issued permits allowing a pipeline company to use eminent domain powers in building a pipeline, and the state legislature acted within its authority when it granted private entities those powers.

Ruling in Andrew Sampson v. Texas Railroad Commission, the Travis County District Court says Kinder Morgan can proceed with its Permian Highway Pipeline (PHP), a 430-mile project the company says will transport as much as 2.1 billion cubic feet of natural gas a day from Waha, Tx., to the U.S. Gulf Coast and Mexican markets. The project is scheduled to be in service in late 2020.

The plaintiffs were several landowners in the path of the pipeline project, as well as Hays County, Tx., and the city of Kyle, Tx. The plaintiffs were seeking an injunction stopping Kinder Morgan from exercising eminent domain authority along the PHP route, pending the RRC’s establishing state-administered standards and controls. In addition to the pipeline company, the lawsuit named the RRC and the individual commissioners.

District Court Judge Lora Livingston ruled in favor of the defendants on every issue, finding the legislature properly delegated eminent domain authority as allowed under the Texas Constitution, the RRC was not required to impose standards over the project, and that delegating that authority didn’t violate the constitution’s separation of powers provision.

The company says the $2 billion PHP project will allow further development of the Permian Basin by providing an outlet for increased gas production, and it will provide almost $1 billion in additional revenue annually to Texas and its counties, as well as more than $2 billion a year in new oil and gas royalties to individual leaseholders.

“Kinder Morgan is very pleased with the ruling made by the Travis County District Court,” the company says. “The court’s finding validates the process established in Texas for developing natural gas utility projects, as well as the steps we have taken to comply with that process. We will continue to engage all stakeholders as we work to complete PHP.”

BISMARCK, N.D.–An oil company operating in North Dakota has been underpaying royalties to the state, the North Dakota Supreme Court says, and it likely must repay several years’ worth of payments.

Newfield Exploration Company sued the North Dakota Department of Trust Lands following a 2016 audit that claimed the company was underpaying royalties, with the parties arguing over allowed deductions for post-production costs.

The North Dakota Supreme Court reversed the district court of McKenzie County. According to court documents, the lower court held Newfield had paid royalties based on gross proceeds reduced to account for deductions necessary to make the gas marketable for purchaser ONEOK Rockies Midstream LLC, and that reducing the gross payments by those deductions was contrary to the lease’s express terms.

The Supreme Court disagreed, with its review of the Newfield lease showing it unambiguously provided that the state’s royalty must include the value of any consideration, in whatever form, that directly or indirectly compensates, credits or benefits the company. Under the lease language, Newfield benefits from ONEOK’s expenditures to make the gas marketable, and those the royalties paid by Newfield may not be reduced to account for post-production costs.

The court’s ruling was specific to the Newfield leases, media reports point out, but quotes North Dakota Land Commissioner Jodi Smith as warning it will have an impact beyond the disputed contracts. She says her department has leases with more than 50 oil and gas companies that have similar language. Smith adds that the Department of Trust Lands will work with the state attorney general’s office to determine how far back Newfield’s lease goes and how much it must pay retroactively.

“The North Dakota Petroleum Council was not a party to the Newfield case, but it is very disappointed and surprised that the Supreme Court reversed the lower court’s decision in favor of Newfield,” says NDPC President Ron Ness. “The court’s reversal adversely impacts all operators in North Dakota, especially at a time when we are faced with gas capture and flaring challenges. Requiring an oil company to pay royalties at the end price of its product is like taxing a farmer on the price of bread rather than the price of wheat.”

LANSING, MI.–Michigan’s governor and attorney general have moved to decommission Line 5, twin oil pipelines that run under the Straits of Mackinac between lakes Huron and Michigan.

After Governor Gretchen Whitmer failed to reach an agreement with Enbridge, the line’s owner, over the pipeline’s future, on June 6, Attorney General Dana Nessel petitioned the Ingham County Circuit Court to find that Enbridge’s operating of the pipeline under the easement granted in 1953 violates the public trust doctrine, is a common law public nuisance, and violates the state’s Environmental Protection Act because Line 5 is likely to cause pollution and damage natural resources, her office says.

Nessel’s lawsuit cites the possibility of an oil spill into the Great Lakes because of an anchor strike, similar to one that occurred in April 2018. Although Line 5 was damaged when the anchor hit it, the attorney general says the incident didn’t cause a rupture only because the anchor hit a pipeline section lying directly on the waterway’s bottom. If the anchor had dragged across the bottom of the straits where Line 5 is elevated, she says it likely would have caused a complete rupture.

The Ingham County action follows her filing suit in the Court of Claims seeking to dismiss the company’s lawsuit against the state. Enbridge is asking the court to enforce its agreements with the previous governor over building a replacement line buried 100 feet below the strait’s surface.

Soon after assuming office in January, Whitmer asked Nessel to rule on the legality of SB 1197, which former Governor Rick Snyder signed. The bill authorized the Mackinac Bridge Authority to construct and operate a tunnel to house a 540,000 barrel a day light crude and natural gas liquids pipeline owned by Enbridge. The attorney general deemed the bill unconstitutional (AOGR, May 2019, pg. 14).

According to the governor’s office, Whitmer began negotiations with Enbridge over the tunnel rather than litigate, with the requirement that Line 5 be shut down after a transition period. The company insisted it be allowed to use the pipelines indefinitely, and so rather than continue discussions, Enbridge filed its lawsuit.

“The risk of a catastrophic oil spill in the Great Lakes, and the harm that would follow to Michigan’s economy, tourism and our way of life, is far too great to allow the pipelines to continue to operate indefinitely,” the governor says.

PITTSBURGH–The Pennsylvania Commonwealth Court has again ruled that oil and gas drilling is not incompatible with uses allowed in a county’s residential-agricultural zoning (R-AG) district.

Attorney Matthew P. Heiskell with Spilman, Thomas & Battle PLLC reports the Commonwealth Court in late June filed a memorandum opinion in Delaware Riverkeeper Network v. Middlesex Township Zoning Hearing Board, reaffirming its 2017 decision to reject Butler County, Pa.’s Ordinance 127, which allows regulated oil and gas development in R-AG zones.

Heiskell notes the Pennsylvania Supreme Court ordered the Commonwealth Court to reconsider its 2017 decision in light of the high court’s rulings related to Pennsylvania’s Environmental Rights Amendment (ERA).

On rehearing, Heiskell says, “The Commonwealth Court again ruled Ordinance 127 was permissible, even when considering Pennsylvania’s ERA, noting the township’s history (has been) ‘steeped’ in oil and gas development since the mid-19th Century.”

In its June ruling, the Commonwealth Court acknowledges that “the precise duties imposed on local governments by (the ERA) are by no means clear.” It cites findings by the Pennsylvania Supreme Court that the ERA “does not call for a stagnant landscape,” nor “for the derailment of economic or social development.”

The Commonwealth Court also notes that Supreme Court rulings on the ERA do require local governments to enact “specific affirmative measures” to protect the environment.

Observing that, “Zoning accounts for the ‘natural, scenic, historical and esthetic values of the environment,’” the Commonwealth Court reasons, “It is axiomatic that a zoning ordinance must balance the public interests with the due process rights of private property owners.”

Finding that the plaintiffs in Delaware Riverkeeper Network did not prove that Ordinance 127 unreasonably impaired their ERA rights, the court ruled the ordinance did not violate the ERA.

WASHINGTON–A report from the U.S. Government Accountability Office finds improprieties with the way the Environmental Protection Agency appointed members to two of its advisory committees in fiscal 2018.

According to the statement of J. Alfredo Gomez, GAO director for natural resources and environment, prepared for delivery to congressional subcommittees on July 16, EPA:

• Did not follow a key step for appointing 20 members to its Science Advisory Board and its Clean Air Act Scientific Advisory Committee; and
• Failed to obtain 17 of 74 financial disclosure forms from potential committee members.

On the first shortcoming listed, Gomez explained that the 2018 appointment packets in question “did not contain documents reflecting EPA staff rationales for proposed membership, as called for by EPA’s established process.”

EPA agreed with the second finding and GAO’s recommendation, but not the first, Gomez added.

On Oct. 31, 2017, then EPA Administrator Scott Pruitt issued a directive on how members of the agency’s federal advisory committees should be selected. Among the new criteria, according to the agency’s news release, was that no members could currently be in receipt of any EPA grants to avoid conflicts of interest and ensure advisory committee members were financially independent from the agency.

That policy change caused U.S. Senators Sheldon Whitehouse, D-R.I., and Tom Carper, D-De., to accuse EPA of installing “industry scientists and consultants to help guide the EPA’s scientific decision making to favor polluting industries.”

In his testimony, Gomez said GAO did observe that “members with an academic affiliation serving on the Science Advisory Board decreased by 27 percentage points.”

It was Whitehouse and Carper who requested the GAO investigation, along with Senators Edward Markey, D-Ma., Brian Schatz, D-Hi., Bernie Sanders, I-Vt., Jeanne Shaheen, D-N.H., Mazie Hirono, D-Hi., Gary Peters, D-Mi., Michael Bennett, D-Co., and Sherrod Brown, D-Oh., according to a statement released by Whitehouse and Carper.

WASHINGTON–Underground natural gas storage in the United States stood at 2.568 trillion cubic feet on July 19, 5.6% below the five year average, according to the U.S. Energy Information Administration. That was up 178 billion cubic feet from the 2.390 Tcf in storage on June 28, which was 6.0% below the five-year average. The July 19 storage number was 298 Bcf more than a year ago, when gas storage stood at 2.270 Tcf.

According to EIA, gas storage in the East Region was 575 Bcf on July 19, 4.8% below the five-year average, but 49 Bcf more than on June 28, when storage stood at 526 Bcf, which was 1.9% below the five-year average. East Region gas storage on July 19 was 51 Bcf more than it was a year ago.

Gas storage in the Midwest Region stood at 650 Bcf on July 19, 0.9% below the five-year average and 82 Bcf more than the 568 Bcf in storage on June 28, which was 2.6% below the five year average. July 19 gas storage in the Midwest Region was 128 Bcf more than a year ago.

In the Mountain Region, EIA says, gas storage was 151 Bcf on July 19, 12.2% below the five-year average and 17 Bcf more than the 134 Bcf stored on June 28, which was 16.3% below the five year-average. Gas storage in the Mountain Region was 6 Bcf more than a year ago.

Gas storage in the Pacific Region was 271 Bcf on July 19, 7.8% below the five-year average and 16 Bcf more than the 255 Bcf stored on June 28, which was 10.8% below the five-year average. Pacific Region gas storage on July 19 was up 15 Bcf from a year ago.

In the South-Central Region, gas storage levels on July 19 were 921 Bcf, 7.3% below the five-year average and up 14 Bcf from the 907 Bcf in storage on June 28, which was 7.1% below the five-year average. The July 19 gas storage level for the South-Central Region was up 98 Bcf from a year ago.