Two U.S. pipelines rack up violations, threaten industry growth

[November 28, 2018] By Scott DiSavino and Stephanie Kelly

MEDIA, PENNSYLVANIA (Reuters) - Energy Transfer LP <ET.N> and its Sunoco pipeline subsidiary have racked up more than 800 state and federal permit violations while racing to build two of the nation's largest natural gas pipelines, according to a Reuters analysis of government data and regulatory records.

The pipelines, known as Energy Transfer Rover and Sunoco Mariner East 2, will carry natural gas and gas liquids from Pennsylvania, Ohio and West Virginia, an area that now accounts for more than a third of U.S. gas production.

Reuters analyzed four comparable pipeline projects and found they averaged 19 violations each during construction.

The Rover and Mariner violations included spills of drilling fluid, a clay-and-water mixture that lubricates equipment for drilling under rivers and highways; sinkholes in backyards; and improper disposal of hazardous waste and other trash. Fines topped $15 million.

Energy Transfer also raised the ire of federal regulators by tearing down a historic house along Rover's route.

The Appalachia region has become a hub for natural gas as it increasingly replaces coal for U.S. power generation, creating an urgent need for new pipelines. But the recent experience of residents and regulators with the two Energy Transfer pipelines has state officials vowing to tighten laws and scrutinize future projects.

"Ohio's negative experience with Rover has fundamentally changed how we will permit pipeline projects," said James Lee, a spokesman for the Ohio Environmental Protection Agency.

Problems with Mariner prompted Pennsylvania legislators to craft bills tightening construction regulations, which have drawn bipartisan support.

"Any pipeline going through this area is going to face resistance which it would not have faced before," said Pennsylvania State Senator Andy Dinniman, a Democrat.

Energy Transfer spokeswoman Alexis Daniel said the firm remained committed to safe construction and operation and at times went "above and beyond" regulations for the two projects.

Construction of the 713-mile, $4.2 billion Rover started in March 2017 and was planned to proceed at about 89 miles a month, while work on the 350-mile, $2.5 billion Mariner East 2 started in February 2017 and was planned at 50 miles a month, according to company statements on construction schedules. Both were targeted for completion late last year.

Regulators and industry experts said the pace of both projects far exceeded industry norms.

The four other projects examined by Reuters were mostly completed at a pace averaging 17 miles per month. Reuters selected the projects for comparison because, like Rover and Mariner, they cost more than $1.5 billion, stretched at least 150 miles and were under construction at the same time.

Construction on both Energy Transfer pipelines was ultimately slowed when state and federal regulators ordered numerous work stoppages after permit violations. Energy Transfer completed the last two sections of Rover in November and said it expects to put Mariner East 2 in service soon.

In February, Pennsylvania fined the company $12.6 million for environmental damage, including the discharge of drilling fluids into state waters without a permit. After further problems, including the sinkholes, a state judge in May ordered work halted on Mariner East 2.

Administrative Law Judge Elizabeth Barnes wrote that Energy Transfer's Sunoco unit "made deliberate managerial decisions to proceed in what appears to be a rushed manner in an apparent prioritization of profit over the best engineering."

While pipeline construction schedules vary, the planned timelines for Rover and Mariner were ambitious, said Fred Jauss, partner at Dorsey & Whitney in Washington and a former attorney with the U.S. Federal Energy Regulatory Commission (FERC), which regulates interstate gas pipelines.

"They aren't taking their time ... we're all concerned about it," said Pennsylvania State Senator John Rafferty, a Republican, referring to other state politicians, constituents and first responders.

Energy Transfer spokeswoman Lisa Dillinger told Reuters the schedules were "appropriate for the size, scope, and the number of contractors hired."

Other companies that planned slower construction of comparable projects have finished mostly on schedule with almost no violations. Canadian energy company Enbridge Inc <ENB.TO>, for instance, recently finished a $2.6 billion, 255-mile pipeline - following a path similar to Rover through Ohio and Michigan - with just seven violations. Enbridge did not respond to a request for comment.

HAZARDOUS SPILLS

Energy Transfer, now one of the nation’s largest pipeline operators, encountered large protests led by Native American tribes and environmental activists over the route of its Dakota Access crude oil line in North Dakota in 2016 and has seen protests of Mariner East 2 in Pennsylvania, where opponents have highlighted its safety record on existing pipelines.

A signpost marks a pipeline route behind a house outside of Philadelphia, Pennsylvania April 5, 2018. REUTERS/Stephanie Kelly

The company has had a relatively high incidence of hazardous liquid spills and other problems, according to a Reuters review of data from the U.S. Pipeline and Hazardous Materials Safety Administration (PHMSA).

Energy Transfer's Sunoco unit ranked third worst among all pipeline companies in average annual incidents between 2010 and 2017, according to the PHMSA data. In total, Energy Transfer and its affiliated companies released more than 41,000 barrels of hazardous liquids causing more than $100 million in property damage, PHMSA data shows.

(For a graphic on PHMSA incidents by company, see: https://tmsnrt.rs/2EHd3E4 )

Bibianna Dussling of Media, Pennsylvania, joined a group of activists protesting Mariner East after learning the project's route would pass near her daughter's elementary school.

"The violations are really meaningless to them," she said. "You do so much to protect your children day-to-day, and to face something like this, that you feel is so much out of your hands."

Energy Transfer's Dillinger said incidents have been sharply reduced since the merger of Sunoco Logistics and Energy Transfer Partners into one company, Energy Transfer, in the spring of 2017. Incidents this year are "trending below industry average," she said.

HISTORIC HOUSE DEMOLITION

The Rover pipeline attracted additional federal scrutiny when Energy Transfer demolished a historic house along its route.

After Energy Transfer bought the 1843 Stoneman house in Ohio, FERC staff in February 2016 required the firm to come up with a plan to prevent adverse effects on the property, according to a staff's environmental report.

Instead, the company tore down the house in May 2016 without notifying FERC or the Ohio State Historic Preservation Office.

That led FERC to deny Energy Transfer a so-called blanket certificate that would have allowed the company to construct Rover with less oversight, noting the demolition convinced regulators the company "cannot be trusted" to comply with environmental regulations.

Energy Transfer did not comment on the denial but said in a statement that it had "resolved all outstanding issues" with the demolition and donated more than $4 million to the Ohio preservation office.

DAMAGED WETLANDS

Once Energy Transfer started building Rover, FERC and West Virginia regulators required the company to halt work on parts of the project after violations, including the release of an estimated 2 million gallons of drilling fluid into wetlands near the Tuscarawas River in Ohio in April 2017.

(For a breakdown of Rover’s 681 federal violations, see: https://tmsnrt.rs/2PUGmYr .)

In Pennsylvania, Mariner East 2 has received more than 80 notices of violation from the state's Department of Environmental Protection, mostly for accidental release of drilling fluids.

Drilling fluids can impair the natural flow of streams and rivers and harm an area's ecosystem, said Lynda Farrell, executive director of the Pipeline Safety Coalition.

The Ohio Attorney General filed a lawsuit in November 2017 seeking about $2.6 million from Rover and some of the construction companies building the pipeline for the alleged illegal discharge of millions of gallons of drilling fluids into state waters, among other things. That lawsuit is ongoing.

Energy Transfer’s Dillinger said the company was “disappointed” that the Ohio AG sued after the company tried to resolve issues amicably and that it would continue cooperating with regulators.

“We continue to work closely with both state regulators to resolve any outstanding issues related to our construction,” she said.

GRAPHIC: One gas pipeline, 681 federal violations - https://tmsnrt.rs/2PUGmYrGRAPHIC: Sunoco's hazardous spills - https://tmsnrt.rs/2EHd3E4GRAPHIC: Racing to build pipelines - https://tmsnrt.rs/2PkLg0n

(Reporting by Stephanie Kelly and Scott DiSavino; Additional reporting by Andres Guerra Luz; editing by David Gaffen, Simon Webb and Brian Thevenot)

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