Producers and industrial gas consumers Thursday urged FERC to clarify the types of “unprocessed” transactions that should be reported in time for their next Form 552 report in July.
At a technical conference (see Daily GPI, March 18), the individual companies that are required to report these transactions told the staff of the Federal Energy Regulatory Commission (FERC) the murkiness of this issue has made what already is a difficult task — reporting annual natural gas purchases and sales to the agency — confusing and “more laborious.”
“Only three times in [Order] 704 was the word ‘unprocessed’ used…And now the whole industry seems to be wrapped around the axle because of whether to report or [not to] report unprocessed gas,” said Richard Smith, regulatory and compliance manager for Noble Energy Inc. Jerry Pederson, director of FERC’s Division of Energy Market Oversight, agreed, saying that there “wasn’t a lot of ink spilled on this issue” in the order.
“Here we are as a group trying to explain to [you all] what our different situations are, but I think we’re all in the same boat. It’s just trying to get the right words on the form so that we can comply” with reporting of unprocessed gas transactions, Smith said.
This is the second year that companies will be required to file Form 552s (see Daily GPI, June 29, 2009). The filings, which are due by July 1, will report a company’s total volume of sales and purchases for 2009; the volume of transactions that were priced at fixed prices; and the volume of transactions that were reported to price index publishers. The Form 552 reporting requirement sprang from Order 704, which FERC approved in December 2007 (see Daily GPI, Dec. 21, 2007).
Unprocessed natural gas transactions that occur prior to receipt at a processing plant are excluded from Form 552 reporting, but other transactions involving unprocessed gas are reportable if they use, contribute to or could contribute to an index. Three of five companies at the technical conference agreed that if title to natural gas changed at the wellhead and the gas was physically behind a processing plant, then it does not need to be reported to FERC.
“We looked at our wellhead contracts and determined where the title transferred. If the title transferred at the wellhead, [and] we knew the gas was behind the processing plant and was going to be processed, we excluded those contracts from further consideration on whether or not those volumes should be reported in Form 552,” said Mary Nelson, manager of regulatory affairs for Devon Energy Corp.
However, if the gas was never going to be processed, “we did report those wellhead transactions if the title transferred at the wellhead and it was a fixed price for next-day or next-month,” she noted.
Nelson believes much of the confusion stems from the different interpretations for “unprocessed” gas. For Devon, she said “unprocessed” gas must meet two criteria: 1) it must be “literally behind a processing plant,” and 2) the company knows it is “going to go through that plant.” Moreover other industry participants said FERC needs to clarify what it means by “could contribute to an index.”
Williams E. Shanahan, marketing manager of Chaparral LLC, said his company has a similar approach for reporting unprocessed gas transactions. “As a producer…the way we approach this is that if we were selling at the wellhead to a processor who had a gathering system, those volumes were not reported” to FERC, he noted.
However, “if we had a processing agreement where we [Chaparral] took the residue gas at the tailgate of the plant, we reported the residue gas because it usually sold” at an index or fixed price, Shanahan said. He noted that it took three Chaparral employees working four months to compile the information required on Form 552. “We went through every contract…It was a very laborious task for us.”
Noble’s Smith said his company did not report transactions where the title changed at the wellhead, the gas was behind the processing plant and it was for the most part not sold on an index or fixed price basis. However if the unprocessed gas was sold on index, then Noble Energy would report it, he noted.
Smith said it would help the industry if the Commission would limit reporting to “pipeline quality” gas.
Katie Rice, director of regulatory affairs for DCP Midstream LLC, outlined a different method for reporting the transactions. “We looked at everything at the tailgate” to determine whether they fit the index requirements “because that’s were we [transfer title], and that net amount is what we went and sold into the marketplace.
“So we did not report anything upstream of the plant,” she told the Commission.
John Poe, manager of regulatory affairs for ExxonMobil Gas & Power Marketing Co., said “we took the position that we’re not selling unprocessed gas here, although technically at the title transfer it was unprocessed,” Poe said, adding that any gas that contributed to an index was reported to FERC.
A FERC staff suggested that dropping the exclusion for the reporting of unprocessed gas may simplify things, but the panelists disagreed. “Taking it out…blows open the whole thing,” said Rice.
“If you did that we would have to go back and look at all the contracts [that] we excluded,” Nelson said. And “I don’t think my company could get that [Form 552] done by July 1,” she noted.
Industry participants also called on FERC to eliminate the requirement to report cash-out, imbalance and operational volumes on Form 552. A poll of several members of the Process Gas Consumers Group (PGC) found that they spent 32% of their time on cash-out data, but found zero volumes that had to be reported to the Commission, said Dena Wiggins, an attorney for PGC.
“That’s “a lot of effort for no data. Hopefully, [FERC will] eliminate it,” she said.
Matt Kerec, assistant commodity manager for Alcoa Inc., reported that cash-outs accounted for 0.4% of the volumes reported to FERC in 2008. And Poe said a poll of producer members of the Natural Gas Supply Association revealed that cash-outs made up less than 1% of total reported volumes.
“This [is] not an automated process,” Wiggins said, referring to the collecting of data on cash-out volumes. Even with the assistance of automation, “it took a significant amount of time to pull [this] data together,” Kerec said.
The panelists generally agreed that the reporting measure (TBtus) was an appropriate measurement. “I’m a liberal arts major…but my accounting people have no problem with it,” Nelson said.
“It is a simple conversion for us,” Kerec said. “At this point we’ve kind of got used to TBtus,” Poe agreed. But Wiggins said she’d “rather see something that is more commonly used in the industry,” such as MMcf or Dth.
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