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FERC Warned that Severe Changes in Gas Quality Specs Could Further Restrict Supply

A Gulf South Pipeline official last Tuesday cautioned FERC against making changes in gas quality and interchangeability specifications that would severely affect the composition of natural gas, saying this could further restrict an already tight gas supply situation. Meanwhile, the Natural Gas Supply Association (NGSA) last week called for the Commission to adopt national gas quality and interchangeability standards for natural gas flowing through the interstate gas pipeline system.

"Right now the gas grid is working. If [you're] going to push down on quality, [you're] going to push supply off the system," Michael McMahon, senior vice president and general counsel for the pipeline, said during a day-long FERC technical conference on the Natural Gas Council's white papers on gas quality and interchangeability. The papers were submitted to the Federal Energy Regulatory Commission in late February. FERC Chairman Pat Wood indicated last week that the agency would accept additional comment on the white papers over the next three weeks [PL04-03]

McMahon expressed concern that FERC would "push things to the lowest common denominator" with respect to quality standards on interstate pipelines. The Commission has to be "very careful about throwing the baby out with the bath water," he said.

Thomas Stewart, who represented the Independent Petroleum Association of America (IPAA), also said he was concerned that rulemaking changes by FERC would burden some of the group's producer-members who supply 82% of the nation's natural gas. This, he believes, would threaten the nation's gas supply, as well as the price of gas.

"In this environment, even small changes in domestic supply can have a significant impact on prices...And yet, there is a very real risk of that happening if natural gas quality and interchangeability standards are not carefully thought through," Stewart said.

But Alex Strawn of The Procter & Gamble Co. believes changes are needed with respect to gas quality and interchangeability. "We're seeing anecdotal problems" in the domestic gas system. "They're not pervasive yet," but they are coming. "We're at the beginning of a new frontier," he told regulators and industry executives at the conference.

"We think that we're more at risk by sitting here and doing nothing" about gas quality and interchangeability, Strawn said. "This is the quiet before the storm."

As for who should bear the cost of testing and researching gas quality, Strawn said that industrial gas customers "don't want to be disproportionately affected," although it's likely they will share some of the burden.

"I'd like to see [the Department of Energy (DOE)] step up" and assume responsibility for the testing costs, noted Lee Stewart, vice president of gas transmission for Southern California Gas Co. "We need DOE to step up" to "figure this thing out," agreed Robert Wilson, who represented the Electric Edison Institute.

The NGSA last week petitioned FERC to issue a rule adopting national hydrocarbon dew point (HDP) and interchangeability specifications for natural gas being delivered throughout the national pipeline system, as well as for non-discriminatory application of the specifications in the tariffs of all interstate gas pipelines.

"The purpose of this petition is to place before the Commission a proposal for new natural gas quality and interchangeability regulations that are based on the findings of the two industry technical work papers," which the Natural Gas Council submitted to the agency in February, the group of major natural gas producers said Monday (see NGI, March 7).

"NGSA believes that if the Commission adopts [its] proposal, the natural gas quality and interchangeability issue will largely be resolved and, if not, can be dealt with fairly and expeditiously in the context of individual situations if a problem arises," the producer group noted. FERC said it would accept industry comments on NGSA's petition for the next three weeks.

Specifically, the NGSA called on the FERC to:

"NGSA believes the 15 degrees Fahrenheit figure is low enough that in virtually all parts of the country, the applications of the CHDP methodology will not result in any significant liquid fallout problem. Fifteen degrees Fahrenheit is lower than the hydrocarbon dew point specification which a number of pipelines already have contained in their tariffs."

The producer group, however, noted that the 15 degree Fahrenheit floor is not intended as a standard toward which all pipeline CHDPs must gravitate. "For instance, if a pipeline is establishing a CHDP for the first time, or is recalculating an existing hydrocarbon dew point specification, and finds that the result of that calculation is a CHDP above 15 degrees Fahrenheit, then that level would be the appropriate CHDP for the system." The NGSA also proposed a complaint procedure as a means for pipeline customers to seek a change in a pipeline's CHDP standard.

Rising hydrocarbon content in domestic gas entering pipelines has become a pressing issue over the last couple of years as gas prices rose while prices for natural gas liquids did not keep up, prompting producers to keep liquids in their gas streams. Industry members, particularly pipelines and local distribution companies (LDCs), urged FERC to approved tighter restrictions on domestic gas quality. Pipelines contend that hydrocarbon-rich gas leads to liquids fallout, which causes operational problems on their systems.

With respect to interchangeability standards, the producer group called on FERC to adopt the exact specifications outlined in one of the two technical papers that were submitted by the industry coalition in late February. "Pipelines with interchangeability-related specifications already in their tariffs need not alter those specifications. Those that do not have such standards would adopt the...specifications."

LNG delivered by interstate pipelines "will be presumed interchangeable with historical supplies delivered at the same location if the gas meets the following criteria and other non-conflicting natural gas quality specifications," including a Wobbe index of not greater than 1400, contains not more than 4% inert gas, and contains not more than 1.5% butanes plus, the NGSA said.

Interstate gas pipelines will be required to add these interchangeability presumptions to their tariffs in a limited Section 4 filing, according to the group. If an interstate pipeline has pre-existing interchangeability specifications in its tariff, then those pre-existing interchangeability specs may be retained, it said. If an interstate pipeline or shipper believes the specification may create operational problems, they can file a complaint with FERC.

The NGSA further noted that supply curtailments below the interchangeability Wobbe, inert and butanes plus maximum levels lasting for more than 24 hours or occurring for two or more consecutive days shall require the electronic posting of a report within 10 days detailing the cause of the operational flow order, the region impacted, the expected duration, the volume impact and the remedial action taken or planned.

The interchangeability issue has risen to the forefront because greater amounts of LNG are expected to be introduced into the U.S. gas stream, prompting pipelines to worry about the impact of the Btu-rich gas on the integrity of their systems. LDCs fret about the safety of regasified LNG. There also are potential costs for industrial customers to modify their equipment to accept this gas. The key concern is the extent to which LNG-sourced gas can replace conventional gas without unduly interfering with the operation of the pipeline system.

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