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Suppliers: LNG Spec Ruling Will 'Greatly Limit' Supply Options

Major liquefied natural gas (LNG) suppliers are protesting a crucial administrative law judge (ALJ) initial decision that accepted what they believe are overly restrictive interchangeability standards proposed by Florida Gas Transmission (FGT), saying it could limit the availability of Atlantic Basin LNG supplies to import terminals along the Gulf Coast.

The ALJ initial decision, which was issued in mid-April, "would have a significantly adverse effect on LNG supplies to the Florida market and the markets in other states" bordering the Gulf of Mexico, said Sempra Global in a brief filed at FERC. "Evidence in this proceeding demonstrates that approximately 57% of the current Atlantic Basin LNG supplies would not comply with the compositional limits [for LNG] proposed in the initial decision" rendered by FERC ALJ Herbert Grossman.

By extending the restrictive standards for LNG to the western leg of FGT, which includes Texas, Louisiana, Mississippi and Alabama where many new LNG projects are currently under development, "the initial decision would greatly limit the available supply options, resulting in higher costs to gas consumers in Florida and other states," Sempra Global said.

FGT had sought approval of its proposed LNG-related standards for only its eastern leg (market area), but Grossman recommended in his ruling that the standards apply to the full length of the pipeline's 5,000-mile system -- both the eastern and western legs. The Federal Energy Regulatory Commission has the option now to approve or reject in full or in part the ALJ ruling [RP04-249-001].

The Commission "can...minimize the potential negative consequences of the initial decision" by "limiting the new standards to FGT's market area, as originally proposed by FGT, and removing several of the compositional requirements proposed," said Sempra Global, which has two interstate gas pipelines, one gas storage facility and two LNG terminals under development in the Gulf Coast area.

While Grossman ruled in favor of FGT's proposed restrictive LNG-content standards, he left open the door for other participants in the proceeding, which included LNG suppliers, power generators and local distribution companies (LDCs), to present evidence to FERC prior to its final decision that "casts doubt on the findings or conclusions" in the ALJ's initial decision (see NGI, April 17).

He also made plain that his decision approving FGT's proposed energy-content standards applied only to LNG, while the standards for domestic gas remained unchanged.

The ruling was a major victory for FGT, which is jointly owned by CrossCountry Energy and El Paso Corp. and whose 2.1 Bcf/d delivery system extends from South Texas to South Florida. The decision was a critical setback for LNG suppliers, particularly AES Ocean Express LLC, which seeks to build a pipeline to transport 842 MMcf/d of regasified LNG to southern Florida from a proposed LNG import terminal in the Bahamas. FERC approved the pipeline project in January 2004.

The case stems from an April 2004 complaint in which AES Ocean Express accused FGT of imposing overly restrictive gas quality/interchangeability requirements to block its effort to obtain an interconnection with FGT. AES Ocean claimed that FGT's "onerous" conditions were frustrating its plans to construct the Bahamas-to-Florida pipeline to transport regasified LNG to the southern Florida market.

"FGT is the first Commission-regulated pipeline in the United States to consider LNG interchangeability issues since the natural gas industry made its consensus recommendations" in the Natural Gas Council's interim guidelines, said the LNG Suppliers Coalition, which includes BP Energy Co., Chevron U.S.A. Inc., ConocoPhillips, ExxonMobil Gas & Power Marketing Co. and Shell NA LNG LLC.

"All segments of that industry are watching this case to determine whether the Commission is going to implement an interchangeability regime that can accommodate a broad range of imported LNG. The decision in this case will have an impact well beyond FGT and undoubtedly will be a touchstone precedent for the application of interchangeability standards to pipeline systems nationwide," the coalition noted.

The group conceded that the LNG standards in the initial decision "are far better than those proposed by some parties," but they "could still exclude much of the world's LNG from Florida, while providing no additional protection to FGT or its customers."

The coalition contends that Grossman erred in his decision by adopting:

Like Sempra Global, BG LNG Services LLC, a major supplier of LNG, took issue with Grossman's decision to apply the LNG standards to the entire FGT pipeline system. "There is no reason to apply the highly restrictive standards to FGT's western [leg], where none of the more sensitive DLN gas turbines (the Siemens DLN gas turbines) are located and where there is ample opportunity for blending LNG with domestic gas," it said.

"Moreover, applying the gas quality specifications for LNG to the western [leg] is unworkable. It would be extraordinarily difficult to determine which molecules delivered at every interconnect with FGT's western [leg] are from LNG or from domestic supplies, and thus it will be impossible to determine whether LNG or domestic gas standards should apply to those deliveries," BG LNG noted.

In reviewing Grossman's ruling, BG LNG recommended that FERC make four changes:

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