On August 30, 2023, the U.S. Environmental Protection Agency (EPA), U.S. Department of Energy (DOE), and DOE’s National Energy Technology Laboratory (NETL) announced up to $350 million in formula grant funding to States to help them monitor and reduce methane emissions from the oil and gas sector and for environmental restoration of well sites. The funding is part of The Methane Emissions Reduction Program created by the Inflation Reduction Act, which provides $1.55 billion in funding, including financial and technical assistance, to improve methane monitoring and reduce methane and other greenhouse gas (GHG) emissions from the oil and gas sector. ALRD at 11, 14. The deadline for states to apply for this funding opportunity is September 30, 2023. 

This announcement of greater federal funding for state intervention efforts has refocused natural gas gathering, storage, pipeline, and distribution companies, liquefied natural gas (LNG) companies, and other industry participants on a new proposed rulemaking (NPRM) by the U.S. Department of Transportation’s Pipeline and Hazardous Materials Safety Administration (PHMSA) requiring upgrades to existing pipeline and other midstream infrastructure in order to significantly reduce the amount of methane leaked while in transport.  ALRD at 63.

I. The Methane Emissions Program Grants

Grants that are part of the Inflation Reduction Act are being allocated in waves by involved agencies. For example, PHMSA has $1 billion in funding for its Natural Gas Distribution Infrastructure Safety Modernization Grant Program. $196 million was granted to a series of 37 projects across 19 states in April 2023; $392 million will be granted based on applications submitted by the August 2023 deadline. A remaining $412 million is yet to be spoken for. 

The EPA has up to $1.55 billion through the Methane Emissions and Waste Reduction Program to provide financial assistance for reducing methane emissions from the oil and gas sector. Eligible recipients “include but are not limited to air pollution control agencies, other public or nonprofit private agencies, institutions, and organizations, and individuals.” Though the recently announced $350 million program is limited to state applicants, there will be other waves of funding as the EPA portions its funding. 

II. The NPRM 

The NPRM was initially proposed on May 5, 2023 as a result of the December 27, 2020 bipartisan PIPES Act signed into law by Former President Trump. It reflects the culmination of efforts during three consecutive administrations, including, in addition to the Trump administration’s passage of the PIPES Act, the Biden administration’s U.S. Methane Emissions Reduction Action Plan and the Obama administration’s Climate Action Plan. 

Methane (CH4) is a greenhouse gas and the primary component of natural gas. NPRM at 31,893. An estimated 9% of methane gathered is leaked during production, with another 5-15% leaked during gathering, transportation, storage, processing, liquefaction, and other activities.

Prior to the proposed changes, Federal leak detection and repair standards for gas pipelines have remained largely unchanged for five decades, notwithstanding “significant improvements in leak detection technology and operator practices and the increasingly urgent and tangible threats from climate change.” NPRM at 31,891.

Comments on the NPRM were due July 17, 2023; however late-filed comments are still being received by PHMSA and considered to the extent practicable. NPRM Document Details. Once PHMSA has reviewed comments, it will issue a final rule, which is expected to occur within the next year. The final rule will become effective six months after PHMSA publishes it in the Federal Register.  NPRM at 31,928. 

III. Summary of NPRM’s Proposed Changes to Existing Rules

As proposed, the NPRM applies to new and existing gas transmission pipelines, distribution pipelines, part 192-regulated gas gathering pipelines (Types A, B, C and offshore), underground natural gas storage facilities, and liquefied natural gas facilities.  If adopted without modification (which we believe is unlikely due to the substantial comments received from industry participants) the rule would require pipeline operators to modernize their leak detection programs with the goal of detecting and repairing all gas leaks—whether fugitive emissions from leaks, or intentional releases due to venting from maintenance and other activities— through measures such as: 

• Increasing the frequency of surveys and using commercially available, advanced leak detection technology—such as aerial or vehicle surveys, handheld detection devices, and continuous monitoring systems—to meet minimum performance standards.
  
  
• Reducing the volume of gas released due to unintentional emissions and revising the reporting minimum threshold to detect smaller leaks sooner.
  
  
• Minimizing intentional releases and encouraging operators to consider cost-effective equipment that can capture the methane for later use.
  
  
• Adding new gas operator reporting and recordkeeping requirements.
  
  
• Establishing explicit criteria and timeframes for leak repairs. NPRM at 31,890. 

 

a. Changes Specific to Gathering and Transmission Pipelines

As part of its effort to minimize methane emissions, PHMSA proposes to strengthen the frequency of minimum leakage surveys for gas transmission and gathering pipelines, as well as increase the minimum patrolling frequency. NPRM at 31,926. PHMSA also limits the use of human sense as the exclusive tool for leakage detection to very limited situations.  

Types A and B gathering pipelines that are not odorized must be surveyed with leak detection equipment at least twice each calendar year in Class 3 locations, and at least four times each calendar year in Class 4 locations. Offshore gathering, Type A and Type B gathering, and certain Type C gathering pipelines must be surveyed once each calendar year.  NPRM at 31,929. Transmission lines must be surveyed at least once a year, and up to four times a year, depending on the classification. 

b. Changes Specific to Natural Gas Distribution Pipelines 

Natural gas distribution pipelines’ methane emissions are often caused by leaks from and incidents on gas distribution line pipes. NPRM at 31,901. Accordingly, PHMSA aims to minimize leaks by requiring surveys with leak detection equipment annually in business districts and once every three years for most pipes outside of business districts. 

c. Changes Specific to LNG, Storage, Processing, Compression, and Other Facilities

PHMSA proposes an explicit requirement for LNG facilities and natural gas storage, processing, compression, and other natural gas-handling facilities to eliminate leaks of all flammable, toxic, or corrosive gases, as well as to minimize releases of natural gas during non-emergency blowdowns. NPRM at 31,947. PHSMA also proposes that facility operators must perform quarterly methane leakage surveys using leak detection equipment.  If any leaks are discovered, operators must remediate issues in accordance with a schedule established by the operator’s maintenance or abnormal operations procedures. NPRM at 31,964. 

 

IV. Going Forward

On the one hand, minimizing the volume of natural gas released during production will increase the natural gas volumes retained and eventually sold, benefitting producers and royalty owners. On the other hand, the upgrades, operational changes, and downtime to implement same will come at great expense to gathering, transmission, and distribution pipelines, as well as LNG facilities.  Accordingly, the costs associated with the NPRM will in most cases be passed onto shippers, ratepayers, and, ultimately, to end-use consumers.  

To an extent, the various grant programs under The Methane Emissions Reduction Program make funds available to industry participants to help defray some of these costs, which will benefit everyone from the producer down to the end-use consumer. 

Baker Botts LLP has experienced lawyers who are ready to assist you with making DOE grant applications, preparing for and ensuring compliance with the final rule, and addressing the time and cost issues that will need to be reflected in your construction and remediation contracts, midstream commercial contracts, and natural gas sales agreements, among other things.  Please reach out to the lawyers below if you have any questions about how the NPRM may affect your current midstream regulatory, infrastructure, and commercial needs.

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