Federal commission approves gas project
By Peter Mantius, DCBUREAU.ORG
CORRECTION--In the Wednesday, Oct. 8 issues of The Observer and the REVIEW&EXPRESS, in the story "Federal commission approves gas project," the photo cutline incorrectly states the Federal Energy Regulatory Commission approved Crestwood's liquid petroleum gas expansion. The FERC approved the methane portion of the project, while the Department of Environmental Conservation has jurisdiction over the LPG portion.
SENECA LAKE--Federal regulators say construction can start immediately on a methane gas storage project next to Seneca Lake that has galvanized opposition from many wine and tourism businesses across the Finger Lakes in upstate New York.
The Sept. 30 decision by the Federal Energy Regulatory Commission (FERC) represents a major breakthrough for Houston-based Crestwood Midstream. The company has been waging a five-year campaign for permission to convert long-abandoned lakeside salt caverns into a regional storage hub for both methane gas and liquid petroleum gas, or LPG, from fracking operations in Pennsylvania.
FERC has jurisdiction over the methane gas storage portion of the project, while the state Department of Environmental Conservation (DEC) has the final say over the storage of LPG, mostly propane and butane. The company has been trying to persuade both agencies the old caverns are ideal storage sites for highly-pressurized, volatile hydrocarbons. Some scientists who are not paid by the company disagree and have warned of the caverns' unstable geology.
In May, after 14 months of review, FERC granted conditional approval of Crestwood's request to expand its existing methane storage into a cavern that has a history of instability. Meanwhile, the DEC has been evaluating the LPG portion of the project since 2009. It announced in August plans to hold an "issues conference" to further weigh the evidence before ruling.
Crestwood's storage hub would be located in a cluster of several dozen salt caverns on the west shore of Seneca Lake less than three miles north of the village of Watkins Glen, population 1,859. The company continues to mine salt at the site, and it already uses a former salt cavern to store methane gas. FERC has allowed it to expand its working gas capacity from 1.45 billion cubic feet to 2.0 bcf.
Typically, methane gas is transported to the caverns by pipeline, while LPG storage would require truck and rail transport. If Crestwood wins DEC approval, it would store LPG in two other caverns less than a quarter mile away from the compressed methane.
The company has asserted the history of the storage caverns, including details of their flaws, is a trade secret. And state and federal regulators have complied with the company's requests to keep most cavern information out of the public eye. But reports dating back decades by engineers employed by the caverns' owners -- tracked down in Internet searches -- candidly spell out their defects.
Opponents of Crestwood's proposed storage hub have expressed alarm over FERC's brisk dismissal of potential risks, but safety issues are not their only concern. They also fear increased air and noise pollution, a steep increase in LPG truck traffic through the village of Watkins Glen and new LPG rail traffic over an 80-year-old trestle that spans the Watkins Glen gorge, one of the state's Top 10 tourist destinations.
In July 2013, state Sen. George Maziarz, R-Newfane, the chairman of the Senate Energy and Telecommunications Committee, wrote DEC Commissioner Joseph Martens to urge him to promptly approve Crestwood's LPG proposal.
This past June, Dennis Fagan, the Republican chairman of the Schuyler County Legislature, drafted a resolution supporting the LPG project. Skipping the customary committee process, he pushed for a vote and won 5-3. That vote incensed many in Watkins Glen, the county seat. The town council later voted for a resolution opposing the project.
Fagan's promotional role prompted more than 400 people to mass in protest at the subsequent legislative hearing. Several local residents called for him to withdraw the resolution and recuse himself from discussion of the matter due to potential conflicts of interest. He declined both requests.
The company he had founded, Fagan Engineers, has done extensive work with companies involved in oil and gas production and pipelines. Fagan recently sold his firm to his brother and other partners, but he said he continues to receive payments from them as part of the sales agreement. Fagan Engineers is currently building a facility 15 miles south of Watkins Glen for Access Midstream, a joint venture partner with Crestwood in a Wyoming project valued at well over $100 million.
Fagan has long touted Crestwood's planned storage hub. In an October 2011 letter of support to the DEC, he predicted the LPG project would expand Schuyler County's tax base by $20-30 million. Two years later, he announced the property Crestwood plans to use for its methane gas storage would have its assessed value reduced from $29 million to $22 million by 2015, despite plans for extensive development.
Inergy, Crestwood's predecessor company, negotiated the assessment cut with Schuyler County's town of Reading, where the Crestwood property is located. Inergy and Crestwood merged in 2013.
State Supreme Court records show Congressman Tom Reed, R-Corning, had a hand in the court case that led to the company's slashed assessment. Reed had served as Reading's attorney for several years before being elected to Congress in 2010, and he was not officially replaced as the town's lawyer until January 2012, according to Rita Osborne, Reading's deputy clerk. Reed's replacement, Thomas Bowes, had worked in Reed's Corning law office for four years before leaving in December 2011.
In 2012 -- after Reed had officially been replaced by Bowes -- Inergy petitioned in the State Supreme Court for the assessment cut. However, a State Supreme Court filing dated July 12, 2012 lists "Thomas Reed II, Esq." -- not Bowes -- as "attorney for the respondents," which included the town, its assessor and its board of assessment review.
In an interview with DCBureau.org last August, Reed acknowledged his past role as Reading's attorney, but denied any role in the Inergy/Crestwood assessment case. Reed said his name may have been placed on the court document by mistake. Fagan, the county chairman, said in a more recent interview he was not aware of any role Reed had in cutting the tax assessment for the methane storage property.
FERC's decision to grant a green light for construction on the methane storage cavern preceded any public announcements of approval from the state. By law, the DEC must agree to modify Crestwood's current underground storage permit for methane gas, and the state geologist must certify the storage cavern is safe. However, as a practical matter, the state does not have the legal authority to block the methane storage project, if legal precedents involving federal-state jurisdiction are any gauge.
The best the public can hope for in the future is diligent monitoring of the methane storage facility for leaks and roof and wall collapses, said H.C. Clark, a Houston geologist who has sharply criticized FERC's analysis of the cavern.
Clark pointed out in January that FERC had neglected to assess the safety implications of a massive roof collapse in the cavern. He learned about the event in a detailed report written in the late 1960s by Charles Jacoby, an engineer who worked for the cavern's owner at the time.
During its analysis of the project, FERC had pointedly asked Crestwood if it knew of any cavern roof or wall collapses anywhere within its Seneca Lake cavern field. The company issued a qualified denial. If fact, a 400,000-ton chunk of rock -- roughly the size of an aircraft carrier -- had given way in the very cavern the company proposed to use for methane storage.
After Clark disclosed the roof collapse to the public and DCBureau.org and other media outlets publicized it, FERC addressed the issue. It attributed the roof collapse to the fact LPG and brine had been cycled in and out of the cavern at the time, eating away at its salt walls and weakening its structure. LPG has not been stored in the cavern since 1984, and it is now mostly filled with brine.
In its May 15 order conditionally approving the reopening of the cavern for methane storage, FERC concluded after all brine has been removed and methane gas is added, "dissolution of the salt in the gallery will not occur."
But Clark, who holds a Ph.D. in geophysics from Stanford and taught the subject for many years at Rice University, said an interview Oct. 1 it would be "absurd" for FERC to imply removing brine from the cavern removes all risk of further collapse. "This is an old -- ancient by now -- cavern sitting there with a broad, flat rock top, which is not what salt cavern folks want to hear," he added. "The compressed natural gas will work its way up through any kind of abnormality."
FERC attached several conditions to the methane storage expansion permit. One requires the company to provide fresh data on the current dimensions of the cavern and the volume of the huge rubble pile on its floor. But Clark said the results will probably never reach the public or independent scientists qualified to evaluate them. That is due, he said, to the understanding between the company and its regulators that flaws in caverns used to store volatile hydrocarbons are not to be disclosed to the public.
That policy may increase risks of catastrophic events, he added. "Bayou Corne illustrates the folly of trying to keep this stuff secret," Clark said in reference to the Louisiana salt dome collapse in 2012 that has created a giant sinkhole about 30 miles south of Baton Rouge. Hundreds of residents have been evacuated and the state's top natural resources official was forced to resign.
"By keeping it secret, look what happened in Louisiana," Clark said. "(Gov. Bobby) Jindal is trying to figure it out after the fact. The state has had to spend a fortune ... and the sinkhole's getting larger."
Both methane gas storage and LPG storage in salt caverns have been prone to severe accidents. Major fires and explosions struck at salt caverns holding compressed natural gas in 2001, 2003 and 2004. Catastrophic accidents hit LPG storage caverns in 1980, 1984, 1985 and 1992, killing or seriously injuring people in three of those cases.
In August, Dr. Rob Mackenzie, a retired CEO of the Cayuga Medical Center, a hospital about 20 miles east of Watkins Glen, sought to quantify the safety risk of Crestwood's methane gas storage operation to Schuyler County residents. An experienced risk analyst, Mackenzie prepared a formal quantitative risk analysis of the Crestwood methane gas proposal.
Mackenzie analyzed accident events -- major fires, explosions, collapses, catastrophic loss of product, evacuations -- at salt cavern storage facilities in the United States dating back to 1972. He concluded the risk of an "extremely serious" salt cavern event within Schuyler County over the next 25 years is more than 35 percent.
Citing data from the Energy Information Administration, Mackenzie noted in 2012 there were 414 underground gas storage facilities in the United States, including 40 in salt caverns. Aquifers and depleted oil and gas reservoirs are much more commonly used for hydrocarbon storage, and they have dramatically better safety records than salt caverns. "Worldwide, the percentage of incidents involving casualties at salt cavern facilities as a percentage of facilities in operation in 2005 was 13.6 percent, compared to 0.63 percent for depleted reservoirs and 2.5 percent for aquifers," Mackenzie reported, citing a 2008 study by British health officials.
Between 1972 and 2012, there have been 18 "serious or extremely serious incidents" at U.S. salt cavern storage facilities, Mackenzie wrote, citing EIA data. "With the average number of (salt cavern) facilities in operation through most of the last two decades at close to 30, the U.S. incidence is about 60 percent (compared to 40 percent worldwide), and the frequency is about 1.4 percent per year," he said. "Most other regulated industry sub-segments with a persistent serious to extremely serious facility incident rate of over 30 percent would be shut down or else voluntarily discontinued, except in wartime."
Mackenzie also found nine of the 18 salt cavern incidents involved large fires and/or explosions; six involved loss of life or serious injury; eight involved evacuations of between 30 and 2,000 residents; and 13 involved serious property losses.
FERC, the regulatory agency, saw no need to further question the suitability of Crestwood's salt cavern storage.
Peter Mantius is a reporter in New York. He covered business, law and politics at The Atlanta Constitution from 1983-2000. He has also served as the editor of business weeklies in Hartford, Connecticut, and Long Island.