Foreign suppliers of liquefied natural gas (LNG) could bypass the United States for more friendly overseas energy markets if the quality standards for the Btu-enriched product entering interstate pipelines are set at a restrictive level, a Department of Energy (DOE) official warned last Wednesday.

“We need to make our market friendly to [LNG] suppliers,” said Mark Maddox, principal assistant deputy secretary for DOE’s Office of Fossil Energy, during a technical conference at FERC exploring the issue of the interchangeability between regasified LNG and conventional gas supplies, as well as the issue of overall gas quality standards for pipelines.

“I’d hate to see us make…our competitive position that much harder because we have created barriers and made this market less attractive” to LNG imports, he noted. There appear to be “a lot of questions” about whether the United States is making a “mountain out of a mole hill.” Interchangeability and gas quality are not major issues in other countries that consume large amounts of LNG, such as Japan and Korea, it was pointed out.

LNG is a “major concern” of the DOE, which projects that annual LNG imports will reach 4 Tcf by 2025, according to Maddox.

“LNG-sourced gas should not be singled out and should not be required to meet a higher quality standard than domestic-sourced gas,” agreed W. Collin Harper, senior vice president of fuels for Tractebel North America, which owns the Distrigas LNG terminal in Everett, MA.

The major issue with LNG is its higher Btu content, he noted. The industry needs to “get its arms around this issue” and conduct research and analysis on an expedited basis. Gas processing facilities are available to resolve the problem, “but they are very expensive,” he told the FERC conference.

LNG-sourced gas does not contain the heavy hydrocarbons that now are turning up in the domestic gas stream, according to Harper. Much of the hydrocarbons, which can lead to corrosion and other pipeline operational problems, are stripped out when the gas is liquefied.

LNG is “necessary and is coming in a big way,” but “we seem to be producing roadblocks at a much quicker pace” rather than meeting the market growth opportunity, he said.

“We’ve observed in the past how the gas industry can be one of its own worst enemies and has stymied growth.” The U.S. has to make a decision very soon — “do we continue to constrain LNG supply sources or move to [a]…broader range of available supply.”

The Commission convened the technical conference last Wednesday to address a recommendation in the National Petroleum Council’s (NPC) natural gas study last fall, which called for FERC and the DOE to update standards related to the growing role of regasified gas in the conventional gas stream, as well as overall gas quality issues on pipelines.

Heightening the interchangeability standards has come to the forefront as more Btu-enriched regasified gas is introduced into the U.S. gas stream, prompting pipelines to fret about the impact of the Btu-rich gas on the integrity of their systems and local distribution companies (LDCs) to worry about the safety of regasified gas for end-use customers, as well as the potential costs for industrial customers to modify their equipment to accept this gas.

The increasing hydrocarbon content of domestic gas entering pipelines is taking center stage as well, causing a wide cross-section of industry and regulators to look at the need for tweaking quality standards. Producers are tending to keep more hydrocarbons in their gas to stretch supplies for customers in the United States.

These are “incredibly complex” issues that involve engineering and technical concerns, said Skip Horvath, president of the Natural Gas Supply Association, which represents major producers.

A broad coalition representing nearly all segments of the gas industry, equipment and appliance makers, power generators and others are scheduled to meet March 2 to address the wide range of technical and regulatory issues involved, noted Donald Santa, president of the Interstate Natural Gas Association of America.

He estimated that it would take weeks or months rather than years to complete the process, and asked the Commission to hold off on any action in the intervening period.

“This does not need to be a long, drawn-out process, I believe,” echoed Lori Traweek, a senior vice president for the American Gas Association, which represents LDCs.

There is a “sense of urgency but not a sense of panic” with respect to establishing interchangeability standards, said Keith Barnett of American Electric Power (AEP), who spoke on behalf of the Edison Electric Institute.

Industry representatives at the FERC conference were mixed on whether the scope of the standards should be national, regional or pipeline specific. They also appeared to be divided on which gas properties should be standardized — such as hydrocarbon content, heating value, the Wobbe Index (measures the interchangeability of gas at the burner-tip), and hydrocarbon dew point. They generally agreed, however, that FERC should avoid approving standards with specific numerical targets, but instead should propose reasonable ranges.

Who should be involved in developing standards? Industry representatives believe FERC, state regulators, the North American Energy Standards Board (NAESB), the Natural Gas Council and industry all have roles.

NAESB’s Executive Director Rae McQuade noted that Florida Power & Light asked the standards-setting group to investigate whether gas quality standards should be developed. It will decide whether to add the issue to its 2004 agenda at its next board meeting on March 18, she said.

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