Oil and gas groups see promise in regulatory changes

Most prominent among impending changes is a revamp of regulations that implement the National Environmental Policy Act (NEPA). The proposed “modernization,” unveiled Jan. 9, would speed analyses and decisions on a multitude of projects requiring federal permits, including much oil and gas exploration, production, and pipeline construction.

Several other subjects are expected to be prominent in 2020. Final rules are impending on the monitoring and control of natural gas emissions from wells and transmission systems. Clean Water Act regulations may be refined. Pipeline safety bills in Congress are a priority for a few oil and gas associations. And oil exploration leasing for the coastal plain of the Arctic National Wildlife Refuge may finally begin.

Expediting environmental analyses

NEPA’s regulatory system, governed by the White House Council on Environmental Quality (CEQ) and implemented by several agencies, has not been modified significantly in 40 years. The CEQ proposal includes bold ideas to address basic issues, said Dan Naatz, senior vice-president of government relations and political affairs at the Independent Petroleum Association of America (IPAA).

Of NEPA, Naatz said, “It’s become a monster.” It is the vehicle of much litigation, as environmental impact analyses grow larger and take longer to compile and project opponents look for anything that might convince a court to require additional analyses. “At this point it’s just become a delaying tactic,” he said.

The CEQ proposal would expedite the production of environmental impact analyses with target deadlines and lengths. It would eliminate cumulative impact assessments—not explicitly required by NEPA but common practice by agencies. It would halt consideration of impacts that an agency cannot control, and it would reject the analysis of effects connected to a project only by a lengthy causal chain judged “too attenuated” to be meaningful.

America could unlock an estimated $1 trillion in new private infrastructure investments to deliver energy to markets, said Mike Sommers, president and chief executive officer of the American Petroleum Institute, at United States Energy Association’s annual State of the Energy Industry Forum Jan. 23. “Reforming the National Environmental Policy Act is a critical step in doing this,” he said.

The CEQ’s plan could be completed in 2020, although the next stage—implementation by agencies—would not be immediate and would be subject to litigation.

The Interior Department has since 2017 been moving ahead with its own attempt to expedite NEPA work, with unclear results. “I think it’s region by region and field office by field office,” said Mallori Miller, vice-president of government relations at IPAA. “I think they’re still working through how to implement.”

CEQ guidance will help the Interior move that along, she said.

Don Santa, president and chief executive officer of the Interstate Natural Gas Association of America (INGAA), said his pipeline company members hope to see the CEQ complete its NEPA changes this year, but “the big question mark is the election coming up in November.”

If the election switches party control of the White House and the Senate, Democrats could use the Congressional Review Act to revoke some regulations swiftly, as Republicans did in 2017. The act requires only a simple majority, not allowing filibusters. There is a time limit on how far back Congress can go in its revocations. Calculation of the time limit is a bit tricky, but IPAA’s Miller has gone through the exercise.

Volatile organic compounds and methane

Another regulatory initiative looming large in 2020 is the US Environmental Protection Agency (EPA) work to revise two big rules governing emission limits from oil and gas operations and the monitoring of those operations for fugitive emissions.

“EPA anticipates taking final action this year on both the proposed technical amendments and the proposed policy amendments to the new source performance standards for the oil and natural gas industry,” an EPA spokesperson told the Oil & Gas Journal Jan. 23.

The Obama administration in 2016 issued a new source performance standard (NSPS) rule requiring a survey for gas leak detection every 6 months for oil and gas wells and quarterly for compressor stations. The Trump administration’s technical amendments, proposed in 2018, would reduce the frequency of monitoring to annually for wells producing 15 or more barrels of oil equivalent per day and once every 2 years for wells producing less than that.

Low-production wells are roughly three-quarters of all US wells, said Lee Fuller, executive vice-president at IPAA. If the Obama administration’s NSPS monitoring standards are applied to the operators of those wells, “the economic hit on them can be huge,” he said.

Low-volume wells tend to be operated by smaller companies with lesser financial resources. The rationale for easing their monitoring obligations includes the point that low-volume wells have lower pressure and are less likely to produce large leaks.

The NSPS policy amendments proposed in 2019 would eliminate methane limits on the assumption that they are redundant, given the limits in place on volatile organic compounds (VOCs). “The control technologies manage both,” Fuller said, referring to VOCs and methane.

The Trump administration also is proposing to remove the transmission and storage segment from the NSPS emission regulations.

Laws and regs on pipelines

Gas pipelines approved by the Federal Energy Regulatory Commission (FERC) have in some recent cases been blocked by a state, notably New York, exercising its Clean Water Act Section 401 authority to determine whether the pipeline will undercut water quality.

EPA has proposed a rule to clarify Section 401 regulations on what properly falls within the scope of the section and when state determinations need to be made. The proposal is a significant step forward, according to INGAA’s Santa. “We’re hoping that EPA finalizes that this year,” he said.

New York denied one pipeline certification because the federal environmental review did not include consideration of climate issues, Santa said, raising the question of how climate issues could be considered within the scope of Section 401’s focus on water quality.

In Congress, pipeline safety legislation is up for reauthorization. A Senate bill (S. 2299) and two House bills (H.R. 3432 and H.R. 5120) were moved out of committees last year but have not yet seen floor action. The House bills would increase civil penalties for violations and would increase the possibility of criminal penalties.

The Senate bill includes a provision for the Pipeline and Hazardous Materials Safety Administration (PHMSA) to conduct pilot programs, which would be valuable for testing technologies and techniques, said Andrew Black, president and chief executive officer of the Association of Oil Pipe Lines.

Separately from Congress, PHMSA needs to update its regulations for integrity management, which are 20 years old, Black said. That also was of interest to IPAA’s Fuller, who said, “We think it’ll happen this year.”

FERC in 2020 will review its index on tariff levels for oil pipelines, Black said. That should start in June and finish up late in the year, in his estimation. FERC will look at industry cost changes over the last 5 years—since the last review—and will take into account factors such as producer prices, integrity, cybersecurity, and labor costs in reviewing its index, he said.

Sen. Richard Blumenthal (D-Conn.) introduced a bill in November 2019, with Sen. Richard Burr (R-NC) as cosponsor, to allow FERC to order refunds when rates on natural gas pipelines are found to be too high. The refunds could be retroactive to the date a complaint is filed.

Dena Wiggins, president and chief executive officer of the Natural Gas Supply Association (NGSA), is hopeful about the bill. FERC already has authority to order retroactive refunds for electricity transmission rates, she noted.

“I think it is unlikely to move alone,” Wiggins said, but there are other routes it could take, and she mentioned the possibility of its inclusion in some sort of legislative package that might be cobbled together by Sens. Lisa Murkowski (R-Alas.) and Joe Manchin (D-W.Va.) as the majority and minority leaders of the Senate Energy and Natural Resources Committee.

The Supreme Court this year will review a court fight over the Atlantic Coast Pipeline, a proposed gas pipeline that would cross under the Appalachian Trail on its route from the Marcellus shale region southeastward toward gas markets.

The case will hinge on a jurisdictional issue: Does the National Trails System Act give the National Park Service authority over a plan for a gas pipeline to pass under the trail within a national forest? Or does the National Park Service in such a situation regulate only the surface for the Appalachian Trail, leaving the subsurface and the pipeline to the authority of the US Forest Service?

Santa also hopes the Supreme Court will review a decision that came out of the US Court of Appeals for the Third Circuit last year involving the PennEast Pipeline, concerning eminent domain granted under authority of the Natural Gas Act.

The Third Circuit ruled that the federal government could not use eminent domain on land controlled by the state of New Jersey. Santa said the problem in the case is that it affected not just state-owned land but private land controlled by the state through an easement. That raised the risk that landowners will use easements specifically to frustrate pipeline projects.

It remained to be seen whether PennEast Pipeline Co. would seek review by the Supreme Court and whether the court would agree to consider it.

Politics, the offshore and ANWR

Offshore oil and gas exploration leasing is allowed under 5-year plans developed by the Bureau of Ocean Energy Management. The next 5-year plan is in a long pause between the “draft proposed” version, issued in January 2018, and the next step, the proposed version, which has not yet received a green light from US Interior Sec. David Bernhardt. And it may not any time soon.

A congressionally mandated moratorium for the eastern Gulf of Mexico doesn’t expire until 2022. “You can take that debate out of the election equation this year and pursue it after,” Milito said.

Seismic surveys in the Atlantic offshore may win permits in 2020. “We’ve heard a lot of rumblings” but no solid word on timing, Milito said. Even without a leasing program in sight for the Atlantic offshore, it is possible some big oil companies might want to pay geophysical companies to gather information on promising geology, he said.

In national politics, oil and gas get into the news as candidates for the Democratic presidential nomination at times express antagonism toward fossil fuels. Most of the rhetoric may be shrugged off, but buyers of liquefied natural gas (LNG) have indicated some concerns, said Charlie Riedl, executive director of the Center for Liquefied Natural Gas.

As Riedl explained it, the problem is that LNG projects depend on long-term commitments, and the antagonistic political rhetoric from Democratic aspirants has been raising questions about the viability of LNG exports in the long term.

In an election year, “there is going to be a gap between messaging and legitimate legislation,” said Steve Everley, a managing director in the strategic communications practice at FTI Consulting Inc. Nevertheless, “there’s a significant amount of concern about the rhetoric on the campaign trail,” he said.

Some of the rhetoric is being pared back as candidates recognize that some statements are not in keeping with the existing legal framework, Everley said. The rhetoric at times has been “somewhat bizarre,” he remarked.

Everley, too, sees a good chance the next step in the 5-year offshore leasing plan will be delayed for political reasons. He said the administration may be asking, “Who does this benefit from a political map standpoint?”

One of the most politicized areas for possible oil exploration is onshore in the Arctic. The Tax Cuts and Jobs Act of 2017 mandated oil and gas leasing on the coastal plain of the Arctic National Wildlife Refuge. The environmental impact statement has been completed and the final bureaucratic step remaining before leasing is issuance of a record of decision for that EIS.

Is the record of decision imminent? “It’s anybody’s guess when that might happen,” said Kara Moriarty, president of the Alaska Oil and Gas Association.

“My sense is we’ll have a lease sale sometime in 2020,” Moriarty said. “I don’t see any reason why we shouldn’t have a lease sale in 2020.”

The law requires the first ANWR lease sale to be offered no later than December 2021.

Issues for 2020 and beyond

Politicians and investors alike have been looking for better policies from corporate leaders. Much of that concern is encapsulated in references to “environmental, social, and governance” policies, or ESG for short.

One of Milito’s initiatives at NOIA led in mid-January to the announcement of an ESG program. The essence of it is to use the NOIA network of companies to promote best practices in corporate citizenship.

The Natural Gas Supply Association near the end of 2019 tackled an environmental issue by endorsing the idea of carbon pricing, something strongly advocated in many quarters.

“We do hope to be involved in discussions,” NGSA’s Wiggins said.

Meanwhile Wiggins is worrying about FERC, which is in need of at least one and up to three new members. Currently there are three, enough for a quorum, but Commissioner Bernard McNamee has said he will not seek a second term. His term runs out at the end of June, and although he has said he will stay on until a replacement is chosen, it is possible he will get tired of waiting.

The White House may renominate James Danly, currently FERC’s general counsel. Danly, a Republican, was nominated in 2019, but the full Senate did not vote on him before the end of the session, thus sending his nomination back to the White House.

Another commission relevant to oil and gas companies is the Commodity Futures Trading Commission. The CFTC is looking at the idea of position limits on futures trading, including energy futures. The idea would be to cap positions that speculators, but not hedgers, can take in the futures markets.

There is no timetable on action, but CFTC Chairman Heath Tarbert made a point of saying, after he took office in July, that he wanted to move ahead on position limits, and he reinforced that in November when he spoke of the “forthcoming position limits rule.”