On February 12, 2020, the U.S. Department of Transportation’s Pipeline and Hazardous Materials Safety Administration (“PHMSA”) issued its long-awaited Final Rule establishing safety regulations applicable to underground natural gas storage facilities.

In 2016, Congress passed the Protecting our Infrastructure of Pipelines and Enhancing Safety Act (“PIPES Act”) which, among other things, required PHMSA to promulgate underground natural gas storage safety regulations within two years of the act’s passage. The PIPES Act was a direct response to the 2015 natural gas leak at California’s Aliso Canyon storage facility (regarded as the worst leak from an underground gas storage facility in U.S. history). Responding to the PIPES Act mandate, PHMSA issued an Interim Final Rule on underground storage safety in December 2016. PHMSA indicated at the time that it intended to address underground storage safety in a more detailed manner in a subsequent Final Rule. It has taken more than three years, but PHMSA has now issued the promised Final Rule.

The December 2016 Interim Final Rule adopted as interim natural gas storage safety regulations two API Recommended Procedures (“RP”): API RP 1170, “Design and Operation of Solution-mined Salt Caverns Used for Natural Gas Storage” (First Edition, July 2015) and API RP 1171, “Functional Integrity of Natural Gas Storage in Depleted Hydrocarbon Reservoirs and Aquifer Reservoirs” (First Edition, September 2015). The interim regulations established an initial compliance date of January 18, 2018, at which time storage operators were required to have certain written procedures in place. The interim regulations further required each storage operator to register with PHMSA, by obtaining an operator ID number, and imposed several reporting requirements.

The February 2020 Final Rule largely ratifies PHMSA’s incorporation of the API RPs, and clarifies and, in limited respects, modifies the previously adopted regulations. The effective date for the rulemaking changes announced in the Final Rule is March 13, 2020.

PHMSA describes the Final Rule as amending the Interim Final Rule in six significant ways:

1. PHMSA adopts the API RPs without modification to the non-mandatory terms. It had proposed to make mandatory certain non-mandatory or permissive language contained in the API RPs (e.g., provisions that indicate a storage operator “should” or “may” take a particular course of action could have been made mandatory), but it chose not to take this step in the Final Rule. PHMSA also dropped a related provision which would have required an operator to justify in writing any decision not to implement a permissive provision.

2. PHMSA adopted a phased-in timetable for implementing integrity management requirements. Four years after the effective date (i.e., by March 13, 2024), an operator must have completed baseline risk assessments for 40% of its storage wells, giving priority to higher risk wells. Seven years after the effective date (i.e., by March 17, 2027), an operator must have completed baseline risk assessments for all of its wells.

3. PHMSA is requiring operators of solution-mined salt cavern gas storage facilities to follow the same risk management practices as are applicable to operators of depleted reservoir and aquifer storage facilities (i.e., requiring operators to follow the requirements of Section 8 of API RP 1171, to the extent such requirements are applicable to the physical characteristics and operations of a solution-mined cavern). Solution-mined cavern operators are given until March 13, 2021 to comply with such provisions. PHMSA noted that API RP 1170 only requires operators to take a “holistic and comprehensive approach to monitoring cavern integrity.” PHMSA further observed that many operators of solution-mined salt caverns are voluntarily using Section 8 of API RP 1171 to supplement the less prescriptive risk management practices of API RP 1170. PHMSA codified this practice in the Final Rule to ensure consistency across all underground natural gas storage facilities.

4. PHMSA is narrowing the range of events and changes at underground natural gas storage facilities that are to be deemed “reportable,” such that operators are not required to notify PHMSA of regular maintenance activities. PHMSA is limiting requirements to notify it of changes to a storage facility, which an operator must submit 60 days in advance, to: (1) plugging or abandonment activities (regardless of cost), and (2) construction or maintenance that requires a workover rig and costs $200,000 or more. PHMSA is also applying an emergency exemption to the 60-day notification requirements, which it states was overlooked in the Interim Final Rule.

5. PHMSA has revised the regulations’ definition of “underground natural gas storage facility (UNGSF)” to clarify the demarcation between surface facilities, such as pipelines and compressors, which are subject to PHMSA’s natural gas pipeline safety regulations, and storage wells and related facilities, including wellheads, which are subject to the underground storage safety regulations.

6. PHMSA is changing the name of its reporting portal to the “National Registry of Operators” (formerly the “National Registry of Pipeline and LNG Operators”). PHMSA is also revising the name of the online portal’s web address from “http://opsweb.phmsa.dot.gov” to “https://portal.phmsa.dot.gov.”

PHMSA devotes considerable verbiage in the Final Rule to responding to comments regarding state regulation of underground natural gas storage safety. PHMSA explains how state programs can coexist with its federal regulatory authority, provided that the state programs are consistent with federal preemption applicable to PHMSA regulation. PHMSA acknowledges that states may adopt more stringent safety requirements without necessarily violating principles of federal preemption.

Notably, PHMSA resisted comments calling for it to go beyond the API recommended procedures. Specifically, PHMSA rejected calls to require subsurface safety valves, noting that “[t]he widespread use of subsurface safety valves may have value but would require further study and research as to their effective use at each type of UNGSF over other safety enhancements or alternatives.” PHMSA indicated that it might consider additional safety requirements in future rulemakings.

In general, the Final Rule provides clarifications to the Interim Final Rule in ways that should benefit storage operators. Both the codification of the seven-year timetable to conduct integrity management baseline risk assessments and the extension of prescriptive integrity management requirements to operators of solution-mined caverns should provide certainty and/or greater flexibility. In addition, PHMSA has resisted calls to impose additional safety requirements on storage operators at least for the foreseeable future.

The full text of the Final Rule can be found on PHMSA’s website at:

https://www.phmsa.dot.gov/news/phmsa-issues-final-rule-underground-natural-gas-storage-facilities