Pipeliners Podcast

  • Your Host
    Russel Treat
  • Our Guest
    Thure Cannon

Description

In this episode of the Pipeliners Podcast, Russel Treat welcomes the president of the Texas Pipeline Association, Thure (pronounced “Tur-ee”) Cannon, to discuss pipeline regulations at the state level.

You will learn about the differences between pipeline regulation at the state versus federal level, how Texans uniquely manage intrastate pipeline activity, and the latest research on the economic impact of the oil and gas pipeline industry on the Texas economy.

If you are interested in pipeline regulations at the state level and how local communities influence pipeline projects, this is a must-listen episode.

Pipeline Regulations at the State Level: Show Notes, Links, and Insider Terms

Pipeline Regulations at the State Level: Full Episode Transcript

Russel Treat:  Welcome to the “Pipeliners Podcast, Episode 20.”

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Announcer:  The Pipeliners Podcast, where professionals, Bubba geeks, and industry insiders share their knowledge and experience about technology, projects, and pipeline operations.

Now your host, Russel Treat.

Russel:  Thanks for listening to the Pipeliners Podcast. We appreciate you taking the time. To show our appreciation, we’re giving away a customized YETI tumbler to one listener each week.

This week, the winner’s Daniel Rice, who’s a gas measurement student at Lackawanna College. Congratulations, Daniel, your YETI is in the mail.

If you’d like to learn how you can earn a Pipeliners Podcast YETI tumbler, hang around ‘til the end of the episode. We’ll let you know what you need to do.

This week, our guest on the Pipeliners Podcast is Thure Cannon. Thure is President of the Texas Pipeline Association. He’s going to talk to us today about regulatory [issues] and relationship[s] for pipelining at the state level.

With that, let’s welcome Thure. Thure, welcome to the Pipeliners Podcast.

Thure Cannon:  I appreciate it so much, Russel. Thank you so much for having me.

Russel:  Why don’t you help the listeners out a little bit and tell us a little bit about yourself, who you are, and your background?

Thure:  I’m a small town, lifelong Texan. Grew up in a small town just east of Waco called Mexia, Texas. Got here (to Austin). Went to the University of Texas at Austin. Like so many other people, decided to stay.

I had odd and end jobs in and around the Capitol. I’m the son of a former State Representative who served back in the early ’60s. I’ve always had the political bug. When I got here at Austin, I really got the political bug and did some odd and end jobs around the Capitol.

Then, I went to graduate school at the LBJ School of Public Affairs at the university. Then, cut my teeth in politics by running a campaign. We were successful in that endeavor. I was able to become Chief of Staff for a State Representative, who then went on to serve on an Energy Resources Committee here in the State House. From there, I honed in my love of energy and all things oil and gas.

Russel:  The reason we wanted to talk to you is your involvement with the Texas Pipelin Association, or the Texas Pipeline Association, I should say. Why don’t you tell us about the TPA, how it came to be, and what’s your role with the TPA?

Thure:  I’m very honored to serve as President of the Texas Pipeline Association. The Texas Pipeline Association is a statewide trade organization that represents pipeline companies in front of bodies such as the Railroad Commission, the legislature, TCEQ.

We do advocacy work on behalf of the pipeline industry. We were started about 1984. I believe it’s the only state-level association in my recollection in the country dealing solely with the interest of intrastate pipelines.

People always ask me, when I go to chambers and things, and say, “Why is Texas the only state that has their own pipeline association?” I said, “One, because we’re Texas. Two, because we have more pipeline miles than any other state.”

Russel:  I don’t know where Texas would rank if Texas were a nation in terms of pipelines. Nationally, I know that we’re number three, four, or five in oil and gas production. I would suspect we’re in a similar place in terms of pipelines.

Thure:  I heard a couple of years ago, if we were a nation, in fact, this is GDP, of course, Texas would rank 11th in the world.

Russel:  Pipelining, oil, and gas is obviously a big part of the Texas economy.

Thure:  Without a doubt. It is by far one of the most significant drivers, if not the significant driver, in the state.

Russel:  Personally, I’m probably much more familiar with the regulatory process at the federal level and how that works than I am about the state level. One of the things I’m really interested to learn from you, Thure, how is state regulation different than federal regulation?

Thure:  Generically, I guess, the feds are the feds, and the state is the state. The PHMSA,    which, of course you know, is the Pipeline and Hazardous Material Safety Administration, basically, they delegate a lot of their pipeline inspection authority to the Railroad Commission of Texas.

Therefore, the Railroad Commission is the arm that comes out and directly inspects the pipeline. If you’ve got an intrastate system, you’re going to be dealing with the Railroad Commission. If it’s an interstate system, you’re going to be dealing with PHMSA.

There are, of course, one-offs on that. It can vary from time to time. For the most part, that’s the way it works.

Russel:  I know that, as a matter of practice, because this comes up, if you go to Washington and you sit in on any of the PHMSA public meetings, this is part of the theme they talk about is they have a certain regulatory authorization. The states, in some cases, have very active and robust programs and, in some cases, have nothing at all.

What happens is that the state-by-state implementation varies greatly. Often, they pass on their inspection authority to the state agencies who do that. It’s a collaborative, or at least they try to make it a collaborative process.

Thure:  They do work very collaboratively together. That doesn’t preclude state agencies from going above and beyond.

A good example of that — of the Railroad Commission because they wanted to be the preeminent pipeline safety regulator in the country — they implemented an integrity management practice here in the state, I guess, about 10 years ago.

The feds saw what Texas did, and then PHMSA adopted basically the Texas Integrity Management Plan when it came to pipelines. That was a good story for the Railroad Commission.

It was a good story for industry because we worked collaboratively with the Railroad Commission to come up with that plan with numerous stakeholders, and then now it became federal law of the land.

Russel:  Interesting. I do know that the feds are often looking for best practices that they can take and incorporate.

Thure:  Correct.

Russel:  Would you say that pipeline regulation in Texas is more or less stringent than the feds require? I know that’s casting a very broad net, but maybe you can talk to that and provide some color.

Thure:  It is. I don’t know if it’s more dynamic than the feds, but certainly equal to or goes above and beyond because I know that, our industry as a whole here in Texas, there’s nothing more important than pipeline safety. We want to ensure that our pipelines are the safest around.

The Railroad Commission prides themselves on their pipeline safety inspectors and their record on pipeline safety. We’ve always been in favor of funding the Railroad Commission fully when it comes to making sure that they have the maximum number of pipeline safety inspectors because, when it comes down to, there’s nothing more important than pipeline safety.

Russel:  Absolutely. There’s probably a lot of listeners to this that won’t understand. The Railroad Commission is actually the organization in Texas that regulates railroads and pretty much everything about oil and gas, so production, pipelining — all of that type of stuff.

The Commission started with the railroads, but it’s picked up other authorities. It just never really changed its name. It’s a little bit of a misnomer when you talk about pipeline regulations in the Railroad Commission. When you talk about Department of Transportation, they’re doing hazardous materials on rail, too.

Thure:  Exactly.

Russel:  That’s a help to people that don’t get our Texas jargon here.

Thure:  You’re correct. The Railroad Commission was started generally regulating railroads. Then, when the pipelines came into existence way back in the day, the Railroad Commission took that duty over.

The one thing about it, the Railroad Commission no longer regulates railroads, as a matter of fact. That lives in the Texas Department of Transportation.

Russel:  I didn’t know that. [laughs] Knowing Texas politics, that makes perfect sense to me.

Thure:  [laughs]

Russel:  We’re resistant to change, right?, particularly change in the way we name things.

Thure:  There’s the theory out there is that, back in the ’70s and the Railroad Commission was not setting oil prices, but certainly had a lot to do with what oil prices were. There are a lot of documentations moving way back in history, citing the Railroad Commission. So, you don’t want to lose that history moving forward is one theory about the name staying the way it is.

Russel:  Got it. What are the some of the key issues that the Railroad Commission is particularly interested in and right now related to pipelines in Texas?

Thure:  Right now, because of the Sunset Bill that passed, the Railroad Commission Sunset Bill from last session, which authorizes the Railroad Commission to function for another 12 years, they wanted to fully implement their Pipeline Safety Division.

What they did is they reached out to industry and other stakeholders and said, “Hey, we need some help getting the proper amount of funds so we can bolster up our Pipeline Safety Division.”

Industry agreed with that and said, “As long as the money that you assess industry is going to stay at the Railroad Commission and go to things like pipeline safety inspectors, we’ll be glad to participate.”

Right now, for the first time, there’s going to be a fee implemented on pipeline permits. We will pay that fee. With that money from that fee, it will go to fully stock the Pipeline Safety Division and Regulatory & Gas Services Division at the Railroad Commission.

Russel:  Interesting. How does the legislature make sure that money dedicated for a purpose actually remains dedicated to that purpose?

Thure:  They put it in the statute, or in a rider in the appropriations bill.

Russel:  I see. Interesting. How’s that money charged and collected? Who pays it?

Thure:  It’s in rule-making form right now. It hasn’t been implemented. The current proposal on the books, it’s going to be charged by pipeline mileage. They’ve broken it out into two separate divisions. One is pipelines in Class A and pipelines in Class B.

Pipelines in Class A, which are your Class 2, 3, and 4 pipelines, they will be charged $20 a mile. For your Class 1 pipelines, they’ll be charged $10 a mile.

Russel:  I see. Interesting.

Thure:  When you look at it, it’s a little over 269,000 miles [correction: 246,000 miles] of intrastate pipeline — it’s all based on intrastate pipeline miles as well — because we’re already paying the permit fee to PHMSA for our interstate miles.

Russel:  They’re basically piggybacking on what the PHMSA rubric is, if you will.

Thure:  Right, their numbers, the Pipeline Safety Program is about around $9 million at the Railroad Commission. The feds give us a little money, but then the gas fee you get on your gas bill brings in about $4.5 million. They need to make up about $4.2 million first to fully fund the Pipeline Safety Division.

When you break up those numbers, we came up with a formula that Class 2, 3, 4 were going to pay $20 and Class 1 will pay $10 per mile.

Russel:  Fascinating. That’s absolutely fascinating to me. I had no idea that that was even a thing. There you go. I learned something new again. That’s great.

Let’s talk a little bit. You can’t talk about pipelining in Texas without talking about the Permian Basin and what’s going on in the Permian. What involvement does the TPA have, if any, with what’s going on in the Permian Basin right now?

Thure:  As far as an association, there’s no direct link to the Permian Basin. I am very aware of numerous companies that are members of TPA that are engaged and would like to get the capacity that’s in the Permian right now.

Russel:  That’s obviously evident with all of the announcements for new pipeline construction that are taking product either from the Permian to Corpus and (or) now there’s a couple that are going over the border to Mexico. I can’t remember who it was, but I remember recently reading something about a pipeline going to Brownsville.

It’s a big, big deal. I know that one of the things that these guys have to do is they have get the right of way to move the product.

Thure:  Exactly.

Russel:  Walk us through what the permitting process is like and how they get that right of way and the authorization to construct.

Thure:  You try to find the best route when you start the pipeline project, of course. Then you go into negotiations with the landowners.

After you secure most of the route, of course, you’ve got to deal with the regulatory process that funnels right after that. That’s permitting at the Railroad Commission, your air emissions, if you have any, at the TCEQ.

Then, of course, you’ve got the design and the preparation. You’ve got the actual digging, construction, and then the testing. Then you’ve got the site remediation after that.

Regarding requiring right of way, we do our best because we’re going to be neighbors with the landowners for a very long time. We want to make sure that we give them the best deal that we can possibly give them.

Actually, a little sampling from 2011 to 2016, this association did. Our sample showed that, in that time from ’11 to ’16, we built about 15,000, almost 16,000 miles of pipeline. To build those 15 to 16 thousand miles of pipeline, we dealt with 34,000 tracts of land.

What we discovered there that, when negotiations were there, we successfully negotiated 96 percent of the time with those landowners.

Russel:  Wow, that is a compelling set of numbers.

Thure:  It really is. Then, when you even break it down further, less than one percent went to Special Commissioners work. The actual number was 0.03 percent ever went to trial. That’s out of 34,931 tracts of land.

We’re proud of our relationship with landowners and the way we deal with them because we want them to be happy and because we know we’re going to be there a long time.

Russel:  There’s actually some benefits, or depending on the nature of the agreements for those right of ways and how they’re maintained, there can actually be some benefits to the landowners to having those right of ways on their property. The pipelines keep those things cleared.

Thure:  Exactly.

Russel:  They keep them covered in grass because they don’t want erosion and that sort of thing. Now, if I were a Texas rancher landowner and I was having somebody want to put a right of way through my property, the only thing I would add is they’d have to stock my deer feeders.

Thure:  [laughs] It’s funny you give that example, Russel, because I’ve heard anecdotal stories down in South Texas where the deer run, that instead of a 50-foot right of way, the landowner requested a 150-foot easement so they could have a hunting overhang. They could watch the deer come over the pipeline and shoot them there as opposed to through the trees and the brush.

Russel:  [laughs] That doesn’t surprise me. I’ve had conversations with some of those South Texas landowners. I like to hunt. I’m not as avid as some of my friends. Boy, getting a good hunting lease is a challenge. Keeping a good hunting lease is a challenge. I know some of these ranchers. I could see them getting that put into to the contract.

Out of those 34,000 cases, you probably had more cases of additional right of way to keep good hunting grounds than you did difficulties getting the right of way in the first place.

Thure:  Exactly, that’s what makes Texas unique because we all love our land. We all love oil and gas. We all love hunting and fishing.

Russel:  [laughs] If ain’t all of us, it’s most of us. I’ll never forget. One of my first trips to West Texas, I’m a young kid and I’m learning the business. I’m riding with somebody who’s older. We’re driving up to wellheads and the cattle are right there.

I’m making a comment, and the old codger, of which I am the old codger now, he made the comment, “Well, you know, Russel, ranching’s a whole lot easier when you got some oil rigs for the cattle to scratch their backs on.”

Thure:  [laughs] Exactly.

Russel:  [laughs] Anyways, that’s interesting. Oil and gas is obviously a big part of the economy here in Texas.

Thure:  It is. It’s about 40 percent of the Texas economy.

Russel:  It’s a big part. Ranching and farming are also a big part of the Texas economy. There is a long history — 100 years almost of history — of those two industries collaborating with one another to conduct commerce. That’s one of the reasons that the Texas economy does so well is we let people work it out, and people work it out.

Thure:  Again, TPA wants to go above and beyond with our relationship with landowners, again, as I’ve said earlier, because we know we’re going to be there for a long time. We want to make sure that everything is good and everyone is happy with the transaction.

Russel:  The other thing, too, that’s also true is it’s not just getting the right of way. It’s being able to operate in the right of way. There’s a lot that goes into that. A lot of it’s just relationship. It’s just relationship because…

Thure:  Exactly.

Russel:  Having respect for the other entity, their needs, what they need to operate, and so forth. Simple things like closing the gates behind you when you open them up to get from A to B is a big deal.

Thure:  Exactly, or leaving them open if you found them open. You don’t want to close the gate when you got your cattle that can’t get down to the tank, down in the canyon of the farm.

Russel:  You also don’t want to open a gate when you’ve got horses that have been overfed and you don’t want to get them into the other field with the long grass, too.

Thure:  Exactly.

Russel:  Again, it means you’ve got to have relationship. You got to know the landowners.

Thure:  It’s a common sense relationship.

Russel:  That’s another thing that’s interesting. This is a big thing that’s interesting about our business is that relationship between the landowner and the pipeline company happens between the ranch worker and the guy in the truck that is the pipeline operator.

It’s a very boots on the grass relationship. One of the things the pipelines do very well is they empower their people at that level to make those decisions and work with those relationships.

Thure:  Exactly, because we have state and federal standards. That’s how we have to inspect our pipelines. A lot of companies have to visually and manually.

We want to make sure that we are informing any property owner when we’re going to be on their property. We want to maintain the relationships with, not only the landowner, but the first responders in that community.

We want to maintain a relationship with the local communities themselves. We want to make sure that everybody is in the know, and we are being transparent.

Russel:  Absolutely, maybe you can talk to us a little bit about how TPA works with the pipeline operators and local communities to facilitate building those relationships.

Thure:  Sure, the member company, the TPA, of course, we cherish our relationship with the local communities. We try to meet with them, or at least send a letter once a year inviting them to talk about additional pipeline safety standards or to touch base with them one more time again if we’ve got an asset running through the community.

We are very proud of our relationship with those local communities. We’ll always do our best to make sure that they are in the know.

A good example of how we reached out in the old Barnett Shale days, and old probably is the wrong word being that that started in 2011, but we were talking with the city counties up there trying to make sure that we were being a good neighbor to cities and counties and that kind of urban development had been seen before.

We got to together with a task force, but it was a Barnett Shale working group basically with cities and counties up in and around that area and pipeline industry. TPA led the charge. We came up with a great document called Best Practices.

What occurred with that we had all the municipalities and all the counties in that area that participated in those meetings. We signed an agreement of best practices with those communities. It’s still in place today.

That has been a fantastic example on how we’ve worked with local communities to make sure that everyone is in the know, everyone is happy with the job that the pipeline company is doing.

Russel:  The Best Practices document, is that something that’s available to other operators if they’re interested in it?

Thure:  Yeah, we have a copy of what the agreement was that we did in Barnett Shale. It’s on our website. All the policymakers that participated in that were very pleased with that document and gave industry, and we gave municipalities and counties, many accolades for the way we worked together on that.

Russel:  Perfect. We’ll definitely link that up in the show notes. That’ll be a resource to the listeners. That’s something there that would be of benefit to them. That’s great.

Thure, we’re running to the end of our time here. What might you make as a final comment for people that want to know more about this subject and how they might interact effectively with regulators and such as the state level?

Thure:  First, if you’ll allow me, Russel, I want to brag on industry and probably a majority of your listeners because we couldn’t do what we do without the pipeliners that actually construct the pipe and put it in the ground, the great men and women that do that work, do yeoman’s work and they work 24/7.

We are so very appreciative. That leads me to the point, they’re working and that goes to show that the midstream industry and the pipeline industry has so much to do with the economic impact for local economies and the state, in general.

We’re very proud of a study that we had done, that Texas Tech did, regarding solely the midstream industry. You hear a lot about studies showing what the overall impact of oil and gas is for the whole state. That’s usually upstream, midstream, and downstream.

What Texas Tech did is they dissected that. They looked solely at the midstream industry. This number is a little dated, but I got more recent data on the average.

In 2013, alone, they found that the pipeline industry itself, just the pipeline industry, contributed $33 billion, with a b, in economic output for the state of Texas, and sustained more than 165,000 jobs. $1.6 million [billion] went to state and local taxes. That was just in 2013.

They did an analysis out to the year 2024. This is at low gas prices. They said, even with low gas prices and making a very conservative estimate — this is just the pipeline industry mind you, not upstream, midstream, and downstream, it’s just the pipeline — through 2024, we’re going to contribute $374 billion in economic output.

It’s going to sustain over 191,000 jobs. It’s going to contribute at least $1.5 to $2 billion dollars a year in state and local taxes.

Russel:  That’s huge.

Thure:  I think I said earlier that it was $1.6 million. That was a b. $1.5 to $2 billion in state and local government taxes for the year.

Russel:  When you make those job numbers, that’s just the people working for the pipelines. That doesn’t include all the contractors and service organizations that are supporting that activity.

Thure:  Russel, that study did do indirect jobs. Those are sustainable jobs. Out of the 171,000 jobs per year, there are indirect jobs in that number. Still, that is sustaining 171,000 jobs with a salary that can sustain your family.

Russel:  That’s a huge deal. In particular, in some of these smaller communities, if it wasn’t for oil and gas, those communities would not have the resources they have.

Thure:  Exactly.

Russel:  I know, having done a lot of work and done it for a long time, up in Ohio, West Virginia, Pennsylvania area, the Marcellus Utica gas boom, the gas Shale boom up there has transformed those economies that were really struggling after the steel businesses failed.

There’s still areas where they’re struggling and need recovery. It’s an important part of our economy. It is a very important part of our economy.

Thure:  Without a doubt. We are very proud of what midstream does. Without midstream, we wouldn’t even be talking about sustaining and supporting of the manufacturing jobs or refining jobs, the professional and service jobs that go along with it as well.

Those numbers I just mentioned didn’t include those numbers. Think about you can probably find, some academic came up with that number, but how many jobs in manufacturing, refining, and professional and service areas that wouldn’t exist without that pipeline running from wellhead to the end user.

Russel:  Exactly, it’s a lot of folks.

Thure:  Exactly.

Russel:  Look, Thure, I really appreciate you coming onboard and being our guest. If somebody wants to know more about TPA or would be interested in reaching out and connecting with you, how would they best get in touch?

Thure:  You can always email me at thure.cannon@texaspipelines.com. You can visit our website, which is TexasPipelines.com. That’s all spelled out in plural. You can even call me at the office if you need to at 512-478-2871.

I’m always in the mood to educate and talk about pipelines because it’s a significant part of Texas’s economy. It sustains and promotes jobs.

Russel:  Perfect. Thank you for being onboard. We hope we can have you back sometime in the future as we get some further updates on what’s going on in the state of Texas around pipelining.

Thure:  I certainly appreciate the time, Russel. I wish you and your listeners all the very best.

Russel:  Hope you enjoyed this week’s episode of the Pipeliners Podcast. I enjoyed the opportunity to talk with Thure and learn about the Texas Railroad Commission [Railroad Commission of Texas] and how pipeline regulation works at that level.

Just a reminder, before you go, you should register to win our customized Pipeliners Podcast YETI tumbler. Simply visit pipelinerspodcast.com/win to enter yourself in the drawing.

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Russel:  If you have ideas, questions, or topics you’d be interested in, please let us know at the Contact Us page on pipelinerspodcast.com, or reach out to me directly on LinkedIn. My profile is Russel Treat.

Thanks again for listening. I’ll talk to you next week.

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Transcription by CastingWords

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