NATURAL GAS STORAGE REGULATORY OUTLOOK

Transcription

1 NATURAL GAS STORAGE REGULATORY OUTLOOK Aftermath of Aliso Canyon APRIL 2016 Black & Veatch Holding Company All rights reserved.

2 TABLE OF CONTENTS Executive Summary... 1 The Emerging Compliance Challenge for Gas Storage Facilities... 2 Operational Risks for Gas Storage Facilities... 4 Variations in risks by reservoir type... 4 Special Considerations for Salt Water Disposal Wells... 5 Basic Checklist for Risk Assessment... 6 Past and Present Trends in Facility Regulation... 7 Regulatory Changes Driven by Previous Facility Incidents... 7 Regulatory Changes Anticipated After Aliso Canyon Planning for Compliance Roles, Responsibilities and Standards Checklist for Developing an Action Plan LIST OF TABLES Table 1. Overview of previous facility incidents and regulatory response... 8 Table 2. Roles and responsibilities for compliant operation of gas storage facilities LIST OF FIGURES Figure 1. Underground natural gas storage facilities in the continental United States locations are approximate... 2 Figure 2. Storage facilities by reservoir type and capacity range... 5 Figure 3. Jurisdictional proportions for gas storage... 7 NATURAL GAS STORAGE REGULATORY OUTLOOK: AFTERMATH OF ALISO CANYON BLACK & VEATCH TABLE OF CONTENTS i

3 EXECUTIVE SUMMARY A major gas leak at the Aliso Canyon storage facility, located near California s San Fernando Valley, brought unprecedented visibility to issues of operational integrity and safety for underground natural gas storage facilities. Since 2001, key events, such as the Aliso Canyon incident, have resulted in changes regarding how storage facilities are regulated. As such, owners and operators across the United States should begin preparing for more stringent technical management standards and more direct involvement by the Pipeline and Hazardous Materials Safety Administration (PHMSA). Specifically, operators of underground gas storage facilities now face the likely expansion and intensification of regulatory oversight at all levels as driven by: aging infrastructure, population encroachment and climate-motivated demands for methane containment. This paper provides an overview of previous regulatory changes driven by underground natural gas facility incidents; a summary of anticipated regulatory changes resulting from the Aliso Canyon incident; and an overview of what facility owners and operators can do to begin preparing for these anticipated regulations. NATURAL GAS STORAGE REGULATORY OUTLOOK: AFTERMATH OF ALISO CANYON BLACK & VEATCH EXECUTIVE SUMMARY 1

4 THE EMERGING COMPLIANCE CHALLENGE FOR GAS STORAGE FACILITIES Underground storage of natural gas is as crucial to reliable gas service as are the thousands of miles of gas pipelines which connect residential, commercial, industrial and electric-power-generation users with gas supplies. As of 2014, the United States was host to 418 individual underground gas storage facilities distributed among 32 different states and containing approximately 9.2 trillion cubic feet (Tcf) of total gas (Figure 1) 1. Figure 1. Underground natural gas storage facilities in the continental United States locations are approximate The large majority of underground gas storage facilities have operated for many decades without incident. Indeed, much of the historical regulatory oversight was devoted to assuring that such facilities did not exert unacceptable market power or create financial burdens unfair to utility ratepayers. But in October 2015, a major gas leak at the Aliso Canyon storage facility, located near Porter Ranch, Calif., brought unprecedented visibility to issues of operational integrity and safety 2. The leak persisted nearly four months, displaced thousands of people from their homes and brought public and political outcries for stricter government oversight of gas storage. 1 Statistics based on Form EIA-191A filings compiled by the U.S. Energy Information Administration (EIA). The total gas in storage includes marketable working gas (approximately 4.8 Tcf) plus pad or cushion gas required as a pressurant for operations. The map in Figure 1 was prepared by Black & Veatch using location data from EIA. 2 Aliso Canyon is an underground natural gas storage facility developed in a depleted reservoir and operated by Southern California Gas Company in northwestern Los Angeles County, California. The timeline of the leak from Standard Sesnon Well 25 (SS-25) and its associated effects have been chronicled by various agencies of the State of California. See, for example, online accounts by the Division of Oil, Gas and Geothermal Resources ( NATURAL GAS STORAGE REGULATORY OUTLOOK: AFTERMATH OF ALISO CANYON BLACK & VEATCH THE EMERGING COMPLIANCE CHALLENGE FOR GAS STORAGE FACILITIES 2

5 Expansion and intensification of regulatory oversight will be driven by aging infrastructure, encroachment of population and climatemotivated demands for methane containment. Since 2001, however, several high profile events, such as the Aliso Canyon incident, have resulted in changes in how storage facilities are regulated with additional regulations anticipated. As such, it is our belief that owners and operators across the United States should begin preparing for more stringent technical management standards and more direct involvement by the Pipeline and Hazardous Materials Safety Administration (PHMSA). Specifically, operators of underground gas storage facilities now face the likely expansion and intensification of regulatory oversight at all levels as driven by: Aging Infrastructure Some of the gas wells used in storage operations are years old or more and have been subject to possible corrosion, material fatigue or other mechanical deterioration of casings or wellheads with time. Aliso Canyon well SS-25, which developed the now-famous leak in 2015, was 62 years old when it failed. Operators of gas storage facilities now must review the adequacy of procedures for assessing the integrity of wells and supporting equipment that is crucial for gas control. New investments may be needed for downhole inspections and the repair, replacement or retirement of some wells. Encroachment of Population Most underground gas storage facilities were originally built in remote locations where few, if any, people lived. Aliso Canyon began life as an oil producing field in 1938 before being converted to gas storage in 1972 while its surrounding area was still lightly developed. However, the communities that were most affected by well SS-25 in 2015 were all built less than three miles away. Further, construction of these homes all started in 2000 or later as population growth pushed residences closer to the site. Operators of gas storage facilities now must account for expansion of risks related to growth of the surrounding population. New assessments may be needed in most locations to understand possible impacts of leaks or other incidents. Climate-Motivated Demands for Methane Containment Methane, the principal constituent of natural gas, has been reported in scientific studies to be a potent greenhouse gas (GHG) which may act as an agent of anthropogenic global climate change through warming of Earth s atmosphere 3. Depending on the direct and indirect effects which are assumed, some studies have proposed that methane can be 25 times (or greater) more potent than carbon dioxide as a GHG. Over its lifetime, the gas leak at Aliso Canyon well SS- 25 was estimated to be the cumulative equivalent of approximately two days of GHG emissions from the entire State of California 4. The timing of the Aliso Canyon leak, occurring only a few weeks after the U.S. Environmental Protection Agency (EPA) proposed new GHG emissions rules for oil and gas facilities 5 appears to have spurred additional regulatory scrutiny. In March 2016, EPA announced their intentions to expand the proposed rules to include all existing wells which would capture the inventory of wells used in gas storage. In addition to their historical focus on delivering safe and reliable service, operators of gas storage facilities now must prepare for emerging requirements to monitor and report leaks for the purpose of compliance with possible future restrictions on GHG emissions. 3 The Intergovernmental Panel on Climate Change (IPCC) ( which is sponsored by the United Nations Environment Programme (UNEP), has served as a principal source of scientific reports on climate change since Numerical values for the global warming potential (GWP) of individual GHGs have been revised every six years or so since Since about 2009, IPCC reports have typically served as the default references for GHG studies and rules made by the U.S. Environmental Protection Agency (EPA). 4 For the Aliso Canyon incident, an account of leak measurements and estimated, equivalent GHG emissions can be found online from the California Air Resources Board ( 5 Oil and Natural Gas Sector: Emission Standards for New and Modified Sources, 40 CFR Part 60, Proposed Rule, Environmental Protection Agency (EPA), Federal Register, 80(181), , September 18, NATURAL GAS STORAGE REGULATORY OUTLOOK: AFTERMATH OF ALISO CANYON BLACK & VEATCH THE EMERGING COMPLIANCE CHALLENGE FOR GAS STORAGE FACILITIES 3

6 OPERATIONAL RISKS FOR GAS STORAGE FACILITIES Incomplete or obsolete knowledge of reservoir geology could make underground migration of gas difficult to anticipate. Monitoring and management of corrosion by reservoir fluids is crucial to assure integrity of wells and supporting equipment. In deformable salt reservoirs, monitoring of cavern integrity is especially important. VARIATIONS IN RISKS BY RESERVOIR TYPE Underground natural gas storage facilities are differentiated at a high level according to the type of geologic medium which is used as the gas reservoir. The three types of reservoirs and their associated management challenges are: Depleted Reservoir A depleted reservoir is a natural petroleum reservoir which previously held oil or natural gas that was produced to its technical or economic limits. By acting as geologic traps for producible hydrocarbons, such rock layers demonstrate suitable porosity (abundance of small voids) and permeability (ability to support fluid flow among interconnected pores and into a wellbore). Depleted reservoirs commonly occur in sandstones or limestones where the extraction of original oil or gas has left behind sufficient capacity for storage of injected gas. Management of gas storage in depleted reservoirs must recognize that incomplete or obsolete knowledge of the reservoir geology could make underground migration of gas difficult to anticipate, including movement along fractures or faults. Also, residues of the hydrocarbons originally in the reservoir could contribute contaminants such as benzene or hydrogen sulfide to any injected gas which might leak from the facility. Ongoing improvement of reservoir knowledge and evolving gas chemistry is important. Aquifer An aquifer is a porous and permeable body of rock in which the pore spaces are partly or wholly filled by water or brine (highly saline water). Because natural gas dissolves in water or brine to only a very limited extent, pressurized gas can compete with the liquids for occupancy of available pore spaces. Aquifers are commonly found in sandstones or limestones so they bear some similarities to depleted reservoirs. Management of gas storage in aquifers must recognize that brines passed through wells during gas withdrawal cycles could have corrosive effects on well casings and associated hardware. Monitoring and management of corrosion caused by reservoir fluids is crucial to assure integrity of wells and supporting equipment. Salt Cavern A salt cavern is a subterranean space created by solution mining in thick beds or domes of natural salt 6. In contrast with depleted reservoirs and aquifers, where gas storage utilizes small, distributed pores, a salt cavern provides for gas storage in a large, continuous volume. This type of facility is limited to locations where bedded or domed salt occurs at reasonable depths below the surface. Management of gas storage in salt caverns must recognize that salt is a weak material which can slowly deform over time, thereby possibly affecting the mechanical stability and integrity of the cavern and associated wells. In deformable salt reservoirs, monitoring of cavern integrity is especially important. Distribution of Storage Facilities by Type and Capacity Most underground gas storage facilities are built in depleted reservoirs as those types of rocks are widely distributed in nature and many suitable candidates are known thanks to more than 100 years of oil and gas exploration. Depleted reservoirs, including Aliso Canyon, 6 Solution mining involves injection of water into an underground body of salt for the purpose of dissolving some of the salt to create a salt-bounded, empty volume. Brine created by the dissolving process is pumped to the surface for separate disposal. Specific engineering guidelines apply to solution mining and some of the guidelines may be incorporated into rules which regulate the storage facility. NATURAL GAS STORAGE REGULATORY OUTLOOK: AFTERMATH OF ALISO CANYON BLACK & VEATCH OPERATIONAL RISKS FOR GAS STORAGE FACILITIES 4

7 account for 81 percent of working gas in the overall U.S. gas storage inventory (Figure 2) 7. Therefore, on a volumetric basis alone, increased regulatory attention might begin first with depleted reservoirs. Figure 2. Storage facilities by reservoir type and capacity range Aquifers also are widely distributed although their use involves additional restrictions based on occurrence and characteristics. Compared with other reservoir types, aquifer storage requires higher volume percentages of pad or cushion gas to assure that the working gas can be withdrawn on demand. In terms of working gas, aquifer storage accounts for only 9 percent of the overall U.S. inventory in underground storage. However, enhanced concerns about water- or brine-driven corrosion of wells or other equipment might highlight aquifer reservoirs for additional regulatory attention. Salt caverns might, in principle, seem like the ideal storage reservoirs as they can be engineered to specific volumes. However, in the U.S. the necessary salt beds or domes are found along the Gulf Coast but only in a few other places. Although salt caverns generally are highly effective for gas storage, such facilities account for only 10 percent of the overall U.S. gas storage inventory. Nonetheless, questions about long-term geomechanical stability and integrity of some salt caverns might elevate salt cavern reservoirs on the regulatory checklist. SPECIAL CONSIDERATIONS FOR SALT WATER DISPOSAL WELLS Because many underground gas storage facilities coproduce water or brine during gas-withdrawal operations, handling of the produced fluids becomes part of facility operations. Some storage facilities truck the produced fluids to separate disposal wells which are outside the facility and commonly are operated by third parties. However, other storage facilities re-inject the fluids using salt water disposal (SWD) wells which are within the boundaries of the facility and are operated and regulated as part of the storage facility. Although not necessarily tied directly to gas storage operations, some SWD wells which accommodate wastewater from oil and gas operations have been implicated in occurrences of anomalous earthquakes. Since 2010, correlations between certain SWD wells and swarms 7 Figure 2 was prepared using data from EIA. To preserve a more readable scale in Figure 2, the single largest underground storage facility was omitted from the graph. That facility is the Baker Field (Williston Basin Interstate Pipeline Company), Fallon County, Montana, which was built in a depleted reservoir and contains 164 Bcf of working gas and 287 Bcf of total gas. NATURAL GAS STORAGE REGULATORY OUTLOOK: AFTERMATH OF ALISO CANYON BLACK & VEATCH OPERATIONAL RISKS FOR GAS STORAGE FACILITIES 5

8 of small earthquakes have motivated regulatory actions in Arkansas, Ohio, Oklahoma and Texas 8. Therefore, each underground gas storage facility must clearly understand its dependence upon SWD wells and how regulatory changes for SWD wells might impact gas storage operations. BASIC CHECKLIST FOR RISK ASSESSMENT In addition to specific risks which might apply to an individual facility, all underground gas storage facilities share many risks in common. Every operator and each facility should assure operational compliance by demonstrating affirmative answers to the following questions: Will the reservoir reliably contain the injected gas? Geological and geophysical knowledge of the reservoir should explain how effectively the rocks surrounding the reservoir can contain (and prevent uncontrolled escape of) the gas. It is essential to understand fractures, faults, rock properties and the nature of any water or brine in contact with the reservoir. This understanding should include any changes over time based on hydrology or seismicity. Were the wells built to the necessary standards for gas control? Standards for design and construction of wells, including both those used for high-pressure injection/withdrawal and observation/monitoring, have changed through time. It is important to understand how a well was built especially for mature wells, in some cases decades old, which have been re-purposed from depleted oil or gas production fields. Any gaps in documentation might require backfilling through new downhole inspections or remediation. Is every piece of gas-control equipment in good condition and safely operable? Material and mechanical integrity of wells, pipes, valves, compressors and supporting equipment which contains or controls gas flow is crucial. Both external and internal inspections are necessary to assess corrosion or fatigue that could lead to equipment failure and loss of gas control. In addition, leak monitors placed at strategic locations can provide early warnings of gas containment problems. Is the facility dependent on either onsite or offsite SWD wells? Any onsite SWD wells are the direct regulatory responsibility of the storage facility operator. Any offsite SWD well, even if operated by an unrelated third party, could impact storage facility operations if the well becomes limited in its ability to support the handling of produced fluids related to storage operations. Is the facility secure with respect to physical or cyber intrusions? Knowledge gaps about an underground storage facility can develop through ownership changes and personnel turnover, making diligence in record-keeping an increasingly important task. The facility is defined as both the complements of wells and pipes below ground and the surface equipment which supports injection, withdrawal or other handling of the gas. Each wellhead or critical system should be made resistant to, and monitored for, unauthorized entry or tampering. As some storage facilities can be remotely operated by distant gas-control centers, security provisions should also address threats posed by cyber intrusions. The listed questions comprise the core of the issues which are subject to changing and almost certainly stricter regulations applied to gas storage facilities. In practice, answering those questions can span wide ranges of difficulty, depending on the location, history and age of the facility. It is not uncommon that gaps in knowledge about an underground storage facility can develop through ownership changes and personnel turnover diligence in record-keeping is increasingly important. 8 The Arkansas Oil and Gas Commission (2014), the Ohio Department of Natural Resources (2014) and the Oklahoma Corporation Commission (2015) individually implemented moratoria on the operations of certain SWD wells and have ordered operational changes for other SWD wells. Texas has not yet imposed operational moratoria but the Railroad Commission of Texas, which regulates oil and gas operations, hired a full-time seismologist (2014) to study the SWD-earthquake issue and recommend a response. NATURAL GAS STORAGE REGULATORY OUTLOOK: AFTERMATH OF ALISO CANYON BLACK & VEATCH OPERATIONAL RISKS FOR GAS STORAGE FACILITIES 6

9 PAST AND PRESENT TRENDS IN FACILITY REGULATION The history of regulation of underground natural gas storage facilities has involved various agencies of the states where the facilities are located and also national oversight responsibilities assigned by federal legislation to the Federal Energy Regulatory Commission (FERC) and later, in part, to the Pipeline and Hazardous Materials Safety Administration (PHMSA). In some states, SWD wells are regulated by the EPA as a separate statutory category. Historically, FERC s role in the gas storage industry has emphasized reviews of engineering designs and environmental impacts for new or expanded facilities and administration of market rules for any storage facility involved in interstate commerce. For operational safety issues, FERC has collaborated with PHMSA. Nonetheless, as of 2014, nearly three-fourths of all U.S. underground gas storage facilities are regulated mostly or solely by the respective states in which the facilities are located (Figure 3). Facilities of all three reservoir types (depleted reservoirs, aquifers and salt caverns) are found among the facilities regulated by state and federal agencies, respectively. other single event. But it certainly was not the only such occurrence to affect how storage facilities are regulated. As summarized in Table 1, several key events which have shaped current regulatory oversight of underground gas storage facilities go back to at least Notably, the facilities discussed below include some regulated by individual states and some regulated by FERC while utilizing both depleted reservoirs and salt cavern reservoirs. REGULATORY CHANGES DRIVEN BY PREVIOUS FACILITY INCIDENTS The Aliso Canyon, California, incident probably did more to raise public awareness of underground gas storage than any Figure 3. Jurisdictional proportions for gas storage 9 Details of each incident listed in Table 1 were assembled through research by Black & Veatch NATURAL GAS STORAGE REGULATORY OUTLOOK: AFTERMATH OF ALISO CANYON BLACK & VEATCH PAST AND PRESENT TRENDS IN FACILITY REGULATION 7

10 Table 1. Overview of previous facility incidents and regulatory response DATE, LOCATION AND OPERATOR REGULATORY AUTHORITY RESERVOIR TYPE, CAUSE & CONSEQUENCE REGULATORY RESPONSE January 2001 Hutchinson, Reno County, Kansas Kansas Gas Service / ONEOK State of Kansas Salt cavern (Yaggy Field) Gas escaped through failed well casing, migrated several miles underground and caused explosions and fires at different locations Two fatalities and substantial property damage Ongoing litigation and legislation since 2009 left inspection authority (federal vs. state) unresolved State divided oversight of intrastate operations: Kansas Corporation Commission (depleted reservoirs and aquifers) Gas leak of 143 MMcf Kansas Department of Health and Environment (salt caverns) FERC has jurisdiction over 11 other facilities August 2004 Moss Bluff, Liberty County, Texas Market Hub Partners / Spectra Energy State of Texas Salt cavern (Moss Bluff Dome Field) Well casing failure (focused on a corroded section) and later wellhead failure Gas leak with subsequent explosions, fire and above-ground facility damage Emergency evacuation of several hundred nearby residents Gas leak of 6 Bcf consumed by combustion Railroad Commission of Texas Statewide Rule 97 (Underground Storage of Gas in Salt Formations) was amended (2007) to add: Downhole well inspections (once every 15 years) Emergency shutdown (ESD) valve between each wellhead and surface pipe Clarified requirements for leak detection Represented a tailored step beyond existing IOGCC (1998) guidelines 10 October 2006 Fort Morgan, Morgan County, Colorado Colorado Interstate Gas Company FERC Depleted reservoir (Dakota D Field) Well casing failure (cracked casing) Nearby residents forced from their homes and some drinking water wells contaminated Gas leak of approximately MMcf $374,000 fine by Colorado Oil & Gas Conservation Commission for unsafe operations FERC clarified definition of lost and unaccounted-for gas to deny operator s claim to have leaked gas replaced by shippers at shippers cost January 2009 Elk View, Kanawha County, West Virginia Columbia Gas Transmission Company FERC Depleted reservoir (Coco C Field) Failure of a buried pipe (corrosion and brittle fracture) connected to a well The steel pipe had been installed in 1958 although cathodic protection was not added until 1970 Investigated by PHMSA as a pipeline accident, thereby affirming PHMSA interest in gas-storage facilities Based on absence of injuries and limited cost impact, this incident was not classified as significant by PHMSA 10 Natural Gas Storage in Salt Caverns: A Guide for State Regulators, Interstate Oil and Gas Compact Commission (IOGCC), February 1998 (reprinted from 1995), 70 p. NATURAL GAS STORAGE REGULATORY OUTLOOK: AFTERMATH OF ALISO CANYON BLACK & VEATCH PAST AND PRESENT TRENDS IN FACILITY REGULATION 8

11 DATE, LOCATION AND OPERATOR REGULATORY AUTHORITY RESERVOIR TYPE, CAUSE & CONSEQUENCE REGULATORY RESPONSE October 2015 February 2016 Aliso Canyon, Los Angeles County, California Southern California Gas Company State of California Depleted reservoir (Sesnon-Frew Field) An 8,700-ft-deep injection/withdrawal well developed a gas leak through the casing into an uncemented annular space The original steel casings were installed in 1953 and were not cathodically protected Moratorium on storage refill operations at Aliso Canyon, pending detailed surface and downhole inspections of all wells Other permanent rule changes, pending outcome of an independent root-cause investigation Approximately 5,400 MMcf of gas escaped into the atmosphere before the leak was plugged Thousands of people displaced from their homes for several weeks Each incident listed in Table 1 provides part of the picture for how regulation of underground natural gas storage facilities developed up to the time of the Aliso Canyon incident. The estimated gas leaks are expressed as millions of cubic feet (MMcf) or billions of cubic feet (Bcf) although, prior to Aliso Canyon, the GHG ramifications were not raised as significant issues. The Hutchinson, Kansas (2001), Moss Bluff, Texas (2004) and Fort Morgan, Colorado (2006) incidents repeatedly inspired public and political calls for stronger federal regulations. Even though the Fort Morgan facility was under FERC jurisdiction, the FERC oversight on operational integrity was criticized as deficient which, in part, led State of Colorado regulators to unilaterally impose a fine on the Fort Morgan operator for unsafe operations. The federal PIPES Act of 2006, which responded to an accumulation of pipeline-related incidents including storage incidents exemplified by those in Hutchinson, Moss Bluff and Fort Morgan, was not aimed at storage facilities but provided PHMSA with additional rule-making authority for regulation of gas system integrity 11. The Elk View, West Virginia (2009) incident, which involved failure of a pipe connected to a gas storage wellhead, was not categorized as significant as there were no public impacts and property damage (restricted solely to the operator s facility) was minimal. Nonetheless, the incident was investigated by PHMSA, thereby providing a clear example for PHMSA involvement in operational oversight of underground gas storage facilities. Although not directed at gas storage facilities, the federal Pipeline Safety, Regulatory Certainty, and Job Creation Act of 2011 expanded the PHMSA authority and responsibility for rule-making with multiple, different mandates to be accomplished before the law was to be revisited for renewal in Indeed, the renewal of the 2011 law in was significantly influenced by the Aliso Canyon incident. The Moss Bluff, Texas (2004) incident was the regulatory purview of the State of Texas which implemented significant new facility-integrity requirements after the incident. Although the regulatory outcome of the Moss Bluff incident did not appear at the time to have national implications, the state s requirements for design and specific placement of an emergency shutdown (ESD) valve on each storage well helped establish a regulatory standard which became a topic of debate during the Aliso As a consequence of the Aliso Canyon incident, operators of underground natural gas storage facilities should expect stricter technical management standards and more direct involvement by PHMSA in operational oversight. 11 Pipeline Inspection, Protection, Enforcement and Safety (PIPES) Act of 2006, 120 STAT. 3486, Public Law , 109 th Congress, December 29, 2006, 17 p. 12 Pipeline Safety, Regulatory Certainty, and Job Creation Act of 2011, 125 STAT. 1904, Public Law , 112 th Congress, January 3, 2012, 22 p. NATURAL GAS STORAGE REGULATORY OUTLOOK: AFTERMATH OF ALISO CANYON BLACK & VEATCH PAST AND PRESENT TRENDS IN FACILITY REGULATION 9

12 Canyon, California ( ) incident. Apparently, the ESD valve prescribed by the State of Texas for the state s storage facilities did not have a functional equivalent in the leaking Aliso Canyon well SS REGULATORY CHANGES ANTICIPATED AFTER ALISO CANYON Although the Aliso Canyon, California, incident raised public awareness of underground gas storage more than any other event, the ultimate ramifications for regulatory oversight remain part of a developing story. Nonetheless, actions taken by the State of California and PHMSA through March 2016 clearly point toward at least some of the likely new hurdles to be faced by operators of underground natural gas storage facilities. The State of California imposed emergency rules on operations of all underground gas storage facilities under its jurisdiction and with additional specific requirements placed on Aliso Canyon 14. The emergency operating rules emphasized daily leak checks of each well and a risk management plan which features verification of mechanical integrity and corrosion control of wells. The Aliso Canyon operator also was ordered to provide for an independent, third-party analysis of the root cause(s) of the leak. In addition, a moratorium on gas injections was imposed specifically on the Aliso Canyon facility with strict requirements for downhole integrity tests and state approval of every well before gas injections were authorized. It is notable that the State of California specified that independent experts, comprising specialists from Lawrence Berkeley, Lawrence Livermore, and Sandia National Laboratories, will be required to verify and validate work performed by the Aliso Canyon operator before the work is approved and accepted by the state. PHMSA published an advisory to all owners and operators of underground gas storage facilities which reminded all parties to review their operating, maintenance, and emergency response activities to ensure the integrity of underground storage facilities are properly maintained 15. In the advisory, PHMSA made two important references. First, PHMSA specifically named the Hutchinson, Moss Bluff and Aliso Canyon incidents as part of the rationale for requiring improved attention to regulatory expectations. Selection of those three incidents was notable as all of the facilities involved were under state regulatory jurisdiction when the incidents occurred. Second, PHMSA specifically identified American Petroleum Institute (API) Recommended Practice (RP) (salt caverns) and API RP (depleted reservoirs and aquifers) as suggested sources of technical requirements for acceptable management of underground gas storage facilities. First editions of both API RPs were published only a few months before the Aliso Canyon incident. Previously, the most widely known guidance (also referenced by PHMSA) was that from the Interstate Oil and Gas Compact Commission (IOGCC) which dated from 1998 and addressed only salt caverns 10. The SAFE PIPES Act, which is intended to renew and expand the Pipeline Safety, Regulatory Certainty, and Job Creation Act of 2011, was directly influenced by the Aliso Canyon incident 18. In contrast with its predecessors, the SAFE PIPES Act specifically directs PHMSA to create rules for safe operation of underground gas storage facilities, including requirements for testing and demonstrating system integrity. If enacted, the SAFE PIPES Act could 13 According to FAQs posted by the California Division of Oil, Gas and Geothermal Resources (DOGGR) on January 29, 2016, operating rules prior to the Aliso Canyon incident did not require an ESD valve on a gas storage well if the well was not located within 300 feet of a residential home or within 100 feet of areas including wildlife preserves, recreation areas, bodies of water, or roads that have enough underground pressure to bring gas to the surface without mechanical compression. Aliso Canyon well SS-25 did not fall within those jurisdictional restrictions and therefore was not required to have an ESD valve. 14 Changes in operational rules for gas storage facilities in California were ordered by the California Division of Oil, Gas and Geothermal Resources (CADOGGR) ( on January 15, 2016 (draft) and February 5, 2016 (final). The root-cause investigation of the Aliso Canyon leak was ordered by the Safety and Enforcement Division of the California Public Utilities Commission (CAPUC) ( on February 5, Terms of the Aliso Canyon injection moratorium were ordered by CADOGGR on February 17, Pipeline Safety: Safe Operations of Underground Storage Facilities for Natural Gas, Pipeline and Hazardous Materials Safety Administration (PHMSA); DOT, Federal Register, 81(24), , February 5, Design and Operation of Solution-mined Salt Caverns Used for Natural Gas Storage, Recommended Practice 1170, First Edition, American Petroleum Institute, July 2015, 87 p. 17 Functional Integrity of Natural Gas Storage in Depleted Hydrocarbon Reservoirs and Aquifer Reservoirs, Recommended Practice 1171, First Edition, American Petroleum Institute, September 2015, 52 p. 18 Securing America s Future Energy: Protecting our Infrastructure of Pipelines and Enhancing Safety Act (SAFE PIPES Act), Senate Bill S. 2276, 114 th Congress, 24 p. As of March 2016, this legislation was approved by the U.S. Senate and awaiting action by the U.S. House of Representatives. NATURAL GAS STORAGE REGULATORY OUTLOOK: AFTERMATH OF ALISO CANYON BLACK & VEATCH PAST AND PRESENT TRENDS IN FACILITY REGULATION 10

13 significantly raise the regulatory hurdles faced by gas storage facility operators. As a consequence of the Aliso Canyon incident, operators of underground natural gas storage facilities should expect stricter technical management standards and more direct involvement by PHMSA in operational oversight. Rules promulgated by PHMSA could ripple through policies and procedures used by FERC and the individual state agencies which historically have regulated the subject facilities. Furthermore, any separate rules promulgated by EPA for methane emission limits or SWD wells could add additional complexity to revised technical standards recommended by PHMSA. NATURAL GAS STORAGE REGULATORY OUTLOOK: AFTERMATH OF ALISO CANYON BLACK & VEATCH PAST AND PRESENT TRENDS IN FACILITY REGULATION 11

14 PLANNING FOR COMPLIANCE were adopted. Certainly, provisions for managing modern ROLES, RESPONSIBILITIES AND STANDARDS security concerns are well represented in API RPs 1170 and Owners and operators of underground gas storage facilities 1171 and should be addressed in all revised O&M plans. should begin promptly to plan for probable changes to regulatory oversight of facility operations, including As summarized in Table 2, full implementation of updated maintenance and testing of wells, pipelines and supporting O&M plans most likely will require outside capabilities in equipment. An engineering review initiated by the addition to those available in-house to the Owner/Operator. Owner/Operator should compare current operations and Contracted work by a qualified Field Service Company maintenance (O&M) practices with those recommended by probably will be needed for inspection and testing of PHMSA, namely, API RPs 1170 and 1171, and prepare revised downhole and support equipment or installation of new O&M plans as needed. equipment. Verification and validation 19 of work performed at a storage facility, as reviewed and reported separately by It is important to note that physical security and cyber an Independent Engineer, might become necessary to security of gas storage facilities have emerged as new satisfy emerging requirements for impartial review prior to concerns since the foundational guidelines of IOGCC (1998) regulatory acceptance of the facility work. Table 2. Roles and responsibilities for compliant operation of gas storage facilities OPERATIONAL ATTRIBUTE OWNER / OPERATOR (OR OWNER S ENGINEER) CONTRACTED FIELD SERVICE PROVIDER INDEPENDENT ENGINEER Reservoir Integrity Develop and maintain plans to characterize, monitor and manage the reservoir in compliance with regulatory requirements Assemble and maintain documents that define reservoir characteristics and behavior over time Perform controlled gas injection / withdrawal tests to measure reservoir mass balance or other physical attributes Provide test data and results in forms that can be interpreted and archived by Owner / Operator Advise Owner / Operator regarding: Sufficiency of reservoirintegrity plans Qualifications for a Field Service Provider Verify and validate reservoir test work conducted by Field Service Provider Provide testimony as needed in regulatory filings 19 Verification refers to confirmation that a body of work was performed as required or agreed. Validation refers to confirmation that a design or implementation solution was appropriate for the requirements being addressed. NATURAL GAS STORAGE REGULATORY OUTLOOK: AFTERMATH OF ALISO CANYON BLACK & VEATCH PLANNING FOR COMPLIANCE 12

15 OPERATIONAL ATTRIBUTE OWNER / OPERATOR (OR OWNER S ENGINEER) CONTRACTED FIELD SERVICE PROVIDER INDEPENDENT ENGINEER Well Integrity Develop and maintain plans to inspect and document integrity of individual wells Assemble and maintain documents that demonstrate well integrity, including leak measurements and any work to remediate or plug-and-abandon wells Perform downhole casing and cement integrity inspections and identify any anomalies Perform any remediation or plug-and-abandon work agreed with Owner / Operator Install and service leak detection equipment as agreed with Owner / Operator Provide test and remediation data and results in forms that can be interpreted and archived by Owner / Operator Advise Owner / Operator regarding: Sufficiency of wellintegrity plans Qualifications for a Field Service Provider Verify and validate installation, test and remediation work on wells as conducted by Field Service Provider Provide testimony as needed in regulatory filings Integrity of Surface and Support Equipment Develop and maintain plans to inspect and document integrity of individual pipes, valves and gas-handling equipment Assemble and maintain documents that demonstrate equipment integrity for gas control, including any work to remediate or replace pipes, valves or gas-handling equipment Perform inline and aboveground integrity inspections of pipelines, valves and gas-handling equipment and identify any anomalies Perform any corrosion abatement or other remediation or repair work agreed with Owner / Operator Install and service leak detection equipment as agreed with Owner / Operator Advise Owner / Operator regarding: Sufficiency of equipment-integrity plans Qualifications for a Field Service Provider Verify and validate equipment test and repair work conducted by Field Service Provider Provide testimony as needed in regulatory filings Provide inspection, test and remediation / repair data and results in forms that can be interpreted and archived by Owner / Operator Facility Physical and Cyber Security Develop and maintain plans to provide physical security of facility and defense against cyber intrusions Assemble and maintain documents that demonstrate history and effectiveness of provisions for physical and cyber security Perform installation and testing of hardware and software for physical and cyber security Provide installation and test data and results in forms that can be interpreted and archived by Owner / Operator Advise Owner / Operator regarding: Sufficiency of security plans Qualifications for a Field Service Provider Verify and validate security installation and test work conducted by Field Service Provider Provide testimony as needed in regulatory filings NATURAL GAS STORAGE REGULATORY OUTLOOK: AFTERMATH OF ALISO CANYON BLACK & VEATCH PLANNING FOR COMPLIANCE 13

16 CHECKLIST FOR DEVELOPING AN ACTION PLAN Using Table 2 as a guide to the body of work required, the Owner / Operator of an underground gas storage facility should begin updating their O&M plans by answering the following questions: Does our in-house organization include the personnel and skills needed for the Owner s Engineer role? If not, what is the most expeditious pathway for outsourcing the Owner s Engineer function? (Keep in mind that the Owner s Engineer is considered an agent and advocate of the Owner / Operator whereas an Independent Engineer is expected to be unbiased with no financial interests in the project.) Has our Owner s Engineer identified any gaps between our current facility operational practices and new requirements which might be expected from our facility regulators? Regardless of whether the regulatory primacy is state or FERC, it should be anticipated that future rules made by PHMSA and standards or guidelines recommended by PHMSA will become operational requirements. Gap analyses should include equipment requirements, such as ESD valves and cathodic protection, possible impacts of SWD well regulations and also facility-hardening provisions for physical and cyber security. Do we have a Field Service Provider onboard or with whom we have outsourced service work recently? If not, does our Owner s Engineer anticipate the need for one or more Requests for Quotation/Proposal for new service work indicated by our updated plans? Are we prepared to vet candidates according to their qualifications to provide solutions that meet all updated regulatory requirements? Does our technical and regulatory situation indicate that an Independent Engineer is needed to satisfy new regulatory requirements for unbiased, third-party reviews? If so, has our Owner s Engineer begun interviews with candidate Independent Engineer organizations? Is each candidate qualified to fully comprehend and deliver reliable assessments across all aspects of federal and state regulatory updates? The Aliso Canyon incident will change the way that both state and federal regulators approach the permitting and oversight of underground gas storage facilities. Operators of gas storage facilities must assess any gaps between emerging regulatory requirements and the ways that their facilities have been managed in the past. Now is the time to begin assembling a team and proactively plan for compliance with rising regulatory hurdles. NATURAL GAS STORAGE REGULATORY OUTLOOK: AFTERMATH OF ALISO CANYON BLACK & VEATCH PLANNING FOR COMPLIANCE 14