Shut-in on Sonat Averted --- For Now
A threatened shut-in of 250 MMcf/d or more of deep-water gas
production connected to Southern Natural Gas Co.'s system was
averted --- at least temporarily --- as the owners of key
processing facilities in Louisiana last Thursday re-started some of
their operations to satisfy the long-line pipeline, which claimed
the production fell short of its specifications for delivery. The
producers, however, said their gas more than met Southern Natural's
quality specs, and that they were being unfairly held to a higher
standard than other shippers on the pipeline's system.
The dilemma facing Southern Natural --- whether to shut in
possibly out-of-spec gas during a tight demand period --- is one
that a number of other pipelines soon might have to address since
producers, seeking to capitalize on the high gas prices, are opting
to forego the processing stage, leaving heavier liquids in the gas
stream to increase the heat content and value of the gas.
The owners of the processing facilities --- a few of which are
the producers whose gas would have been shut in --- agreed to an
eleventh-hour "economic arrangement" that called for one of two
plants in Toca, LA, which are operated by Enterprise Products
Operating L.P., to become "fully operational" last Thursday,
Southern Natural told FERC on Jan. 8. The plant had ceased
operations this month, citing economic reasons. A third processing
plant in Toca operated by Western Gas Resources also agreed to
re-start operations Thursday.
In keeping with the agreement, Southern Natural reported that
the Western-operated plant in Toca had received sufficient volumes
to recommence its 150,000 Mcf/d facility. However, a mechanical
problem arose when the Enterprise Toca II facility was being tested
for start-up. Thus, the 250,000 Mcf/d plant did not return to
operation last week, but repairs were to be finished by Saturday
(Jan. 13). The 750,000 Mcf/d Toca I facility had never ceased
A knowledgeable source stressed the agreement with the plant
owners was only temporary, providing for the Toca facilities to be
open on a "day-to-day basis." There is "no commitment [by the
parties] even through the end of the month."
Consequently, "if the owners decide to shut it [the facilities]
down again, we still are threatened with shut in" of gas production
by Southern Natural, the source noted. While there is "some
overlap" between the producers and plant owners, "the producers
behind-the-plant cannot control the decisions of the plant owners,"
and thus shouldn't be penalized for them, she said. Some of the
plant owners are Amoco Production, Conoco Inc., Duke Energy, Dynegy
Midstream, Exxon Co. U.S.A. and Louisiana Land & Exploration
Southern Natural threatened to shut in the producers'
unprocessed gas if the Toca I processing facility did not re-open
its doors by Jan. 8. The pipeline claimed the producers' gas
allegedly was exceeding its tariff's limitation for the amount of
hydrocarbons permitted in the gas stream, which is set at 0.3
gallons per Mcf (GPM). The El Paso Energy pipeline, however, vowed
to postpone its shut-in plans last week, provided all the gas
upstream of the Toca facilities was being processed starting Sunday
This greater-than-normal amount of hydrocarbons in the gas is
posing operational concerns for its system, Southern Natural
contends. The hydrocarbons turn into liquids that fall out inside
the pipeline or inside end-use plants or at LDC regulator stations.
If the regulators at LDC delivery points freeze due to the presence
of hydrates in the liquids, distributors often are prevented from
delivering gas to their downstream markets, it noted.
The owners of the Toca facilities, as well as other processing
plant owners around the nation, are choosing to suspend their
processing operations for economic reasons, as producers find they
can nab higher prices for heavier, hydrocarbon-laden gas in the
current seller's market, critics say.
Four producers and a marketer - Amoco Production Co., BP
Exploration & Oil Inc., Chevron U.S.A. Inc., ExxonMobil Gas
Marketing Co., and Shell Offshore Inc. - had responded to the
pipeline's warnings by filing an emergency petition at FERC for a
temporary restraining order (TRO) to prevent Southern Natural from
shutting in their gas.
The producers contend that Southern Natural is holding them to a
"higher standard" than other supplies entering its system at other
locations, which they claim have a "higher liquefiable content"
than their unprocessed gas. The most recent gas analysis indicated
that - even when only one Toca plant (Toca I) was running - the
quality of the upstream gas stream on Southern Natural was 0.161
GPM, which was "well within" the 0.3 GPM spec, they said.
"It is apparent that the [Toca processing] plant is not, at
least in our view, the real cause of the problem here because our
[producers'] blended gas stream is well below spec," said the
source familiar with the case.
"The real problem on their [Southern Natural's] system is their
liquids quality spec is too high at all the other pipeline
interconnects. Gas is coming in at 0.3 spec, which their system
can't take. So they're coming to us (our spec is 0.16 now), and
they're trying to get us to strip out more to make it even lower.
We need a technical conference to address this issue."
Atlanta Gas Light (AGL), the largest capacity-holder on Southern
Natural, called on the Commission to reject the producers' petition
for emergency relief, saying it "raises very serious operational
reliability and safety issues for the markets and customers
downstream of the Toca gas-processing facilities.
Likewise, a group of municipal distributors in Alabama opposed
the producer's request for a TRO, saying the current "economic
incentive" for unprocessed gas was not a "justifiable basis" for
producers to refuse to meet the quality specs of Southern Natural's
They further noted they "[were] distressed by the game of
chicken that is now being played out" by producers, who "have, in
effect, threatened not to process the gas and thereby require
Southern to shut gas in at a key point on [its] system." Such a
shut-in would result in 1) curtailment of distribution load; 2)
pressure to raise gas prices in an already "overheated" market at
other receipt points on Southern's system; or 3) a combination of