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 operating.

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 (Jan. 14).

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 tariff.

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 both.

Susan Parker

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