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FERC Upholds Gas Quality, Interchangeability Policy

March 16, 2009
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FERC has upheld a June 2006 order approving a policy statement that took a pipeline-by-pipeline approach to the complex issues of natural gas quality and interchangeability (see NGI, June 19, 2006).

The Federal Energy Regulatory Commission (FERC) "dismisses the requests for clarification [by four parties], finding that they are in fact requests for rehearing of the policy statement. Section 19 (a) of the Natural Gas Act provides for parties to request hearing only when they are aggrieved by a Commission order. As the U.S. Court of Appeals for the District of Columbia Circuit has held, a statement of policy 'is not finally determinative of the issues or rights to which it is addressed;' rather it only 'announces the agency's tentative intentions for the future.' Therefore, the parties are not aggrieved by the policy statement," the order said [PL04-3-001].

"Moreover, the Commission has applied the policy statement on a case-by-case basis in a number of proceedings since issuing the policy statement, and interested parties have had ample opportunity in those proceedings to address concerns with application of the policy statement in those individual proceedings."

The decision by FERC to take a pipeline-by-pipeline approach to gas quality and interchangeability issues reflected the position of interstate gas pipelines. Concurrent with the policy statement, the Commission rejected a petition filed by the Natural Gas Supply Association, a producer group, for a rulemaking that would develop firm industry rules on gas quality and interchangeability.

The Commission opted for the policy statement approach 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 customers. The variations in gas quality and interchangeability requirements from pipeline to pipeline made this a "very difficult" issue for the agency, FERC said at the time.

The goal of the policy statement then and now is to limit disputes over gas quality and interchangeability, which were on the rise in 2006 due to economic decisions about processing gas and the nation's increasing need to develop liquefied natural gas (LNG) import capacity. This was prior to producers tapping the country's prolific shale gas basins, which has reduced the demand for LNG imports.

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 local distribution companies (LDC), 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 taken center stage as greater amounts of LNG have been introduced into the U.S. gas stream, prompting some pipelines and LDCs to worry about the impact of the Btu-rich gas on the integrity of their systems.

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