With liquefied natural gas (LNG) expected to become a “key piece of the supply picture” in the United States, a Shell executive on Tuesday called on the Federal Energy Regulatory Commission to consider adjusting quality specifications so that Btu enriched regasified gas can substitute for conventional dry gas in the transportation system without causing “any appreciable change in burner performance or safety of product.”

“If [the issue is] not addressed, we are limiting ourselves to the amount of supply globally that we can access,” said John Hritcko Jr. during a day-long Commission conference addressing the conclusions of the recent National Petroleum Council (NPC) study on natural gas supply-demand, which he helped to author (see Daily GPI, Sept. 26). Hritcko led the group on LNG.

This may “manifest itself in slightly different quality specifications for some of the interstate pipelines that will be receiving [regasified] supply” and transporting it customers, he noted. But, that’s not the end of it, other witnesses said.

Any adjustments to pipeline quality standards will require “pervasive stakeholder” contributions on the Btu issue “to get it right,” said Keith Barnett of American Electric Power (AEP), who also was involved in the NPC report.

“Don’t take [this] lightly,” he cautioned FERC. He said changes in quality specifications — notably the fluctuation in the Btu content of gas — had a “profound impact” on one company he knew, and forced it to throw away millions of dollars of product.

Gas customers that potentially could be most affected by the higher ethane content in regasified supply are process gas and utility users, according to Hritcko. Despite the higher ethane and Btu content of regasified gas, he said residential householders still would be able burn it in their appliances. “We’ve simply tuned our system to a much lower Btu standard” in the past. Many household appliances would not have to be modified to deal with the higher ethane in the regasified supply.

He noted that the Southern California market is particularly concerned about the interchangeability between regasified and conventional gas because it is looking to use LNG as a vehicle fuel.

FERC “has seen some of these gas quality issues crop up already” in cases involving Cove Point LNG and Trunkline, said Commission Chairman Pat Wood. He agreed that updated quality standards may become more of an issue as more LNG terminals are sited near market centers, which would lessen the opportunities for regasified gas to blend with conventional supply.

“That’s why it makes it even more imperative if we were to access certain [LNG] supplies that our technical folks say, in fact, are usable in the market area, that we need to address our quality standards,” said Hritcko.

“From the pipeline side, dilution [with conventional gas] only goes so far. [As] you bring more terminals on and you get more supply coming, you’re not going to have the ability to blend down to the levels that you’ve seen in these earlier [LNG] plants,” noted Scott E. Parker, who oversaw the NPC’s transmission and distribution task force.

Chuck Lindeman, representing the Edison Electric Institute, said a higher Btu gas stream could have pervasive consequences for end users and called it “a festering issue.”

The NPC study projects that U.S. LNG capacity, which currently is estimated at 2.5 Bcf/d, will grow to approximately 12-15 Bcf/d over the next two decades. In addition to expanding the four existing import terminals in the continental U.S., five to seven new terminals are planned for the country over that period, and two terminals are expected to be built in Mexico.

There also presently are “multiple discussions going on in the Northeast” to site LNG facilities in Canada — in Nova Scotia and St. Lawrence, a FERC staff member said during the conference.

World LNG market is vast, with proved reserves pegged at 6,270 Tcf, but the United States is by no means guaranteed a plentiful supply, said Hritcko. The United States is competing with Asian and European markets, which also face mature gas basins and are willing to pay competitive prices for LNG, he noted.

“There are factors that do, in fact, throttle that unbridled volume” from coming into the United States, especially the slower permitting process for LNG import terminals here, Hritcko said. “There will be [stiff] competition for that supply,” he noted, warning regulators not to “automatically assume it will come to the U.S.” The NPC report called on the federal government to accelerate its permitting of LNG facilities.

Jerry Langdon, who coordinated the entire NPC report, noted that while demand for gas has grown considerably, production in the Lower 48 states “has begun to plateau,” making LNG imports and Alaska gas critical supply contributors in the years ahead. Traditional North American production areas will provide 75% of the long-term demand, with LNG and Alaska gas filling the gap.

Large industrial customers, who have been rocked by high gas prices, said it “[was] not a realistic assumption” for the market to believe they will resume operations when gas prices moderate, said Dena Wiggins, general counsel for the Process Gas Consumers Group, who led the NPC’s industrial utilization subgroup.

Industrials point to a “relatively gloomy picture of expected industrial growth” in the years ahead, she noted, and they said gas prices were not the “primary driver” for their decisions to either reduce operations or exit the market completely. They cited labor, exchange rates, financing arrangements and regulatory limitations as factors.

On the gas demand side, Wiggins said a “common misperception” is that industrials have extensive fuel-switching capability. The Department of Commerce has estimated that industrials can switch up to 26% of their demand to alternate fuels during times of tight gas supplies and high prices, but the industrials find this “laughable,” she noted. The figure is closer to 5-10%.

AEP’s Barnett said the same holds true with power generation. Both the Energy Information Administration and FERC have estimated that approximately 100 Gw of generation has dual-fuel capability. But fuel switching by power generators isn’t evident when gas prices spike, he noted. Barnett estimated that less than 20% of the new generation coming on line has alternate-fuel capability, mainly because stricter environmental restrictions make it hard to burn oil.

While coal is still king in power generation, he told FERC that the natural gas and power markets “are going to get more connected over the years,” with power generation become increasingly dependent on gas. One consequence is that term power prices are becoming “very highly correlated” with natural gas prices.

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