29 July 2014

Sidley Shale and Hydraulic Fracturing Report

Volume 3, No. 30

Federal

DOT proposes safety regulations for shipping crude oil by rail. On July 23, the Department of Transportation’s (DOT) Pipeline and Hazardous Materials Safety Administration (“PHMSA”) proposed new safety regulations for the shipment by rail of crude oil and other flammable liquids such as ethanol. Under the proposed rule, shippers would be required to upgrade older DOT-111 cars within two years. The DOT-111 cars have been under review following train derailments involving crude oil shipments. The proposal would also impose a 50 mph speed limit on trains with 20 or more cars carrying flammable liquids, with a 40 mph limit for trains that include DOT-111 cars. At the same time, PHMSA released a report finding that the classification applied to Bakken crude is accurate under the current classification system, but also reported that the crude has higher gas content and vapor pressure, as well as a lower flash point and boiling point, and thus a higher degree of volatility than other crudes in the United States. DOT will accept comments on the proposed rule for 60 days. For more information please see Sidley’s Transportation Update.

EPA IG Report critical of the Agency’s efforts to address methane leaks from pipelines. In a July 25 report entitled “Improvements Needed in EPA Efforts to Address Methane Emissions From Natural Gas Distribution Pipelines,” the Environmental Protection Agency (EPA) Inspector General (IG) urged the agency to improve its efforts to address methane emissions. The report noted that $192 million in natural gas was lost in 2011 and concluded that EPA’s voluntary leak reduction program has had only limited success. The IG also highlighted that there is some uncertainty over the accuracy of the emissions factors that EPA currently uses to estimate methane emissions from distribution pipelines, with some reports suggesting emissions may be higher or lower than EPA’s current estimates. The report also recommended that EPA address economic and policy impediments that inhibit voluntary measures to fix leaks. Following a White House directive, EPA is currently considering whether to propose additional regulations to address methane emissions from the oil and gas sector.

States

Pennsylvania: Audit critical of DEP’s administration of water quality programs. In a recent audit, the Pennsylvania Auditor General has criticized the Pennsylvania Department of Environmental Protection’s (DEP) administration of water quality regulations for the oil and gas sector. The report, which emphasized the challenges posed by a lack of agency resources, made recommendations to address eight areas of concern, including tracking and response to water-related complaints, timeliness of gas well inspections, accuracy of online inspection reports, transparency of information provided to the public and tracking of drilling-related waste. The DEP submitted a detailed response disagreeing with the report’s conclusions, emphasizing that the audit focused on DEP operations until the end of 2012 and thus does not reflect how DEP currently runs its oil and gas regulatory program. DEP, however, did concur with the report’s recommendations, noting that many had already been implemented.

Colorado: Court rejects City of Longmont’s ban on hydraulic fracturing on preemption grounds. On July 24, a state court judge reversed the City of Longmont’s ban on hydraulic fracturing after concluding it was preempted by the Colorado Oil and Gas Conservation Act. Relying on two 1992 state Supreme Court rulings, the court held the city’s ban on hydraulic fracturing would create a patchwork of oil and gas extraction regulations that would impede the orderly development of Colorado’s mineral resources in accordance with state law. Proponents of the ban are likely to appeal the decision, and the Court stayed its decision pending further appeal.

Business

China: Yuhuang Chemical announces plan to construct methanol manufacturing facility in Louisiana. Yuhuang Chemical, a subsidiary of Shandong Yuhuang Chemical Co., Ltd., announced plans to construct a $1.85 billion methanol manufacturing facility in St. James Parish, Louisiana. The facility will produce 3 million metric tons of methanol per year, the majority of which will be exported to China. The project, which is expected to create 2,700 jobs, will be the first major foreign direct investment in Louisiana by a Chinese company. Construction is scheduled to begin in 2016, with operations commencing in 2018.

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