A threatened shut-in of 250 MMcf/d or more of deep-water gasproduction connected to Southern Natural Gas Co.’s system wasaverted — at least temporarily — as the owners of keyprocessing facilities in Louisiana last Thursday re-started some oftheir operations to satisfy the long-line pipeline, which claimedthe production fell short of its specifications for delivery. Theproducers, however, said their gas more than met Southern Natural’squality specs, and that they were being unfairly held to a higherstandard than other shippers on the pipeline’s system.
The dilemma facing Southern Natural — whether to shut inpossibly out-of-spec gas during a tight demand period — is onethat a number of other pipelines soon might have to address sinceproducers, seeking to capitalize on the high gas prices, are optingto forego the processing stage, leaving heavier liquids in the gasstream to increase the heat content and value of the gas.
The owners of the processing facilities — a few of which arethe producers whose gas would have been shut in — agreed to aneleventh-hour “economic arrangement” that called for one of twoplants in Toca, LA, which are operated by Enterprise ProductsOperating L.P., to become “fully operational” last Thursday,Southern Natural told FERC on Jan. 8. The plant had ceasedoperations this month, citing economic reasons. A third processingplant in Toca operated by Western Gas Resources also agreed tore-start operations Thursday.
In keeping with the agreement, Southern Natural reported thatthe Western-operated plant in Toca had received sufficient volumesto recommence its 150,000 Mcf/d facility. However, a mechanicalproblem arose when the Enterprise Toca II facility was being testedfor start-up. Thus, the 250,000 Mcf/d plant did not return tooperation last week, but repairs were to be finished by Saturday(Jan. 13). The 750,000 Mcf/d Toca I facility had never ceasedoperating.
A knowledgeable source stressed the agreement with the plantowners was only temporary, providing for the Toca facilities to beopen on a “day-to-day basis.” There is “no commitment [by theparties] even through the end of the month.”
Consequently, “if the owners decide to shut it [the facilities]down again, we still are threatened with shut in” of gas productionby Southern Natural, the source noted. While there is “someoverlap” between the producers and plant owners, “the producersbehind-the-plant cannot control the decisions of the plant owners,”and thus shouldn’t be penalized for them, she said. Some of theplant owners are Amoco Production, Conoco Inc., Duke Energy, DynegyMidstream, Exxon Co. U.S.A. and Louisiana Land & Exploration
Southern Natural threatened to shut in the producers’unprocessed gas if the Toca I processing facility did not re-openits doors by Jan. 8. The pipeline claimed the producers’ gasallegedly was exceeding its tariff’s limitation for the amount ofhydrocarbons permitted in the gas stream, which is set at 0.3gallons per Mcf (GPM). The El Paso Energy pipeline, however, vowedto postpone its shut-in plans last week, provided all the gasupstream of the Toca facilities was being processed starting Sunday(Jan. 14).
This greater-than-normal amount of hydrocarbons in the gas isposing operational concerns for its system, Southern Naturalcontends. The hydrocarbons turn into liquids that fall out insidethe pipeline or inside end-use plants or at LDC regulator stations.If the regulators at LDC delivery points freeze due to the presenceof hydrates in the liquids, distributors often are prevented fromdelivering gas to their downstream markets, it noted.
The owners of the Toca facilities, as well as other processingplant owners around the nation, are choosing to suspend theirprocessing operations for economic reasons, asproducers find theycan nab higher prices for heavier, hydrocarbon-laden gas in thecurrent seller’s market, critics say.
Four producers and a marketer – Amoco Production Co., BPExploration & Oil Inc., Chevron U.S.A. Inc., ExxonMobil GasMarketing Co., and Shell Offshore Inc. – had responded to thepipeline’s warnings by filing an emergency petition at FERC for atemporary restraining order (TRO) to prevent Southern Natural fromshutting in their gas.
The producers contend that Southern Natural is holding them to a”higher standard” than other supplies entering its system at otherlocations, which they claim have a “higher liquefiable content”than their unprocessed gas. The most recent gas analysis indicatedthat – even when only one Toca plant (Toca I) was running – thequality of the upstream gas stream on Southern Natural was 0.161GPM, which was “well within” the 0.3 GPM spec, they said.
“It is apparent that the [Toca processing] plant is not, atleast in our view, the real cause of the problem here because our[producers’] blended gas stream is well below spec,” said thesource familiar with the case.
“The real problem on their [Southern Natural’s] system is theirliquids quality spec is too high at all the other pipelineinterconnects. Gas is coming in at 0.3 spec, which their systemcan’t take. So they’re coming to us (our spec is 0.16 now), andthey’re trying to get us to strip out more to make it even lower.We need a technical conference to address this issue.”
Atlanta Gas Light (AGL), the largest capacity-holder on SouthernNatural, called on the Commission to reject the producers’ petitionfor emergency relief, saying it “raises very serious operationalreliability and safety issues for the markets and customersdownstream of the Toca gas-processing facilities.
Likewise, a group of municipal distributors in Alabama opposedthe producer’s request for a TRO, saying the current “economicincentive” for unprocessed gas was not a “justifiable basis” forproducers to refuse to meet the quality specs of Southern Natural’stariff.
They further noted they “[were] distressed by the game ofchicken that is now being played out” by producers, who “have, ineffect, threatened not to process the gas and thereby requireSouthern to shut gas in at a key point on [its] system.” Such ashut-in would result in 1) curtailment of distribution load; 2)pressure to raise gas prices in an already “overheated” market atother receipt points on Southern’s system; or 3) a combination ofboth.
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