Production, drilling and supply
The Natural Gas Act of 1938 (NGA) exempts production and gathering facilities from FERC jurisdiction. Rather, the prices producers charge are generally a function of competitive markets. State public utility commissions may exercise regulatory authority over retail natural gas rates and consumer protection issues.
In 2018, the Bureau of Land Management (BLM) published a final rule that relaxed certain methane emissions requirements for natural gas well sites located on federal lands. The rules represented a roll-back of regulations implemented by the prior administration that were aimed at reducing greenhouse gases emitted at well sites, with an emphasis on methane. The Environmental Protection Agency (EPA), acting under its Clean Air Act authority, also proposed changes to its methane rules targeting new natural gas operations located on private lands. The proposed rule reduces the frequency of monitoring required and allows industry to employ alternative methods to reduce methane emissions, including flaring.
The primary federal regulatory agency governing natural gas transmission is FERC. It has jurisdiction over the regulation of interstate pipelines, and is concerned with overseeing the implementation and operation of the natural gas transportation infrastructure. In addition, FERC has primary regulatory authority to permit, site and approve onshore and nearshore LNG import and export terminals.
FERC’s regulatory authority extends to the interstate transportation of natural gas, the import and export of natural gas by pipeline or LNG terminal, and certain environmental and accounting matters. FERC obtains its authority and directives in the regulation of the natural gas industry from a number of laws:
- the NGA;
- the Natural Gas Policy Act of 1978;
- the Outer Continental Shelf Lands Act;
- the Natural Gas Wellhead Decontrol Act of 1989;
- the Energy Policy Act of 1992; and
- the Energy Policy Act of 2005.
The Office of Pipeline Safety of the Department of Transportation (DoT) has jurisdiction over interstate pipeline safety, while the DoE has authority over permits to import and export LNG. Comprehensive rules have been issued by those agencies.
State authorities regulate pipeline capacity that is considered to be ‘intrastate’.
State regulatory utility commissions have oversight of issues related to the siting, construction and expansion of local distribution systems.
State public utilities commissions have jurisdiction over retail pricing, consumer protection and natural gas facility construction and environmental issues not covered by FERC or the DoT. FERC also regulates interstate pipeline rates, and ensures that rates and charges for such pipeline services are just and reasonable and not the product of undue discrimination.
FERC is designed to be independent from influence from the executive or legislative branches of government, or industry participants, including the energy companies over which it has oversight. It is composed of five commissioners who are nominated by the President and confirmed by the US Senate. Each commissioner serves a five-year term, and one commissioner’s term is up every year.
The DoI, the DoT, the EPA and the DoE are cabinet-level agencies, and their respective secretaries or administrators are chosen by the President, subject to Senate confirmation.
There are several adjudicatory options for challenging or appealing decisions of the regulator. FERC may make a decision without any further procedures, hold a trial-type hearing before an administrative law judge or hold a technical conference or ‘paper’ hearing. Alternate dispute resolution, such as mediation and arbitration, may also be used. FERC decisions may be appealed to the federal courts of appeal.
Where FERC is implementing a federal statute, an objecting party must usually show that FERC’s implementation is an ‘arbitrary and capricious’ interpretation of the federal statute. This is a high standard that is rarely satisfied. Additionally, a party must show that it has standing to bring the suit, and satisfy other justiciability requirements.
Members of state regulatory commissions are appointed in most states, but are elected in some states. Decisions of state regulatory commissions on matters such as intrastate pipeline and distribution rates, as well as customer billing and service issues, can be appealed through the state court system. However, such decisions are rarely overturned unless the appellant can convince the court that a decision is patently contrary to the evidence taken as a whole.
The government authorisations required to carry on natural gas exploration and production activities depend on whether the proposed project is to be conducted on federal, state- or privately owned land, and whether it is proposed to be conducted onshore or offshore.
Federal lands are managed by the DoI. Within the DoI, the Bureau of Ocean Energy Management (BOEM) and the Bureau of Safety and Environmental Enforcement (BSEE) regulate offshore drilling, the BLM regulates onshore drilling on federal lands and the Bureau of Indian Affairs oversees mineral leasing on Indian lands.
The BOEM and the BSEE oversee the management of the mineral resources generally located more than three miles from the coast on the outer continental shelf (OCS). The BOEM is responsible for managing development in an environmentally and economically responsible manner, and the BSEE is responsible for enforcing safety and environmental regulations. DoI prepares a five-year programme that specifies the size, timing and the location of areas to be assessed for federal offshore natural gas leasing. Bids are usually solicited on the basis of a cash bonus and a royalty agreement, with the highest bidder awarded the lease. OCS leases contain decommissioning obligations requiring lessees to return the leased area to the legally required condition, and the BOEM requires lessees to post security to ensure the decommissioning and other lease obligations are met. The Trump administration has proposed a new five-year programme for 2019-2024 that greatly expands the areas available for leasing. The programme will need to complete the public notice and comment process, as well as environmental reviews, before coming into effect.
Additionally, federal regulations require open access to OCS pipelines. The open access rule provides complaint procedures for shippers of oil and gas produced on federal leases on the OCS who believe that they have been denied open and non-discriminatory access to an OCS pipeline.
The BLM is charged with managing and conserving federally owned land, including natural gas resources. Unless they are specifically carved out of the leasing programme, all BLM-managed lands and national forests are open to leasing. Gas leasing is generally not permitted in the national park system, in national wildlife refuges, in the Wild and Scenic River Systems or in wilderness areas. Leasing in national forests requires permission from the US Forest Service of the Department of Agriculture. The BLM reviews and approves permits and licences for companies to explore, develop and produce natural gas on federal lands. Once projects are approved, the BLM enforces regulatory compliance.
Drilling on state lands is managed by state departments of natural resources and related agencies. Coastal states additionally have authorisation rights over submerged lands and ‘inland waters’ generally within three miles of the coast. Each state has its own set of requirements and regulations governing the leasing of such state-owned lands.
Privately owned lands
The leasing of private land is generally negotiated by lessees and individual landowners.
As with any segment of the industry that interacts with and is regulated by government agencies, natural gas explorers and producers can be subject to licence revocation, fines and penalties for failure to comply with applicable regulations or permit requirements. Agencies follow notice and hearing procedures to issue rulings, the findings and decisions of which are generally reviewable by courts. Agencies can also seek court intervention to enforce their determinations. Failure to comply with applicable requirements can result in a loss of entitlements and suspension or termination of operations, in addition to monetary penalties.
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