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FERC Takes Case-By-Case Approach to Gas Quality, Interchangeability

FERC last Thursday adopted a policy statement that identifies five principles for addressing disputes involving natural gas quality and interchangeability issues on a case-by-case basis.

The decision by the Federal Energy Regulatory Commission reflected the position of interstate gas pipelines, which had called on FERC to adopt a policy statement that would take a pipeline-by-pipeline approach to the complex gas quality and interchangeability issues. Concurrent with the policy statement, the Commission rejected a petition filed by the Natural Gas Supply Association, a producer group, seeking a rulemaking to develop firm industry rules on gas quality and interchangeability [RM06-17].

The Commission opted for the policy statement instead of a "one-size-fits-all" approach to gas quality and interchangeability to ensure that the greatest amount of natural gas reaches the U.S. pipeline system for delivery to customers, said FERC Commissioner Suedeen Kelly [PL04-3]. The variations in gas quality and interchangeability requirements from pipeline to pipeline made this a "very difficult" issue for the agency, Commissioner Nora Brownell noted.

"The policy statement should limit disputes over gas quality and interchangeability, which have been on the increase due to economic decisions about processing gas and the nation's increasing need to develop liquefied natural gas [LNG] import capacity," said Chairman Joseph Kelliher. "Our policy statement reflects two clear goals. First, we must meet the essential needs of consumers by accommodating the greatest economic mix of gas supply with minimum barriers to new supply sources. Second, we must assure the safe and reliable operation of interstate natural gas pipelines."

FERC's policy statement identifies five principles for addressing disputes involving domestic gas quality and the interchangeability of high-Btu content LNG and traditional gas supplies, including:

The policy statement relies on extensive input from the NGC and a cross-section of industry, including end-users, appliance manufacturers, turbine manufacturers, local distribution companies (LDCs), process gas users, gas processors, gas producers and pipelines, according to FERC.

Natural gas quality problems surfaced when the hydrocarbon content of domestic gas entering systems increased as gas prices rose, while prices for natural gas liquids did not keep up, which prompted producers to keep liquids in their gas streams. Industry members, particularly pipelines and LDCs, urged FERC to approve tighter restrictions on domestic gas quality. Pipes said the hydrocarbon-rich gas ultimately caused liquids fallout, which resulted in operational problems on their systems.

The interchangeability issue has risen to the forefront with greater amounts of LNG being 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 are concerned about the safety of regasified LNG. The key issue is the extent to which LNG-sourced gas can replace conventional gas without interfering with the operation of a pipeline system.

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