The Independent Petroleum Association of America (IPAA), which represents the nations independent gas producers, came out strongly against a proposal to reinstate interstate pipeline surcharges on transported natural gas for the purpose of funding gas research and development (R&D) by the Gas Technology Institute (GTI). IPAA also said other associations representing major producers and large gas consumers were preparing to file comments with FERC in opposition to GTI’s funding proposal.

GTI filed the plan with FERC earlier this month (see Daily GPI, July 2). It would replace the current Gas Research Institute (GRI) surcharges, which are being phased out starting on Aug. 1 because of a settlement agreement the industry signed in 1998. GTI is requesting that a 0.56-cent/Dth surcharge be added to interstate pipeline tariffs and levied on gas transportation starting in January. It amounts to about one-third of the GRI annual R&D funding requirements from 2002-2004.

However, the IPAA said the amount is still far too much to pay and provides very little research for producers. “Natural gas producers recognize the need for research and development, but IPAA believes it can be accomplished through alternatives other than GTI,” said IPAA Vice Chairman Mike Linn, president of Pittsburgh-based Linn Energy.

“Natural gas producers and major natural gas consumers agree — the GTI is not needed and has become a drain on the natural gas segment’s resources at a critical time,” he said.

Linn also said IPAA believes GTI is planning to direct too much of the funds it will collect toward non-E&P related research “despite the consequences to the natural gas market that supply insufficiency can cause.” Out of its $48 million in proposed annual funding for 2005, GTI intends to set aside $7 million for gas supply R&D, $11 million for gas transmission, $19 million for gas distribution, $7 million for gas utilization and $4 million for program management and administration.

However, IPAA said voluntary and private R&D funding, as well as federal R&D funding, already is playing a “critical and worthwhile role” in the natural gas industry. “These contributions should be expanded, but GTI’s funding should not,” he said.

The funding of GTI has been debated for years. In 1998, a settlement among stakeholders was announced by the Federal Energy Regulatory Commission and GRI was phased out with the last of the surcharges ending by Dec. 31, 2004. GTI replaced GRI but now it is telling FERC the settlement agreement was not binding because it was entered into by its predecessor organization, GRI.

“The 1998 settlement was designed to allow time for the GRI/GTI operation to demonstrate that its research program provided the value and results that warranted private funding,” said Linn. “GTI was not able to demonstrate its value and should not try to reopen the funding approach it agreed to terminate.”

IPAA noted that GTI is claiming a broad industry consensus in favor of reinstating the surcharge and supporting mandated charges to fund R&D. In announcing the proposal, GTI President John F. Riordan said the organization “found strong gas industry and stakeholder support for a collaborative approach to research and technology development and demonstration. We think the proposed surcharge mechanism addresses the RD&D funding issue in a fair and equitable way.”

In the executive summary of its FERC application, GTI also said the industry “stands essentially united in acknowledging the need to use the advance approval process to fund this proposed program.”

IPAA said the Natural Gas Supply Association (NGSA), which represents major gas producers, and the Process Gas Consumers Group, which represents large gas consumers, also oppose a new surcharge. “Some major natural gas producers will be using outside counsel to file strong comments in opposition,” IPAA said. NGSA did not return calls on the matter. Aug. 9 is the deadline for filing comments and interventions at FERC on the GTI proposal. IPAA said it soon will be filing opposing comments based on “legal and policy grounds.”

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