Pipeline Transportation of Natural Gas and Crude Oil: Federal and State Regulatory Authority

Summary

New technologies such as hydraulic fracturing and directional drilling have dramatically increased U.S. production of natural gas and crude oil from shales and other unconventional formations. As a result, companies have invested in new pipeline infrastructure to transport these resources from producing regions to domestic and foreign consuming markets. Siting, construction, operation, and maintenance of this infrastructure may raise environmental, health, and safety concerns, particularly when oil or gas moves by pipeline through heavily populated areas. Such concerns may prompt congressional interest in the relationship between federal and state authority over the siting and safety of pipeline infrastructure.

Under the Natural Gas Act (NGA), siting of interstate natural gas pipelines and related facilities requires specific approval from the Federal Energy Regulatory Commission (FERC). When the pipeline company receives a certificate of public convenience and necessity from FERC, state or local laws that conflict with FERC’s exercise of its jurisdiction under federal law or would pose an obstacle to construction of the pipeline (e.g., local zoning laws) are preempted unless FERC requires the company to comply with them as a condition of granting the certificate. The NGA specifically preserves state authority over pipeline projects under the federal Clean Air Act (CAA), Clean Water Act (CWA), and Coastal Zone Management Act (CZMA). However, state authority under these laws remains subject to federal administrative and judicial oversight and review. Federal law also provides several avenues for a state to provide input into FERC’s siting and environmental reviews of a proposed interstate natural gas pipeline.

In contrast to siting review of proposed interstate natural gas pipelines, interstate crude oil pipelines undergo a state-by-state siting approval process. No federal law broadly preempts state and local siting requirements for these pipelines. Construction or operation of any oil or gas pipeline, whether interstate or intrastate, may require additional federal or state authorizations or consultations, depending on the proposed route of the pipeline and its potential to discharge pollutants or affect natural, cultural, or historical resources. States retain broad authority to regulate to control pollution, as well as to protect and conserve natural, cultural, and historical resources. States play a significantly reduced role, however, with respect to applications for pipeline rights-of-way over federal lands or permission to cross an international border, which implicate powers of the federal government over federal lands, foreign trade, and/or foreign affairs.

Although pipelines represent a relatively safe form of transporting oil and gas as compared to other modes of transportation, the presence of new pipelines in populated areas, including gathering lines, has increased interest in federal and state oversight of pipeline safety. The Pipeline Safety and Hazardous Materials Administration (PHMSA) within the Department of Transportation (DOT) has broad authority to promulgate minimum federal safety standards for pipeline facilities and transportation. States may also become authorized to administer and enforce PHMSA’s baseline safety standards for intrastate pipeline facilities and transportation; adopt and enforce stricter state standards for intrastate facilities compatible with DOT standards; and inspect interstate facilities for compliance with DOT regulations. Federal pipeline safety provisions specifically preempt state “safety standards” for interstate oil or gas pipelines. Generally, federal courts have held that federal pipeline safety laws do not preempt a state or local siting law that only incidentally affects safety. However, the NGA could potentially preempt a state’s or locality’s application of such a law to an interstate natural gas pipeline facility.