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PO Box 1070, Frankfort, KY 40602  Phone 502.875.2428, Fax 502.875.2845

Some Background On Proposed Bluegrass Natural Gas Liquids Pipeline  Posted: June 4, 2013

The pipeline project is a Joint Venture of Williams and Boardwalk Pipeline Partners, and is intended to facilitate the transportation of mixed “Natural Gas Liquids” from the areas where natural gas is being produced from the Marcellus and Utica shale formations in West Virginia, Ohio, and Pennsylvania, to the Gulf region for further processing and use.

According to a May 28, 2013 press release, the Joint Venture agreement has been finalized, and an in-service date of late 2015 is the goal. The proposed Bluegrass Pipeline would include constructing a new NGL pipeline from producing areas in Ohio, West Virginia and Pennsylvania to an interconnect with Boardwalk's Texas Gas Transmission, LLC system (Texas Gas) in Hardinsburg, Ky. From that point to Eunice, La., a portion of Texas Gas would be converted from natural gas service to NGL service.

The joint venture would also include constructing a new large-scale fractionation plant and expanding natural gas liquids storage facilities in Louisiana and constructing a new pipeline connecting these facilities to the converted Texas Gas line in the Eunice, La. area. It is anticipated that the NGLs would remain comingled until they reach the Gulf where they would be separated at a natural gas liquids processing plant.

1. What are “Natural Gas Liquids?”

Most natural gas extracted from the Earth contains, to varying degrees, low molecular weight hydrocarbon compounds; examples include methane (CH4), ethane (C2H6), propane (C3H8) and butane (C4H10). Although these hydrocarbons exist in a liquid state at underground pressures, they will become gaseous at normal atmospheric pressure. Collectively, they are called natural gas liquids (NGLs).

NGL products (ethane, propane, normal butane, isobutane and natural gasoline) are used as raw materials by the petrochemical industry, as feedstocks by refiners in the production of motor gasoline, and as fuel by industrial and residential users. Ethane is primarily used in the petrochemical industry as a feedstock for ethylene production, one of the basic building blocks for a wide range of plastics and other chemical products. Propane is used both as a petrochemical feedstock in the production of ethylene and propylene and as a heating, engine and industrial fuel. Normal butane is used as a petrochemical feedstock in the production of ethylene and butadiene (a key ingredient of synthetic rubber), as a blendstock for motor gasoline and to derive isobutane through isomerization. Isobutane is fractionated from mixed butane (a mix stream of normal butane and isobutane) or produced from normal butane through the process of isomerization, and is used in refinery alkylation to enhance the octane content of motor gasoline, in the production of isooctane and other octane additives and in the production of propylene oxide. Natural gasoline, a mixture of pentanes and heavier hydrocarbons, is primarily used as a blendstock for motor gasoline or as a petrochemical feedstock.

2. What Are The Potential Human Health Consequences Of Exposure To NGLs

Ethane is a “highly flammable gas and a dangerous fire hazard”, according to the New Jersey Hazardous Substances Fact Sheet. Under pressure as a liquid, exposure can cause frostbite.

Propane is a colorless, odorless, flammable gas.

Butane and isobutane are colorless, flammable gases with a gasoline-like or natural gas odor that are shipped as a liquefied compressed gas.

Natural gasoline is a natural gas liquid that is volatile and unstable but can be blended with other hydrocarbons to produce commercial gasoline. The natural gas hydrocarbons mixture is mostly pentanes and heavier (smaller amounts of C6 and C6+), extracted from natural gas. Natural gasoline is often used to denature ethanol produced for E85 "flexible fuel". Natural gasoline has a lower octane content than conventional commercial distilled gasoline, so it cannot normally be used by itself for fuel for modern automobiles.

None of these are listed as a known or “reasonably anticipated to be a” carcinogen according to the National Toxicology Program, and all appear to have the potential for adverse effects on the respiratory and neurological systems at high concentrations. The primary concern relative to public health and safety is the flammable nature of the NGLs (see below).

3. What Are The Potential Risks Associated With a Natural Gas Liquids Pipeline?

NGL Pipelines fall into a category of low-occurrence, but high-hazard risks. Though infrequent, pipeline ruptures often have catastrophic consequences.

“Risks associated with transmission pipelines result from accidental releases of the transported products, which can impact public safety, the environment, national security and our economy. Economic impacts may result from business interruptions, damaged infrastructure, and loss of energy fuel supplies. Accidental releases can result in injuries or fatalities from fires or explosions caused by ignition of the released product, as well as from possible toxicity and asphyxiation effects. The potential consequences of transmission pipeline releases vary according to the transported commodity as well as characteristics of the surrounding area.

Hazardous liquid pipelines can transport a variety of products. Releases of hazardous liquids having a high vapor pressure, such as propane, pose an acute hazard of fire or explosion. Some of these high vapor pressure commodities have densities greater than air and tend to remain near the ground where they can present asphyxiation risks. Releases of hazardous liquids such as gasoline and crude oil pose both acute and more long-term potential risks, as these products can spread over land and water, flowing downhill into valleys, ravines, and waterways. This can result in the risks being presented some distance from the initial point of release.

* *

Accidental pipeline releases can result from a variety of causes, including natural disasters, excavation and other outside force damage, internal and external corrosion, mechanical failure, and operator error. And, although transmission pipeline incidents are infrequent, they do have potential serious consequences that may significantly impact the general public. Pipeline incident and accident data, including data for injuries, fatalities and property damage, and for the causes of pipeline incidents are available on PHMSA’s Stakeholder Communications website.

According to the data, during the ten years between 2000 and 2009, there was a combined average of four fatalities per year resulting from onshore hazardous liquid and natural gas transmission pipeline incidents. Although pipeline releases have caused relatively few fatalities in absolute numbers, a single pipeline accident can be catastrophic. One such example occurred in Bellingham, Washington in 1999, when a gasoline pipeline accident caused three fatalities and millions of dollars of ecological damage. Another serious incident occurred near Carlsbad, New Mexico, in August of 2000. In that incident, 12 people were killed when a natural gas transmission pipeline ruptured and the released natural gas ignited.”

4. Why transport NGLs?

NGL are valuable as separate products and it is therefore profitable to remove them from the natural gas. The liquids are first extracted from the natural gas and later separated into different components either in a field facility or in a gas processing plant through absorption, condensation, adsorption or other method.

The recovered NGL stream is sometimes processed through a “fractionation” train consisting of three distillation towers in series: a deethanizer, a depropanizer and a debutanizer. The overhead product from the deethanizer is ethane and the bottoms are fed to the depropanizer. The overhead product from the depropanizer is propane and the bottoms are fed to the debutanizer. The overhead product from the debutanizer is a mixture of normal and iso-butane, and the bottoms product is a C5+ mixture. The recovered streams of propane, butanes and C5+ may be "sweetened" in a Merox process unit to convert undesirable mercaptans into disulfides and, along with the recovered ethane, are the final NGL by-products from the gas processing plant. Currently, most cryogenic plants do not include fractionation for economic reasons, and the NGL stream is instead transported as a mixed product to standalone fractionation complexes located near refineries or chemical plants that use the components for feedstock. From what has been announced of the Bluegrass Pipeline project, it is anticipated that this is how the NGL streams will be handled by this project.

5. What permits and approvals must the Bluegrass Pipeline obtain?

a. FERC Jurisdiction Appears To Be Limited To Approval Of Tariffs

The Federal Energy Regulatory Commission regulates electricity, petroleum and petroleum products, and natural gas in interstate commerce, under various statutes. While the regulation of wholesale natural gas pipelines (other than those exempt because they are solely intrastate or are gathering lines that move the produced gas to treatment and compressor facilities before entering the pipeline) is effectuated under the Natural Gas Act, and requires that any new pipeline first receive a “Certificate of Public Convenience and Necessity,” there is no comparable FERC jurisdiction over the construction, siting, or environmental consequences of a natural gas liquids pipeline.

Natural Gas Liquids Pipelines are not regulated under the Natural Gas Act, but are instead regulated pursuant to the Interstate Commerce Act, and FERC authority over the NGL pipelines is limited to economic regulation through the approval of “tariffs” (rates).

The standards for physical construction of NGL pipelines are established under the Pipeline and Hazardous Materials Safety Administration within the U.S. Department of Transportation.

As noted above, part of the proposed Bluegrass Pipeline project involves the repurposing of an existing Texas Gas Transmission line, in order to accommodate transport of NGLs to the gulf. From Hardinsburg, Kentucky to Eunice, La., a portion of the existing gas transmission line would be converted from natural gas service to NGL service, and would involve petitioning to the Federal Energy Regulatory Commission (FERC) for abandonment of an existing Texas Gas Pipeline loop and conversion of that gas pipeline to transportation of NGL to the Gulf area. That filing was made on May 29, 2013, and will take from 9-12 months. The issue in that FERC filing will be whether the “repurposing” of the existing Texas Gas line from natural gas shipment to NGL would adversely affect existing natural gas customers.

The FERC filing can be accessed at http://elibrary.ferc.gov/idmws/docket_sheet.asp. Resource Report 1E, at Appendices 1F, G, H and I, show the proposed routing of the project, as well as list the permits and authorizations that the company anticipates needing for the new and existing portions of the pipeline project.

b. Kentucky Public Service Commission does not regulate siting of natural gas pipelines such as the proposed Bluegrass Pipeline.

The Public Service Commission has jurisdiction over utilities that are providing utility service to the public. There is a “siting board” for electric transmission lines and for pipelines that are shipping carbon dioxide, but not for NGL pipelines. The Certificate of Public Convenience and Necessity obligation does not apply to wholesale NGL pipelines.

Companies receiving, transportation, and delivering oil or natural gas for public consumption are deemed “common carriers” and that activity is deemed to be a “public use” KRS 278.470. The phrase “for public consumption” is nowhere defined in statute, and it is unclear whether the transportation of NGL for further processing would be considered “for public consumption” due to the intermediate nature of the transportation and the need for further processing for public consumption.

c. COE and Division of Water Have Regulatory Jurisdiction Over Impacts on Streams, Lakes and Wetlands

The location of any pipeline across or through a jurisdictional water is subject to review by the Corps of Engineers under Section 404; however, Nationwide Permit 12 blanketly authorizes utility line crossings in many cases. Kentucky’s Division of Water has issued a “general” water quality certification for NWP 12, provided that certain additional conditions are met.
http://www.lrl.usace.army.mil/Portals/64/docs/regulatory/Permitting/KY_GeneralConditionsWQC.pdf

The Division of Water also has regulatory jurisdiction over stream crossings, and any water withdrawals needed for construction and hydrostatic testing of the line.

Given the lack of comprehensive advance review of siting and of the cumulative impacts of the pipeline and associated facility construction on terrestrial and aquatic resources, on cultural and historic resources, and on public health and safety, it is incumbent on the Corps of Engineers to take the lead in coordinating review by the various resource agencies under NEPA in order to provide the comprehensive analysis of impact and alternatives that would otherwise occur under FERC’s jurisdiction if the line were a natural gas pipeline.

d. The U.S. Department of Transportation Pipeline and Hazardous Materials Safety Administration

The DOT PHMSA regulates the construction standards for NGL pipelines. Pipeline companies are not required to submit routing or design plans for approval, and no permitting is required from DOT. Instead, notification is required for a proposed pipeline, and DOT will send inspectors to spot-check pipeline installation. There are no standards specifying distances from houses, institutional buildings, or other sensitive features, while there are limitations concerning proximity to other pipelines. Welding is a critical thing, coating weld joints, lowering and backfilling are all important.

A voluntary guidance document, called “Partnering to Further Enhance Pipeline Safety In Communities Through Risk-Informed Land Use Planning” (PIPA Report) was produced in 2010 and offers some valuable insights into pipelines and land use planning. http://primis.phmsa.dot.gov/comm/PIPA.htm

6. What is an “easement”?

An easement is a grant of a right by the owner of a property to another, usually for compensation, to use a defined part or all of the property for specified purposes. The PIPA Report outlines the common elements of easements in this manner:

“The forms of transmission pipeline right-of-way easements differ from company to company, and the legal requirements of a right-of-way easement differ from state to state. Easements can range from one page with a few provisions to twenty or more pages that attempt to address every eventuality. To be enforceable, the agreement must conform to all of the requirements set out by state law. The Council recommends that any landowner who is proposing to grant an easement first consult with an attorney to assure that the language adequately protects the landowner’s interests.

While requirements for easement provisions vary, the following items are typical for most easements.

1. The easement must designate a grantee and a grantor. The grantor is normally the landowner or an agent of the landowner, and the grantee is normally the transmission pipeline company.

2. The granting clause is normally the first or second paragraph of an easement and describes the rights granted to the grantee. For transmission pipeline easements, this clause usually lists the rights granted to the pipeline company such as: “lay, construct, maintain, alter, replace, change the size of, and remove a pipeline or pipelines….”

3. Most states require that all real estate-related documents provide for compensatory consideration. The object is to provide the landowner with just or adequate compensation in exchange for the easement.

4. The property over which the easement is granted and the locations and dimensions of the easement and of the transmission pipeline are described in some manner. Legacy easements may exist where the location of the pipeline or the boundaries of the right-of-way were not defined. New easements should define both.

In most states, the property can be described by referencing its deed of acquisition or other related documents in the chain of title, by written description, or by plat or drawing. (Note: In some states, a drawing must be attached to an easement or right-of-way grant before the document can be recorded). The easement to be granted can be described by written description, by drawing or by a defined reference such as, for example: “Said right of way being fifty foot in width and extending twenty-five feet from each side of the centerline of the pipeline installed hereunder, together with the right to use a strip of land adjacent to the said right of way as temporary work space during construction of said pipeline, (all as generally depicted on Exhibit “A” attached hereto), on, over, under, and through the following described lands….”
There may be a second, separate and fairly wide, temporary working easement. The easement should be surveyed and marked before construction begins.

5. Optimally, easements should have a series of applicable provisions that further establish the rights and responsibilities of each party. Such provisions may include but are not limited to:

a. Construction related provisions, including specifications of: temporary workspace, restoration requirements, timetable or time of day for construction, temporary crossings across open trenches or ditches, backfilling and compaction of trenches.

b. Site-specific environmental issues.

c. Other transmission pipeline details, such as: depth of cover requirements; number and size of pipelines; additional line rights; product transported; maximum size; maximum pressure; and above-ground facilities, such as but not limited to: test leads, markers, rectifiers, casing vents, valves and valve actuators, meter stations and pig launcher/receivers.

d. Encroachments: driveways, access roads, gates or cattle guards where easement crosses fence lines, acceptable landowner uses (see PIPA Recommended Practice ND08)

e. Routes of ingress and egress: maintenance of access roads, gates and/or cattle guards.

f. Inspection and maintenance: right-of-way clearing, pipeline operator maintenance and inspection schedules.

g. Pipeline and appurtenance abandonment: disposition of the transmission pipeline and easement after the pipeline is abandoned. Disposition of idled or out of use but not abandoned transmission pipelines.

h. Liability for certain damages or negligence.

i. Indemnification: An indemnity agreement provides that one party will save and hold harmless the other party against any legal causes of action, including environmental, levied as a result of activities both on and off the land. The indemnity could include both judgments and any legal fees incurred in defense of a suit. Each party should consider indemnification from the other.

j. Notification of assignment to a third party: “Assignment” is the ability of a transmission pipeline operator to transfer the easement with the sale of the pipeline to another party. Landowners may want to be notified if the operator sells the pipeline to another entity.

k. State and local government requirements.

l. Payment: Payment may be specified, for example, for the easement, damages to crops, timber or other products located within or outside of the easement, impact to land entitlements, division between the landowners and the surface tenant, duration, survey fees, legal review fees, recording fees, and taxes on payment.”

PIPA Report, p. 33.

The date of the document, signatures of the grantors and their acknowledgements are not provisions but are mandatory requirements of an easement or real estate type documents. Signatures of the grantors of the easement documents must be exactly as they appear on the previous documents confirming their capacity in which they hold title to the property. Notary public information is below the landowner and pipeline company signatures. Easements are recorded with the appropriate statutory body and are accessible to the public.

7. Do Williams and Boardwalk have the power to condemn private property in Kentucky for this project?

Since the project is not one subject to FERC approval through a CPCN, the project does not appear to have access to the federal grant of eminent domain power provided under the Natural Gas Act for natural gas pipelines. Instead, the FERC jurisdiction over natural gas liquids pipelines arises under the Interstate Commerce Act, which does not provide a right of eminent domain for transportation pipeline rights-of-way.

Kentucky grants eminent domain power under KRS 278.502 to companies and individuals that are engaged in constructing pipelines for “transporting or delivering oil and gas, including oil and as products, in public service[.]” What is “in public service” is not defined by statute.

The ability of the company to successfully use KRS 278.502 in order to condemn an easement for location of a natural gas liquids pipeline depends on whether, under Kentucky law, the pipeline could be considered to be a “common carrier” and “in public service.” Due to the interstate nature of the proposed pipeline, which proponents describe as transporting NGLs from West Virginia, Pennsylvania, and Ohio to the gulf for export or processing, KRC does not believe that the right to condemn property extends to this project.

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