Trade groups representing major producers and local distribution companies (LDC) have called on FERC to give industry more time to reach a consensus on the hot-button issues involving the energy content of the domestic gas stream and imported liquefied natural gas (LNG), but they did not say how much time would be needed.

There is “no hard-and-fast timetable” for when industry expects to finish its work, but it recognizes that “there is a need to address this with some urgency,” said Donald Santa Jr., president of the Interstate Natural Gas Association of America (INGAA) and a former FERC commissioner.

The Natural Gas Council (NGC) has established an industrywide coalition to develop guidelines and specifications for the quality of domestic natural gas entering pipelines, as well as the ability of LNG to be interchangeable with conventional U.S. gas supplies. It has had several meetings so far, with the latest held last Tuesday in Washington, DC. Several technical subcommittees have been created to look at specific issues, such as hydrocarbon dew point and LNG interchangeability, Santa said.

How quickly the industry coalition can wrap up its work “will be driven by what comes out of [subcommittee] meetings with the technical people,” he said, adding that he expects the effort to come to a close within months.

“I urge the Commission to give us time to work on a solution that is equitable and feasible to balance [the] needs of adequate supply and system integrity,” said a BP America executive in comments filed at FERC on behalf of the Natural Gas Supply Association (NGSA), which represents major gas producers [PL04-3]. “FERC must allow some time for the industry to advance its work in this area,” echoed the American Gas Association (AGA). Neither group specified a time frame for the industry effort, however.

FERC Commissioner Suedeen Kelly indicated in late February that the Federal Energy Regulatory Commission would likely initiate a rulemaking proceeding to address gas quality and interchangeability standards if industry fails at its task (see NGI, March 1).

Two Sempra Energy utilities, Southern California Gas and San Diego Gas & Electric Co., urged the Commission to set “a timetable…for this effort to allow all stakeholders to make timely decisions and minimize the risks of uncertainty” with respect to gas quality.”Time is of the essence…More certainty is necessary to allow for a broad range of LNG imports and reduce regulatory and investment risk.”

As industry seeks to obtain a broad consensus, FERC in the meantime will need to address gas quality issues on a case-by-case basis in pipeline tariff filings, noted the AGA, which represents LDCs. But it asked the Commission “not to let any case precedent usurp all of the work that is planned and that will be achieved by the industry in its effort to find the best solution to gas quality and gas interchangeability.”

The AGA also called on the agency to “explicitly recognize” that now was not the time for the North American Energy Standards Board (NAESB) to begin an independent process to establish standards for gas quality specifications, apart from the ongoing industry effort.

“First, many of the [industry] technical committees taking on the challenges are associated with other bodies that develop standards or industrywide used reports and also follow the ANSI [American National Standards Institute] process,” organizations including the AGA, American Petroleum Institute (API) and Gas Processors Association (GPA), the LDC group said. “If gas quality and interchangeability standards are necessary, it is these organizations that would likely promulgate them.”

There may, however, be a role for NAESB once industry technical committees and task forces conclude their work on gas quality, the AGA noted. They may then decide that there are “some specifications, processes, measurement techniques, reporting or communication protocols that are appropriate for NAESB standardization.”

If NAESB were to independently proceed now, it would lead to a duplication of the “same analyses, research and discussions that are ongoing…in the industry,” which would result in a “counterproductive depletion of the industry’s resources to adequately tackle the gas quality issues,” the AGA told FERC.

The increasing hydrocarbon content of domestic gas entering pipelines has become a prominent issue, causing industry members, particularly pipelines and LDCs, to urge FERC to approve tighter restrictions on domestic gas quality. A growing number of U.S. producers are tending not to strip hydrocarbons from their gas due to high gas prices and tight supply. Producers are able to fetch a better price for their gas if they leave the hydrocarbons in.

The interchangeability issue also has risen to the forefront as more Btu-enriched regasified gas is expected to be introduced into the U.S. gas stream from LNG imports, prompting pipelines to fret about the impact of the Btu-rich gas on the integrity of their systems and LDCs to worry about the safety of regasified gas for end-use customers. There also are potential costs for industrial customers to modify their equipment to accept this gas. The key issue is the extent to which LNG-sourced gas can replace conventional gas without unduly interfering with the operation of delivery systems and customers’ equipment and appliances.

The NGSA warned against creating standards that would call for “excessive processing” to limit the hydrocarbon content of the domestic gas stream, saying that this would further cut already stretched U.S. gas supplies and would send gas prices even higher. “By allowing the liquefiable hydrocarbons to remain in the gas phase, producers can effectively increase the supply of gas by increasing the Btu content of the gas from 2-10%. This means that we can stretch our difficult-to-find supply of natural gas.”

Recent cases in which individual pipelines have set restrictions on the hydrocarbon content of gas coming into their systems “have resulted in approximately 5% less supply available to affected customers during peak demand,” the NGSA said.

To avoid supply reductions and spiraling prices, the producer group said it believes individual pipelines should adopt in their tariffs a hydrocarbon dew point (HDP) specification that satisfies the operational conditions of their systems. “An HDP specification in the tariff also allows producers and processors to know what is expected of them, and allows downstream customer facilities to be properly designed to prevent a situation where hydrocarbon liquids fall out” and create potential hazards.

The NGSA also favors the so-called Wobbe Index specification replacing the minimum/maximum Btu tariff specifications as the appropriate gross heating value range. “The current practice of [pipelines] capping Btu content creates artificial supply shortages by not allowing processors and/or suppliers to increase the Btu content of the gas to meet demand.”

The AGA said it believes a “combined use of hydrocarbon dew point specifications and interchangeability indices with accompanying limits, in addition to the existing Btu and chemical composition specifications for gas quality, [are] now necessary to ensure merchantable quality gas for customers” that is safe and compatible with gas delivery systems.

An AGA survey of LDCs and other gas utilities reported “freeze-ups in meters, regulators and control lines, corrosion in the pipeline, costly disposal of hazardous liquids, and even outright supply disruption if enough liquids accumulate in the pipeline.” Gas with heavy hydrocarbon content results in “unpredictable behavior in equipment, including uncontrollable flame profiles, incomplete combustion and even complete flame extinguishment — all of which are equipment failures and which can lead to catastrophic events affecting customers,” the group said.

A number of LDC customers, particularly those in California, also fear that hydrocarbon-laden gas will cause them to exceed local air emissions standards, according to the AGA. End-use customers have many of the same concerns with the Btu-enriched, LNG-sourced gas that will be introduced in greater amounts to the domestic gas stream in the years ahead.

Unlike the AGA and NGSA, the Sempra Energy utilities did not single out which specifications that they believed to be most critical. They simply urged the Commission not to approve “prescriptive” national gas quality specifications, saying these could severely restrict much-needed gas supplies.

Instead, “all operators would benefit from a common set of well defined scientifically derived parameters to support them in their development of gas quality standards that will both maximize supply availability and insure gas merchantability,” they said.

The American Public Gas Association (APGA), which represents municipal gas utilities, stressed that quality problems caused by heavy hydrocarbons in the domestic gas stream and those related to LNG-sourced gas are “separate and distinct issues” facing the industry and FERC.

The APGA’s chief concern is the heavy hydrocarbon issue. “The reason that this has become a more acute problem in recent years is that due to high gas prices, certain producers/processors find it more profitable to leave the heavy hydrocarbons in the gas stream than to strip them out and sell as liquids — a phenomenon known as ‘upside down economics.”

Because of the elevated hydrocarbon content of the gas stream, the group cited several incidents where liquids leaked into municipal and LDC systems in South Carolina and Tennessee during the winter of 2000-2001 and created potentially hazardous situations for the systems and their end-use customers.

“APGA is hopeful that the NGC-led industry group can provide timely and acceptable solutions to the domestic gas issue; in the meantime, pipelines, which are themselves involved in a learning process as to how to handle the heavy hydrocarbon issue, should be allowed flexibility to prevent the real and serious problems that can be caused by hydrocarbons,” the municipal gas group told FERC.

“By the same token, APGA believes that the Commission should be cautious in requiring specific standards for heavy hydrocarbons on any given pipeline when there is insufficient experience to determine what standard will provide adequate protection to the interstate pipeline and its downstream customers.”

As for the interchangeability issues associated with LNG imports, they “may need to be resolved more quickly to the extent that substantial supplies of LNG are emanating from countries whose gas has very high Btu content,” the municipal group said. The NGC-led coalition, of which the APGA is a member, has established a task force to address this issue.

U.S. standards governing the interchangeability of conventional gas with LNG-sourced gas “should not be set in a vacuum,” but rather should be agreeable with standards established by other nations, two international gas groups advised FERC.

“If the U.S. is to be competitive in attracting global gas supplies, then any standards set by FERC should not be inconsistent or unduly burdensome compared with those established elsewhere,” said the International LNG Alliance (ILNGA) and International Gas Union (IGU) in comments filed at the Commission.

The ILNGA is sponsored by the United States Energy Association (USEA), and represents companies that aggregate and supply a majority of the LNG used in North America. The IGU is an international non-profit organization registered in Vevey, Switzerland that promotes technical and economic progress in the natural gas industry. Its members include associations representing gas industries in 67 countries. The ILNGA is part of the industry-wide coalition that is trying to resolve the gas content issues.

“The need for workable standards becomes more vital if the U.S. is to compete successfully for access to global gas supplies. Any new standards created by the Commission will have a substantial impact on the development of LNG trade and investment both within the U.S. and on commercial decisions made around the world,” the two groups said.

“Given the substantial investment required in the LNG value chain, the Commission must do its part to provide as much certainty as possible in the world market,” they noted, suggesting that FERC not waste time on pursuing a flawless interchangeability standard. “A clear and workable standard today is better than a quest for the perfect standard years from now.”

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