California to Impose Fees on Crude by Rail Shipments

June 17, 2014 § Leave a comment

Next fiscal year, California will apply a 6.5-cent fee on oil companies for every barrel of crude that arrives in the state on rail, or that is piped to refineries from inside the state. The fees are expected to raise an estimated at $11 million in the first full year that will be allocated for oil spill prevention and preparation work, and for emergency cleanup costs. The state plans to include training and drills to prepare for any spills that threaten waterways, and will allow officials to conduct response drills.
In the aftermath of three recent train crashes and explosions, federal regulations now require that railroads notify state emergency officials of large Bakken shipment times and routes. In response to reports of oil companies planning hundreds of crude by rail shipments in California, the State has budgeted to hire seven more rail safety inspectors for the California Public Utilities Commission to fulfill its mandate to inspect every mile of rail in the state annually.
The California Senate passed a resolution urging the U.S. Department of Transportation (DOT) and other federal agencies to write tougher standards for train tank cars and to “prioritize safety over cost effectiveness” in dealing with rail crude shipments.  Tank car safety has been an ongoing issue for regulators in the U.S. and in Canada, where more stringent requirements have already been pushed through.
U.S. DOT officials have said they intend to improve design standards for rail cars hauling crude oil, but haven’t set a date for finalizing standards. Sens. Jerry Hill, (D-San Mateo), and Lois Wolk, (D-Davis), introduced a bill that would impose a second shipping fee on oil companies to be used to train and equip first responders to deal with major spills and fires on railroad lines.

Texas Railroad Commission Focused on Business, Not Press

June 17, 2014 § Leave a comment

The Associated Press (AP) reports that the Texas Railroad Commission is enforcing a ban on staff interviews with the press.  The policy is not really news, but is making the rounds because AP is not happy about the policy, which was approved last August.  The press still has access to designated media relations spokespersons, and to all official releases from the Commission. The policy appears to help avoid needless disruptions to the agency, unofficial statements that may be counterproductive or confusing.


Development of Next Five Year Schedule of Offshore Oil and Gas Lease Sales Launched

June 16, 2014 § Leave a comment

The U.S. Department of the Interior issued a request for information (RFI) and comments on the oil and gas leasing program for U.S. coastal waters to run from 2017 to 2022, kicking off a 45-day comment period.

The publication in the Federal Register is the initial step in the multi-year planning process and does not identify any specific course of action. U.S. law requires the Secretary of the Interior, through the Bureau of Ocean Energy Management, to prepare and maintain a schedule of oil and gas lease sales in federal waters, indicating the size, timing and location of auctions that would best meet national energy needs.  The planning process the outer continental shelf will take up to three years to complete.  The Secretary of the Interior is required to balance environmental impacts, discovery of oil and gas, and adverse effects on the coastal zone.

The current five-year program expires in August 2017 and schedules 15 potential lease sales in six planning areas judged to have the greatest resource potential. BOEM has held five sales thus far, including annual auctions in the Central and Western Gulf of Mexico and a single sale in the Eastern Gulf. Those auctions offered more than 60 million offshore acres and leased 4.3 million, generating more than $2.3 billion in high bids. A sixth lease sale in August 2014 will offer 21 million OCS acres in the Western Gulf of Mexico.

More information here.

New Oil and Gas Authority in UK

June 13, 2014 § Leave a comment

A new independent body has been formed in the UK to attract the oil industry and spur oil and gas production to turn the tide on dwindling tax revenues in the North Sea region.  The announcement was made at the Oil and Gas UK Annual Conference.  UK Chief Secretary to the Treasury, Danny Alexander told delegates that the Authority will work with government to review the ring-fenced tax scheme, including discussions with industry on its views on taxation and tax allowances. The new entity will be based in Aberdeen.  A search for a new chief executive for the Authority is underway.

Perfect Compromise. Nobody’s Happy.

June 11, 2014 § Leave a comment

Colorado Governor John Hickenlooper’s compromise seems to have fueled the fire in the ongoing debate about fracking regulation, and more broadly about local versus state control. As noted in earlier posts, other groups including homebuilders join the oil and gas industry in its opposition to these measures.

Currently, 11 potential ballot measures are competing for interest-group money and Colorado voters. While some groups are looking to broadly ban fracking and other activities deemed unacceptable at the local government level, most are looking for more specific limitations on drilling.   A central issue in the measures is the distance permitted between drilling rigs and homes.  The state’s current regulations require a 500-foot buffer. Four of the proposals would increase setbacks for drilling rigs by distances from 1,500 feet to a half-mile–proposals that Hickenlooper recognizes would put the state’s economy at risk by eliminating almost 60% of drilling locations. Colorado has enjoyed an earlier economic recovery than many states in the union in large part because of the oil and gas industry.

Hickenlooper’s compromise attempts to find a middle ground but has effectively made no one happy. Although environmental groups argue the compromise proposal does not go far enough, his bill would permit local governments to enact health and safety standards more stringent than state rules, authorize local inspections of oil and gas sites, and authorize negotiation with operators for setbacks greater than 500 feet. While the “compromise” would allow drilling to continue, the measure imposes a level of uncertainty that could be untenable to companies as various measures imposed at the local level would likely trigger costly delays and legal appeals for companies.

DC Court of Appeals Ruling Against FERC: Process, Not Substance

June 8, 2014 § Leave a comment

Much ado being made in the press by environmental groups about a “big win” from the DC Court of Appeals related to a Tennessee Gas pipeline project, but at the end of the day it’s purely about process and not substance. The $500 million project was complete long before the ruling came down, and gas continues to flow through the pipeline to the high demand markets in the Northeast.

So what’s all the chatter about?

On Friday, June 6, 2014, the DC Circuit Court of Appeals found deficiencies in the process that the US Federal Energy Regulatory Commission (FERC) used for its environmental assessment (EA) of Tennessee Gas Pipeline’s Northeast Project. The ruling was based on the FERC considering individual upgrade projects separately rather than assessing the cumulative environmental impact.

The Court found that FERC impermissibly segmented the environmental review in violation of the National Environmental Policy Act (NEPA) and remanded the case back to the FERC for further consideration. Commission attorneys had argued that its 200-page environmental assessment of the 40-mile section of pipeline through New Jersey called the “Northeast Upgrade” project analyzed all of the pipeline’s cumulative impacts.

Make no mistake, the Court did not find that the project, even taken as a whole, had impermissibly impacted the environment. The ruling was purely based on the process used by the FERC, and not on the merits of this pipeline project or any future projects.

Kinder Morgan issued a statement that,”[w]hether the completed expansion projects are considered individually, as FERC did, or cumulatively, we do not expect any change in the ultimate conclusion that there was no significant environmental impact resulting from the projects.”


The FERC completed an environmental assessment in November 2011 t and issued its recommendation of a finding of no significant impact.  In  May 2012, FERC issued a certificate of public convenience and necessity to Tennessee for the Northeast Project, authorizing construction of five pipeline loop segments totaling more than 40 miles of 30-inch-diameter pipe in Pennsylvania and New Jersey. The project also included adding 22,310 horsepower of compression at two existing compressor stations in Pennsylvania.The project was placed into service in November, adding 636,000 Dt/d of capacity to Tennessee’s 300 Line System.The Delaware Riverkeeper Network, New Jersey Highlands Coalition and Sierra Club’s New Jersey chapter petitioned the court to review FERC’s order approving the project.

The Legal Tussle

The Delaware Riverkeeper Network, the New Jersey Highlands Coalition and the New Jersey Sierra Club argued the decision-making process did not take into account other natural-gas expansion projects seeking approval at the same time in New Jersey.

FERC argued that each project was a stand-alone project that would provide gas to different customers during different time frames.

The Court ruled that given the interrelatedness of the projects as well as their temporal overlap, the FERC was obliged to consider the other three Tennessee Gas pipeline projects when it conducted its NEPA review of the Northeast Project. The Court also held that the NEPA review of the Northeast Project violated the segmentation rule, which was upheld by the Supreme Court in 1976, as an agency is prohibited from dividing “connected, cumulative, or similar federal actions into separate projects and thereby [failing] to address the true scope and impact of the activities that should be under consideration.”

What the Ruling Did Not Say

Make no mistake, the Court did not reach a finding that the project, even taken as a whole, had impermissibly impacted the environment. The ruling was purely based on the process used by the FERC, and not on the merits of this pipeline project or any future projects.

Kinder Morgan issued a statement that,”[w]hether the completed expansion projects are considered individually, as FERC did, or cumulatively, we do not expect any change in the ultimate conclusion that there was no significant environmental impact resulting from the projects.”

So Now What?

Business as usual. Make no mistake; gas will continue to flow through the pipeline regardless of this ruling.  FERC will consider the project as a whole, and ultimately, their assessment of environmental impact may not change. Environmental groups are pushing for the imposition of new requirements to mitigate impacts, but that will not happen without a finding requiring such measures.

What will change as a result of this ruling is the NEPA submissions in advance of new projects will be required to include related projects and cumulative impact studies—not a difficult task given the considerable work performed to comply with NEPA before every pipeline project. Ultimately this ruling is about process and not a significant substantive change.

“Compromise” Bill Further Divides Stakeholders in Colorado

June 6, 2014 § 1 Comment

Colorado Governor Hickenlooper announced a proposed bill to allow local governments to set rules on noise and drilling setbacks, now at 500 feet, and to impose “reasonably necessary” moratoriums on drilling permits.  Under the bill, local jurisdictions could also inspect drilling sites for regulatory compliance and recover those costs. Proponents of the legislation believe that while local governments would have greater control, they would not be permitted to ban drilling activity outright or implement rules so restrictive that they impede activity. Oil and gas operators could appeal rules they consider too heavy handed with the local jurisdiction, and if they aren’t satisfied, appeal again to a district court. The appeal process, however, is costly and time consuming and could derail a project and undermine its economic feasibility.

Opponents of the bill come not only from petroleum industry but from the greater business community, including vocal support from the Clolorado Association of Homebuilders. Even if a compromise bill is passed, it won’t address Initiative 75, previously discussed here, which business groups consider the most damaging of the various questions that could come to a vote.

Victory for Oil and Gas–Jindal Signs SB 469 into Law

June 6, 2014 § Leave a comment

Louisiana Governor, Bobby Jindal signed SB 469 into law this morning, June 6, 2014. As previously noted in a previous post, this legislation will end a lawsuit again 97 oil companies for alleged environmental damage.  “This bill will help stop frivolous lawsuits and create a more fair and predictable legal environment, and I am proud to sign it into law,” Jindal stated. “It further improves Louisiana’s legal environment by reducing unnecessary claims that burden businesses so that we can bring even more jobs to our state.” SLFPA-E is expected to challenge the measure in court. Stay posted for further updates.

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