LNG-by-Rail Lawsuits

Earlier this week I was asked on TWITTER® to comment on an article published at Marcellus Drilling News about lawsuits that had been filed to stop the implementation of the LNG by rail final rule that was published by the DOT’s Pipeline and Hazardous Material Administration (PHMSA) last month. I am taking this time to expand on by TWEETS.

Lawsuits

The article mentioned above briefly describes the lawsuit filed by fourteen State Attorneys General and Washington, DC to block the rule. A less polarized article on the same subject can be found on TheHill.com.

According to the brief filed Tuesday, “State Petitioners seek a determination by this Court pursuant to the Administrative Procedure Act, 5 U.S.C. § 706, the Hazardous Materials Transportation Act, 49 U.S.C. § 5101 et seq., and the National Environmental Policy Act, 42 U.S.C. § 4321 et seq., that the rule is unlawful and therefore must be vacated.” The actual reasoning and facts supporting that claim of the ‘unlawful’ nature of the rulemaking will be submitted to the Court is subsequent documents and proceedings.

The article on TheHill.com, in reference to an unlinked statement by the AG’s noted that they “plan to argue that the PHMSA failed to evaluate the rule’s environmental impacts and that the rule does not contain enough safety requirements.”

Environmental Impact

The environmental impact complaints center around the fact that PHMSA, in the preamble to the final rule stated that:

“PHMSA has completed its NEPA [National Environmental Policy Act of 1969] analysis. Based on the environmental assessment, PHMSA determined that an environmental impact statement is not required for this rulemaking because it does not constitute an action meeting the criteria that normally requires the preparation of an environmental impact statement. As explained in the final EA [environmental assessment; .PDF download link added], PHMSA has found that the selected action will not have a significant impact on the human environment in accordance with Section 102(2) of NEPA.”

While the EA goes into lengthy details about the safety related issues for a release of methane during an LNG railcar incident, it only briefly discusses (pg 35) the long-term environmental hazards associated with the release of methane, a potent greenhouse gas. PHMSA concludes by stating: “PHMSA contends that these economic and practical unknowns create compounded uncertainties that would not be clarified through the preparation of an environmental impact statement.” This failure to prepare an EIS will certainly be addressed in the lawsuit.

Safety Issues

As noted above, PHMSA includes a lengthy discussion of LNG related safety issues in the EA. And the preamble to the final rule provides discussions about comments received about the notice of proposed rulemaking with regards to emergency planning. PHMSA concluded that they have adequately addressed safety issues related to the rail transportation of liquified natural gas.

The AG’s will certainly argue that adequacy determination, particularly where it concerns ongoing safety testing be conducted by PHMS and the Federal Railroad Administration (FRA). I noted in one of my posts on the NPRM comments that there were four studies underway when the NPRM was issued:

• Puncture resistance testing for DOT 113C120W railcars;

• Pool fire testing for DOT 113C120W railcars;

• FRA testing of an alternative ‘LNG tender’ design; and

• FRA testing of an alternative ISO tank design;

The first test in the list was discussed in the safety assessment I described in the EA. The others have not been mentioned and may not yet be completed. PHMSA would probably maintain that with the improvements that the final rule mandated for the DOD 113C120W9 rail cars would obviate the need for waiting for the completion of the other testing.

Political Influence

Neither of the articles mentioned earlier call attention to the possible political influence exerted by President Trump on PHMSA to adopt regulations authorizing the rail transportation of LNG. Paragraph 4(b) of EO 13868, Promoting Energy Infrastructure and Economic Growth, dated April 10^th, 2019, required DOT to “finalize such [LNG by Rail] rulemaking no later than 13 months after the date of this order.” PHMSA acknowledged this requirement in the preamble to the final rule. PHMSA missed the deadline by slightly more than 2 months.

As the Chief Executive of the United States, it is clearly within the President’s authority to set priorities for regulatory development actions of agencies like DOT. This could only be a legal problem if the President used undue influence to have PHMSA ignore safety information or other regulatory requirements in adopting this rulemaking. It would be very unlikely that any court would find that the existence of EO 13868, in and of itself, constituted undue political influence. This is especially true since DOT went through a complete publish, comment and review cycle in the development of this final rule.

Did the EO influence the processing of this rulemaking? Almost certainly; the turnaround time between the end of the comment period and the submission of the final rule to OMB’s Office of Information and Regulatory Review (OIRA) for approval was extremely short for a rulemaking of this impact (and that submission was well within the time limit set by the EO). Additionally, the time for approval at OIRA was shorter than normal at less than 60-days. At the very least, DOT put additional administrative efforts into getting the final rule written, reviewed and published.

If called upon to defend against a charge of undue political influence, the Administration can, however, point to the unusual delay between the OIRA approval of the final rule (June 18^th, 2020) and the actual publication of the final rule (July 24^th, 2020) in the Federal Register over a month later. It would be argued that the Administration conducted additional reviews of the rulemaking process to ensure that all of the ‘i's’ were doted and the ‘t’s’ crossed during the shorter than normal time between the NPRM and the final rule.

Moving Forward

It is not clear at this point what effect this lawsuit will have on the start of transportation of liquified natural gas by rail. I think that the best that the plaintiff’s attorneys really hope for is a stay of the effective date of the regulation pending review in the courts. If that stay can be put into place through the first quarter of 2021, the whole lawsuit will probably be moot. I suspect that a Democratic Congress and a President Biden will overturn the rulemaking by legislative action, much as we saw the Republicans do in so many instances in the first two years of the Trump Administration.

I suspect that the simple act of initiating the lawsuit has achieved the objective of the plaintiffs, stopping the large-scale shipment of LNG by rail. Since there are no DOT 113C120W9 railcars in existence, and no other railcar is authorized by this rulemaking, LNG shippers will have to place orders for a large number of railcars and begin construction of LNG liquefaction facilities. These are both long-lead time, high-expense activities. Few shippers can be expected to put this much money on the line with the very real possibility that their shipping authorization will disappear before the facilities and railcars can be delivered.