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Kelliher Sees FERC Action on Gas Storage in Near Future

FERC Commissioner Joseph Kelliher last Thursday said that he expects the Commission to take action in the area of gas storage in the next 30 days or so, noting that the federal agency has been examining ways in which to encourage storage capacity expansion and the more efficient use of existing capacity.

"I think it's clear we need additional storage capacity," he said in remarks delivered to Deloitte's 2005 energy conference in Washington, DC. Expanding gas storage capacity should result in "a positive effect on price volatility in the gas markets."

Kelliher noted that FERC is exploring policy changes to "encourage both storage capacity expansion and more efficient use of existing capacity through changes in market-based and cost-based pricing policies. And that's an area where I think we will take a step sometime in the next 30 days or so."

FERC has been chewing over various options to encourage storage development in the U.S., including awarding market-based rates to storage developers to encourage investment, allowing higher rates of returns for storage developers (20% rather than 15%), permitting higher rates for short-term storage services, allowing market-based rates for storage facilities located near market centers, and adjusting the Commission's current test for determining market power (see NGI, March 21).

Meanwhile, Kelliher used his remarks to address two other gas-related topics -- liquefied natural gas (LNG) and the Alaska pipeline.

On LNG, Kelliher said that FERC "has exclusive jurisdiction to authorize LNG import facilities, unless the Ninth Circuit tells us otherwise."

He said that while LNG imports can mitigate high gas prices, those imports are "not at a level where they are currently affecting prices. They may in coming years, if we continue to expand LNG import capacity."

The Commissioner described four "links" in the LNG import chain -- overseas gas production, liquefaction abroad, transportation and regasification. "The Commission has jurisdiction over the import facilities, over the regasification facilities. And for worldwide LNG imports to expand rapidly, development of all four links of the chain must coincide."

He said that a delay in the development of any of the links "can create bottlenecks and negatively affect development of the rest of the chain, discouraging investment. I want to make sure that the part of the chain of the Commission's jurisdiction is not the weakest link." As things currently stand, Kelliher went on to say, "it's clear that regasification, the import facilities, is not the weak leak in the LNG import chain."

Noting that domestic gas production is not rebounding and the U.S. cannot assume that Canada will be able to supply all of the country's import needs, Kelliher underscored the need for the U.S. to find an alternative way to secure gas imports.

He thinks there's "no question" that an Alaska pipeline will be built. "The only question is when it will be built, and the Commission stands ready to act on a pipeline application under either the Alaska Natural Gas Transportation Act of '76 or the Natural Gas Act and the processes are significantly different under those two regimes."

He noted that FERC "acted quickly" earlier this year to issue open season regulations related to proposed Alaska natural gas pipeline projects, as required by Congress (see NGI, Feb. 14).

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