FERC sides with pipelines on natural gas interchangeability

Pipeline & Gas Journal, August, 2006 by Stephen Barlas

The Federal Energy Regulatory Commission (FERC) dealt a blow to efforts by gas suppliers to impose new natural gas interchangeability standards on interstate pipelines. FERC's decision in mid-June declining to initiate a rulemaking on interchangeability but to issue a policy statement instead was its answer to a petition submitted a year ago by the Natural Gas Supply Association (NGSA).

"We are pleased with the Commission's policy statement which sets forth five principles which we believe will provide all interested parties useful guidance and direction for addressing gas quality and interchangeability issues," says Joe Hollier, spokesman for El Paso Company.

NGSA had asked FERC for three new standards: a minimum safe harbor national cricondentherm hydrocarbon dew point (CHDP) of 15 degrees Fahrenheit, new interchangeability specifications for pipelines and implementation by pipelines of new tariff language requiring the non-discriminatory use of aggregation, blending and pairing.

The NGSA petition was submitted against the backdrop of greater LNG supplies entering the pipeline system. Natural gas traditionally delivered to residential and commercial users has consisted principally of methane. But as LNG supplies have come on stream, the gas in pipelines has contained more liquid hydrocarbons and non-hydrocarbon compounds affecting the quality of the gas, which can have an impact on pipeline operations and the gas-burning equipment of end-use customers.

Major pipeline systems such as El Paso sometimes use non-regulated processing plants to reduce the hydrocarbon content of the gas they purchase prior to it flowing into their pipelines. El Paso had opposed a rulemaking, favoring a policy statement instead. El Paso felt that HDP liquid fallout is a transient issue because it occurs primarily when the price spread between gas and natural gas liquids makes it less profitable for producers and processors to recover heavy hydrocarbons. Also, most of the hydrocarbon fallout issues currently known directly relate to Gulf of Mexico production. So it is not a problem for most interstate pipelines.

In explaining the decision to issue the policy statement, FERC Chairman Joseph Kelliher said: "The Commission has decided against pursuing a natural gas quality and interchangeability rulemaking at this time. That is based largely on a view that it is not apparent that natural gas quality and interchangeability is a national problem that lends itself to a national solution. It is also based on recognition that there is a need for significant research in this area, a need that is not disputed."

Both INGAA and the AGA had opposed a rulemaking and interchangeability standards. They support the pipeline-by-pipeline approach FERC adopted.