CHAPTER 6 TRANSMISSION AND GATHERING LINE LEAKS AND SPILLS: HOW THE UPSTREAM AND MIDSTREAM SECTOR NEEDS TO PLAN, RESPOND, AND DEFEND

• Jurisdiction: United States

Midstream Oil & Gas from the Upstream Perspective
(Apr 2018)
CHAPTER 6
TRANSMISSION AND GATHERING LINE LEAKS AND SPILLS: HOW THE UPSTREAM AND MIDSTREAM SECTOR NEEDS TO PLAN, RESPOND, AND DEFEND
Colin G. Harris
Partner
Faegre Baker Daniels LLP
Boulder, CO

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COLIN G. HARRIS has proudly served the energy and natural resources industries in environmental, litigation, and pipeline safety matters for over 25 years. His deep air-quality experience includes compliance, permitting, policy, enforcement, and litigation. Colin's upstream and midstream experience includes complex and novel matters in North Dakota, Colorado, Utah, New Mexico and other states. His clients also operate in the refining and utility sectors. Colin is a recognized leader in the pipeline industry, which faces strong headwinds associated with new regulations and public opposition. He currently represents over six pipeline operators in various matters ranging from PHMSA counseling and administrative evidentiary hearings, to emergency response and litigation defense associated with major spill incidents to waters. Colin was co-appellate counsel in a 2017 precedent-setting case where the Fifth Circuit vacated much of a PHMSA order and penalty, disagreeing with the agency's interpretation of its own regulations, and ruling that it had failed to provide due process. ExxonMobil Pipeline Co. v. Department of Transportation, 867 F.3d 564 (5th Cir. 2017). Colin combines his energy industry expertise and regulatory knowledge with a strong litigation background. He has aggressively defended high-profile enforcement cases in pre-trial phases to achieve favorable consent decree terms. He has tried hearings and cases for energy industry clients involving pipeline safety and environmental issues, including a recent arbitration resulting in a significant settlement.

The United States relies on over 2.9 million miles of pipeline to deliver natural gas, oil, and other hazardous liquids.¹ Long-distance hazardous liquid transmission lines in the United States make up about a half million miles of this infrastructure and deliver over 70% of crude oil and refined petroleum products to market.² The oil and gas transportation infrastructure includes gathering lines that carry liquids to transmission lines, oil and natural gas liquids storage facilities, processing plants, terminals, and rail facilities handling oil. The increase of production in shale oil basins, resulting from advances in hydraulic fracturing and horizontal drilling, has driven up volumes of produced water that often is transported by gathering lines for disposal. As with any industrial operation, the oil and gas transportation infrastructure is not risk-free. Given the complexity of pipeline operations, the inherent nature of the commodity, the locational and geographic aspects of the infrastructure, and the human element, it is impossible to prevent all pipeline incidents. Nonetheless, large spill incidents, which understandably capture media and public attention, can skew perception about the risk of pipelines. In fact, statistics demonstrate that accidental liquids transmission pipeline releases are rare. A barrel of crude oil or refined petroleum product reaches its pipeline destination safely 99.999% of the time.³ Further, as the chart below reveals, most liquid pipeline spills are less than fifty barrels in volume:

LIQUID PIPELINE INCIDENTS BY SIZE (2012-2016)
2012	232	69	48	17	366
2013	260	82	40	19	401
2014	296	93	47	18	454
2015	302	83	53	24	462
2016	248	84	58	25	415
& of 2016 Total	54%	18%	13%	5%	-
5 YR Change	7%	22%	21%	47%	13%
Source: Pipeline and Hazardous Materials Safety Administration, PHMSA Pipeline Safety as of February 2017.4

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Even though most releases are small, any release of oil, product, wastewater (e.g., produced water) or natural gas from a pipeline or storage facility can result in significant consequences for both midstream and upstream operators.

This Article discusses how both upstream and midstream companies need to plan, respond, and defend against spills of crude oil and petroleum products. While we focus on oil liquids pipelines and facilities, many of the concepts apply equally to the natural gas sector, particularly if an operator generates natural gas liquids. Section I provides an overview of federal spill prevention and response requirements. Section II discusses the various sources of liability oil and gas operators face after a release under the Clean Water Act (CWA), Pipeline Safety Act (PSA), state enforcement actions, and citizen suits. Next, Section III discusses trends in enforcement involving pipeline and upstream incidents based on a review of data from recent settlement agreements. Section IV discusses practice tips for defending litigation arising from spill incidents. Finally, Section V looks to the emerging trends involving leak detection systems on pipelines and storage facilities.

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The stakes are high, and increasing. Upstream companies can face civil penalties and injunctive relief for not only releases of crude oil but face liability for the discharge of produced water and flowback from exploration projects. Pipeline ruptures that impact water bodies likely will result in an avalanche of federal, state, and third-party claims, including natural resource damages claims that may drag on for years.⁵ Operators may also face penalties and orders for corrective action from state regulators for the same spill, even after the federal claims are long resolved.⁶

Public perception about pipeline spill risks and operator spill history increasingly drive opposition and denial of approval to pipeline projects. Scrutiny of the Dakota Access Pipeline project grabs headlines, but seemingly every new pipeline project must contend with protests or litigation grounded in the supposition that "if you build it" then "it will leak" and cause irreparable harm to the environment.⁷ These concerns are not limited to liquids pipelines. Even if natural gas pipeline operators receive the authority for siting a pipeline or storage facility from the Federal Energy Regulatory Commission (FERC), state regulators have objected to major projects effectively halting construction. For example, the New York State Department of Environmental Conservation denied a CWA permit in 2016 for a $683 million natural gas pipeline between Pennsylvania and New York, which stalled the pipeline despite having received prior approval from FERC.⁸ Similarly, the West Virginia Department of Environmental

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Protection recently issued a cease-and-desist order on a $4.2 billion pipeline under construction citing alleged violations of the operator's water pollution control permit in that state.⁹

I. Overview of Federal Spill Prevention and Response

Prevention is the best method of avoiding liability for releases from storage facilities, pipelines, or well pads. Depending on the type of facility involved, federal law requires operators to perform certain planning requirements under the CWA, PSA, or potentially both statutes. Facilities subject to federal spill regulations are divided into three categories: (1) non-transportation-related facilities; (2) transportation-related facilities; and (3) complex facilities which conduct activities associated with both transportation and non-transportation facilities.

a. Spill Prevention Control and Countermeasure Plans

The CWA Spill Prevention Control and Countermeasure (SPCC) program requires operators to implement measures to prevent and respond to spills.¹⁰ The U.S. Environmental Protection Agency (EPA) enacted the initial SPCC rules over forty years ago, as a result of a congressional directive to establish "requirements...to prevent discharges of oil[.]"¹¹ The SPCC regulations apply to facilities that are non-transportation related with an aboveground oil storage capacity of more than 1,320 U.S. gallons (or a completely buried oil storage capacity greater than 42,000 gallons) that can reasonably be expected to discharge oil to navigable waters or adjoining shorelines in quantities that may be harmful.¹² Many operators may consider that, among their many compliance burdens, SPCC compliance is fairly rote. The regulations seem straightforward as written. Indeed, many operators use forms and checklists to comply with the SPCC regulation, often relying on consultants who may not have an in-depth knowledge of

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equipment and operations at a facility. However, there is more than meets the eye. This is evident from the fact EPA has prepared a 921 page guidance document for SPCC inspectors.

A detailed recitation of the SPCC rules is beyond the scope of this paper. Instead we consider certain SPCC requirements that raise unique concerns for upstream and midstream operators. First, there are specific rules for onshore "production" facilities.¹³ In addition to meeting the general SPCC requirements under 40 C.F.R. § 112.7 (e.g., secondary containment, response planning, inspections), onshore production facilities must also meet the requirements established in 40 C.F.R. § 112.9. A "production facility" includes all structures (including wells, platforms, or storage facilities), piping (including flowlines or intra-facility gathering lines), or equipment...used in the production, extraction, recovery, lifting, stabilization, separation or treating of oil...and is located in an oil or gas field, at a facility."¹⁴

Secondary containment is the primary method SPCC seeks to prevent discharges. The SPCC program recognizes two categories of secondary containment: (1) general secondary containment provisions which apply to all potential oil discharges from regulated facilities; and (2) specific size-based secondary containment provisions which are intended to prevent discharges resulting from failures of storage vessels. General secondary containment requirements...