US regulators to suspend rule allowing LNG-by-rail shipments

The U.S. Pipeline and Hazardous Materials Safety Administration released the draft text of a proposed rule that would suspend a Trump-era regulation that broadly allowed transportation of LNG by rail, saying the pause was necessary to avoid "unreasonable risks" while the agency reconsiders the regulation.

The Trump-era final rule, issued by PHMSA in June 2020, laid out requirements for LNG transport by rail that proponents in the natural gas industry hoped would promote safer and less costly movement of the fuel in parts of the U.S. where pipeline shipments are restricted. But the White House said once President Joe Biden took office that the LNG-by-rail rule would be one of several agency decisions under former President Donald Trump that the new administration planned to review.

The Trump administration's decision to take up the issue was seen by market observers as a nod to New Fortress Energy Inc., a company developing a project to move LNG by rail from a proposed liquefaction plant in the Marcellus Shale region in Pennsylvania to a small export facility on the Delaware River in New Jersey. The rail and export projects have faced opposition from environmental groups, including a pending effort to get the Federal Energy Regulatory Commission to assert its authority over the projects, which could result in a lengthy environmental review (CP20-522 and CP20-524).

The federal LNG-by-rail regulation is also the subject of legal challenges by attorneys general for 14 states and the District of Columbia, several environmental groups, and the Puyallup Tribe of Indians in Washington state.

The draft text from PHMSA cited those legal challenges, which the U.S. Appeals Court for the District of Columbia Circuit put on hold in March so the agency could review the final rule.

PHMSA said that there have been no shipments of LNG by rail since the final rule went into effect in August 2020, "and there is considerable uncertainty regarding whether any would occur in the time it takes for PHMSA to consider potential modifications to the existing, pertinent [Hazardous Materials Regulations] requirements." But the agency said it would propose the temporary suspension of its provisions authorizing shipments to guarantee there are none before the agency finishes its new rulemaking or June 30, 2024, whichever comes first.

Industry observers had said the regulation was unlikely to result in a wave of LNG-by-rail shipments destined for export terminals, but it would open up the opportunity for these types of projects, along with other ventures such as refueling stations for LNG-powered locomotives.

PHMSA said "uncertainty regarding the potential benefits and safety and environmental risks of rail transportation of LNG" under its regulations "has persisted longer than PHMSA anticipated when it issued the LNG-by-rail final rule," citing research efforts that were delayed by the pandemic.

"Additionally, since the LNG-by-rail final rule became effective, LNG markets have seen a number of announcements portending potentially fundamental supply and demand changes in international LNG markets," PHMSA said. "Consequently, PHMSA believes there is more uncertainty now than when the LNG-by-rail final rule was issued regarding whether, when, and where rail tank car transport of LNG — and by extension, any potential benefits and public safety/environmental risks — will materialize."

PHMSA cited New Fortress filings with financial regulators that described the project as not yet approved for construction by the developer and facing uncertainties related to volatility in the LNG market. New Fortress subsidiary Energy Transport Solutions LLC had received a special permit from PHMSA for its project in December 2019 that authorized the company to move up to 100 rail cars of LNG a day from a plant in Wyalusing, Pa., to the marine facility in Gibbstown, N.J., subject to operational controls.

PHMSA said the agency "does not expect the transport of LNG by rail tank car in the near future," but that LNG shippers could continue to seek special permits to transport LNG by rail.

New Fortress did not immediately respond to a request for comment on Nov. 5.

Comments on the proposals will be due 45 days after their publication in the Federal Register, which was scheduled for Nov. 8.