Major natural gas producers are seeing red flags everywhere inthe wake of Petal Gas Storage L.L.C’s decision to scrap itsoriginal proposal to build three new pipeline interconnects to itsstorage facilities in Mississippi. They contend the proposal hasbeen amended to benefit Petal’s new-found affiliates at the expenseof non-affiliated customers.

At the eye of the storm is Petal’s move to eliminate proposedinterconnects with Transcontinental Gas Pipe Line, Southern NaturalGas and Destin Pipeline, which were included in its originalapplication. Instead, Petal now seeks to expand its existinginterconnect with new affiliate Tennessee Gas Pipeline, whichserves Petal’s storage facilities in Forrest County, MS. Likewise,Tennessee says it plans to ask FERC for authority to expand its 500Line to accommodate increased deliveries from Petal. El PasoEnergy, parent of Tennessee, also owns Petal Gas, having purchasedits parent company in January.

Indicated Shippers, which include Chevron U.S.A., ExxonMobil GasMarketing, and Shell Offshore, want the Commission to either deferthe deadline for comments and/or protests to Petal’s amendedapplication until Tennessee files its companion application, orestablish a technical conference to explore the market effects ofPetal’s altered proposal.

Producers believe FERC should take a closer look at whetherPetal should be allowed to continue to charge market-based ratesfor storage services in light of the new proposal. The Commissionokayed market-based pricing for Petal as part of astorage-expansion project it approved last month [CP99-615], butthat decision was based on a market-power evaluation that assumedPetal was going to interconnect to Destin, Transco and Southern,they pointed out. Without the Transco/Southern/Destininterconnects, shippers contend access to Petal’s storagefacilities will be limited to Tennessee and Koch Gateway.

Although some favor FERC stripping Petal of its market-basedpricing authority, Indicated Shippers didn’t go that far. However,they did ask that Petal be directed to update its market-powerstudy to reflect the impact of affiliated storage on Petal’sfacilities – specifically, Tennessee’s and Sonat’s Bear CreekStorage Field and Tennessee’s northern storage – and the fact thatan affiliate pipeline (Tennessee) connects Petal to the affiliatestorage.

“Petal describes its proposal as a “stand-alone” project, but infact the project appears dependent upon Tennessee’s anticipatedexpansion of the 500 Line,” for which the pipeline has yet toconduct an open season let alone make a filing at FERC, IndicatedShippers said. The “apparent implication” in Petal’s filing is thatit won’t be able to meet the agreed-upon firm deliverability needsof Southern Company without the Tennessee expansion, they noted.

Petal’s proposed expansion is based on a 20-year precedentagreement to provide 7 Bcf of new firm storage capacity and 700,000MMBtu/d of firm deliverability to Southern Company, a major powergenerator. Southern Company executed the agreement with Petal underthe original proposal calling for interconnects with Transco,Southern Natural and Destin. It has expressed some reservationsabout whether the combined proposals of Petal and Tennessee will beable to meet its requirements.

Susan Parker

©Copyright 2000 Intelligence Press, Inc. All rightsreserved. The preceding news report may not be republished orredistributed in whole or in part without prior written consent ofIntelligence Press, Inc.