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US law must change for oil, gas pipes to keep up with demand, report says

The U.S. government will have to reform its environmental regulations, or its permitting and construction of oil and natural gas pipelines may be unable to keep pace with demand, according to a Dec. 12 report by the National Petroleum Council.

Overhaul of the National Environmental Policy Act, or NEPA, which mandates consideration of the environmental impacts of major government agency decisions, is most needed, the report said.

"The number one legal challenge is the NEPA process," said Amy Shank, an asset integrity and pipeline safety director with Williams Cos. Inc., and one of the study's co-authors. "If we get Congress to clarify and really get specific about what NEPA should and shouldn't cover ... then I think those court cases either go away or they get much shorter."

Procedures for NEPA reviews vary among government agencies, introducing the potential for conflict, the report said.

The White House's Council on Environmental Quality, which was established by NEPA, has issued guidance on the law numerous times but only substantially amended its regulations once, according to the report. This has created inconsistency and numerous legal challenges, the report said.

The Federal Energy Regulatory Commission has been challenged under NEPA to consider the environmental impact of natural gas production and consumption in approving a proposed interstate pipeline, and last year, the Trump administration's approval of a Keystone XL pipeline permit was rejected in a Montana district court for inadequately reviewing the climate impacts of the project.

In 2016, 27 decisions in various U.S. Courts of Appeals involving NEPA-based challenges were issued, with federal agencies fully prevailing in all but six.

A July study by ClearView Energy Partners found that NEPA was the most frequent statutory basis for a legal challenge of oil and gas pipelines, with the most frequent argument being an insufficient analysis of the effect of greenhouse gas from a project, both upstream and downstream.

Litigation "can delay the construction, maintenance, and operation of sited and approved projects, [can create] uncertainty for communities and project developers, and can reduce the resiliency of U.S. energy infrastructure," the study states.

The report recommends that Congress define an "appropriate" environmental review process and set the parameters of a greenhouse gas assessment in a NEPA review.

Legal challenges are not the only source of delays for project approvals. Government concerns over legal risks have also contributed to slowdowns in the process, according to the report.

"The risk of litigation encourages agencies to expand their NEPA reviews as a defensive measure rather than to aid decision-making," the report said.

Permitting by states further complicates projects, with processes and government agency structures differing by state. The report recommended creating a common agreement between federal and state jurisdictions to manage potential conflicts in environmental reviews and developing a master structure for state permitting and infrastructure approval coordination.

"Overlapping and duplicative regulatory requirements, inconsistencies across multiple federal and state agencies, and unnecessarily lengthy administrative procedures have created a complex and unpredictable permitting process," the report said.

The report, which was approved by the National Petroleum Council at its meeting on Dec. 12, was requested in 2017 by then-U.S. Energy Secretary Rick Perry. The council, originally established in 1946, is an industry organization charged with advising the energy secretary on oil and gas issues.

Brian Scheid is a reporter with S&P Global Platts. S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.