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Gas storage operators eager to see, concerned about new safety rules

Upcoming federal underground gas storage could help smooth over the nation'spatchwork ofstandards, but regulators must be careful to avoid unintended consequences,said market participants including a KinderMorgan Inc. executive.

Anders Johnson, vice president of storage at KMI, said he islooking forward to the U.S. Pipeline and Hazardous Materials SafetyAdministration rules, slated to come out later in the year. "Thekey is getting the engineering and design right up front and a regulatoryenvironment that protects us against our stupidest competitor," Johnsonsaid Oct. 6 at the Energy Bar Association's Mid-Year Energy Forum inWashington, D.C. "We have this problem with economics where you keepdriving the cost down: Somebody that cuts corners is going to be able to offera lower cost. I'm a big fan of regulation for leveling the playing field."

Federal regulators have had the authority to set basicstorage standards for decades but declined to do so until the multi-month AlisoCanyon gas storage field leak — pluggedin February — drew national and congressional attention.

Johnson said he would favor regulations that are focused onoutcomes rather than technologies, but he did not balk at prescriptivestandards altogether, so long as the prescriptive rules are "well thoughtout." He chastised legislators and regulators for their response to AlisoCanyon, noting that some of the immediate answers could have major drawbacks.

He expressed particular concern about restrictions that maybe placed on certain well types. Some wells have tubing inside their casing.Many operators are able to withdraw gas through the whole space within thecasing, inside and out of the tubing. In light of the Aliso Canyon leak, therehas been some regulatory interest in limiting gas withdrawals to the tubingchannel only, which Johnson said could reduce withdrawal capacity by as much ashalf.

At the breached well, Aliso Canyon operator was in thehabit of withdrawing gas from both the tubing and the gap around the tubinginside the casing. Norman Pedersen, a lawyer with Hanna and Morton LLP, notedduring the forum that one of the theories on the well breach is that a crack inthe tubing allowed gas to seep into the space between the tubing and casing andthen migrate outside the casing to the surface.

Some industry participants have expressed concern that thegeographic diversity of the nation's underground storage facilities — whichinclude depleted reservoirs, aquifers and salt domes — could hamper federalregulators' ability to write standards that appropriately apply across thenation.

While states are better versed in the particulars of theirjurisdictions than the federal government, their siloed knowledge may alsolimit their comprehensiveness, and variability in state priorities has so farled to disparate and sometimes incompatible regulatory regimes, Johnson said.

"States can't have that expertise that you have on anational level," he said. "PHMSA has engineers who are super-sharpmen and women that have really good experience, and when they're going out tothe different facilities in different states, they get a different perspectivethat no one state can have. They're going to help us carry best practicesacross [borders]."

SoCalGas is a subsidiary of Sempra Energy.