Gas Quality / Interchangeability
APGA Issue Brief
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Background: Natural gas is primarily methane, but also includes varying quantities of other hydrocarbons and impurities. Depending on the relative prices of these hydrocarbon fractions, producers may have an economic incentive to process gas and deliver mostly pure methane. Historically natural gas producers have processed gas to remove impurities (nitrogen, water, hydrogen sulfide, carbon dioxide, etc) and most of the heavier hydrocarbon fractions (ethane, propane, butane, etc.) before delivering the gas to the transmission system. However, when economics favor sales of natural gas over the hydrocarbons, producers may choose not to process. Recent shifts in the market for propane, butane, etc combined with high natural gas prices have encouraged producers to leave more of these hydrocarbons in the gas delivered to the pipelines. In addition, gas imported as liquefied natural gas (LNG) typically has more ethane, propane and butane than typical domestic gas and typically has a higher Btu content.

The Issues: Gas Quality - Heavier hydrocarbons may condense in either the downstream transmission or distribution piping, plugging meters, regulators and piping with “hydrocarbon liquid dropout”. Utilities must remove and dispose of these hydrocarbon liquids. Utilities that have paid for gas received by heating value have paid for the heating value of the condensate but since this portion of the gas is not delivered to customers the utilities do not receive payment for this portion of the gas. In addition, even though the gas may be within operating heating value tolerances, a gas deriving more of its Btu content from heavier hydrocarbons may cause combustion problems in customer utilization equipment.

There are no national standards for natural gas composition. Pipelines have attempted to address gas quality concerns by three different approaches: (1) specifying a maximum heating value in their tariffs; (2) specifying concentration limits for heavy hydrocarbons; (3) establishing CHDP (cricondentherm hydrocarbon dew point) limits to control liquid dropout. Producers have challenged the legality of these methods. The term “pipeline quality” natural gas is defined in each individual pipeline’s tariff, and these definitions vary widely from pipeline to pipeline.

Gas Interchangeability – Defined by the gas industry as the extent to which a substitute gas can safely and efficiently replace gas normally used by an end-use customer in a combustion application.

APGA Action: In 2004 APGA participated in two working groups convened by the Natural Gas Council (NGC). The Federal Energy Regulatory Commission (FERC) held public conferences to collect information in February 2004 and May 2005. APGA presented testimony before FERC in 2004 (Doug Moser of Philadelphia Gas Works) and 2005 (Leonard Phillips of Memphis Light, Gas & Water). Association participants representing producers, pipelines, utilities, appliance manufacturers and industrial gas consumers met on March 2, 2004 as the first step to develop a consensus on how to address the issue. Producers agreed that some quality standards were necessary however cautioned that setting unnecessarily stringent standards could reduce gas supply where it was not economical to process gas to the standard. In February 2005, the Natural Gas Council Plus, in which APGA was an active participant, circulated interim guidelines that were filed with the FERC as a common reference point for resolving gas quality and interchangeability issues.

On June 15, 2006, The Federal Energy Regulatory Commission adopted a generic policy statement on natural gas quality and interchangeability (PL04-3) that delineates five principles the Commission will use as it continues to address disputes over gas quality and interchangeability on a case-by-case basis. The policy statement relies on extensive input from the Natural Gas Council, representatives of end-users, appliance manufacturers, turbine manufacturers, local distribution companies, process gas users, gas processors, natural gas producers and pipelines, Commission technical conferences, various industry reports and comments filed for Commission consideration.

The following five principles are delineated in the policy statement:

In addition, there's an effort underway at NAESB which APGA is following to 1) bring pipeline gas quality reporting more in line with the Policy Statement, 2) rework the current standards language to remove any ambiguity that some pipelines have relied upon to withhold gas quality information they current collect from the reports and 3) improve the user friendliness of the gas quality file downloads from pipeline websites. In early 2007, The NAESB Wholesale Gas Quadrant Business Practices Subcommittee passed several modifications to existing gas quality reporting standards as well as a few new standards. The changes are aimed at improving access to gas quality information collected by pipelines and eliminating ambiguities in existing standards language that some pipelines relied upon to avoid reporting data they collect or could collect with minimal effort. Many standards received unanimous support while others were opposed by pipelines only. The NAESB Executive Committee will vote on the proposed standards in its May 2007 meeting.

3/21/07