NATURAL GAS STORAGE REGULATORY OUTLOOK · prepared by Black & Veatch using location data from EIA. 2 Aliso Canyon is an underground natural gas storage facility developed in a depleted

NATURAL GAS STORAGE REGULATORY OUTLOOK Aftermath of Aliso Canyon

APRIL 2016

©Black & Veatch Holding Company 2016. All rights reserved.

NATURAL GAS STORAGE REGULATORY OUTLOOK: AFTERMATH OF ALISO CANYON BLACK & VEATCH | TABLE OF CONTENTS i

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 ...................................................................... 10

Planning for Compliance ................................................................................................... 11

Roles, Responsibilities and Standards .............................................................................................. 11

Checklist for Developing an Action Plan .......................................................................................... 14

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 ................. 11

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 | EXECUTIVE SUMMARY 1

EXECUTIVE SUMMARYA 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 | THE EMERGING COMPLIANCE CHALLENGE FOR GAS STORAGE FACILITIES 2

THE EMERGING COMPLIANCE CHALLENGE FOR GAS STORAGE FACILITIESUnderground 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.

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 (http://www.conservation.ca.gov/dog).

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 safety2. 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.

NATURAL GAS STORAGE REGULATORY OUTLOOK: AFTERMATH OF ALISO CANYON BLACK & VEATCH | THE EMERGING COMPLIANCE CHALLENGE FOR GAS STORAGE FACILITIES 3

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 30-40 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 atmosphere3.

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 California4. 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 facilities5 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.

3 The Intergovernmental Panel on Climate Change (IPCC) (http://www.ipcc.ch/index.htm), which is sponsored by the United Nations Environment Programme (UNEP), has served as a principal source of scientific reports on climate change since 1988. Numerical values for the global warming potential (GWP) of individual GHGs have been revised every six years or so since 1995. 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 (http://www.arb.ca.gov/homepage.htm). 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), 56593- 56698, September 18, 2015.

Expansion and intensification of regulatory oversight will be driven by aging infrastructure, encroachment of population and climate-motivated demands for methane containment.

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.

NATURAL GAS STORAGE REGULATORY OUTLOOK: AFTERMATH OF ALISO CANYON BLACK & VEATCH | OPERATIONAL RISKS FOR GAS STORAGE FACILITIES 4

OPERATIONAL RISKS FOR GAS STORAGE FACILITIES

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

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.

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 salt6. 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,

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.


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

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.

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 co-

produce 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


of small earthquakes have motivated regulatory actions in

Arkansas, Ohio, Oklahoma and Texas8. 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?

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.

Knowledge gaps about an underground storage facility can develop through ownership changes and personnel turnover, making diligence in record-keeping an increasingly important task.

NATURAL GAS STORAGE REGULATORY OUTLOOK: AFTERMATH OF ALISO CANYON BLACK & VEATCH | PAST AND PRESENT TRENDS IN FACILITY REGULATION 7

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.

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

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 20019. 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.

Figure 3. Jurisdictional proportions for gas storage

9 Details of each incident listed in Table 1 were assembled through research by Black & Veatch


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

Gas leak of 143 MMcf

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)

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) guidelines10

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 451-720 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.


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

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

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

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 integrity11.

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

11 Pipeline Inspection, Protection, Enforcement and Safety (PIPES) Act of 2006, 120 STAT. 3486, Public Law 109–468, 109th Congress, December 29, 2006, 17 p. 12 Pipeline Safety, Regulatory Certainty, and Job Creation Act of 2011, 125 STAT. 1904, Public Law 112–90, 112th Congress, January 3, 2012, 22 p.

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 201512. Indeed,

the renewal of the 2011 law in 2015-

2016 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.


Canyon, California (2015-2016) 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-2513.

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 Canyon14. 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 2015-2016

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

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) (http://www.conservation.ca.gov/dog) 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) (http://cpuc.ca.gov/) on February 5, 2016. Terms of the Aliso Canyon injection moratorium were ordered by CADOGGR on February 17, 2016. 15 “Pipeline Safety: Safe Operations of Underground Storage Facilities for Natural Gas,” Pipeline and Hazardous Materials Safety Administration (PHMSA); DOT, Federal Register, 81(24), 6334-6336, February 5, 2016. 16 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, 114th 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.

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) 117016 (salt caverns) and API RP 117117 (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 caverns10.

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 incident18. 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


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 | PLANNING FOR COMPLIANCE 12

PLANNING FOR COMPLIANCE ROLES, RESPONSIBILITIES AND STANDARDS

Owners and operators of underground gas storage facilities

should begin promptly to plan for probable changes to

regulatory oversight of facility operations, including

maintenance and testing of wells, pipelines and supporting

equipment. An engineering review initiated by the

Owner/Operator should compare current operations and

maintenance (O&M) practices with those recommended by

PHMSA, namely, API RPs 1170 and 1171, and prepare revised

O&M plans as needed.

It is important to note that physical security and cyber

security of gas storage facilities have emerged as new

concerns since the foundational guidelines of IOGCC (1998)

were adopted. Certainly, provisions for managing modern

security concerns are well represented in API RPs 1170 and

1171 and should be addressed in all revised O&M plans.

As summarized in Table 2, full implementation of updated

O&M plans most likely will require outside capabilities in

addition to those available in-house to the Owner/Operator.

Contracted work by a qualified Field Service Company

probably will be needed for inspection and testing of

downhole and support equipment or installation of new

equipment. Verification and validation19 of work performed

at a storage facility, as reviewed and reported separately by

an Independent Engineer, might become necessary to

satisfy emerging requirements for impartial review prior to

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 reservoir-integrity 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.


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


Sufficiency of well-integrity plans


Verify and validate installation, test and remediation work on wells as conducted by Field Service Provider


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 above-ground 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

Provide inspection, test and remediation / repair data and results in forms that can be interpreted and archived by Owner / Operator


Sufficiency of equipment-integrity plans


Verify and validate equipment test and repair work conducted by Field Service Provider


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


Sufficiency of security plans


Verify and validate security installation and test work conducted by Field Service Provider



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.

Documents

NATURAL GAS STORAGE REGULATORY OUTLOOK · prepared by Black & Veatch using location data from EIA. 2 Aliso Canyon is an underground natural gas storage facility developed in a depleted