The power and gas markets look very different today from what we were anticipating three to four years ago. Gas has gone from seeming shortage to seeming abundance with recent spot prices falling...
LNG's Final Hurdle
Interchangeability issues threaten to delay vitally needed LNG projects.
gas imported to the United States, as many of the proposed facilities are sponsored by the major oil and gas companies that have upstream liquefaction capacity in nations with higher Btu gas (see Figure 1, “A World of Difference: LNG & Btu Variations,” p. 45). As a result, gas distributors and end-users are seeking assurance that “hot” gas from regasified LNG will not cause operational problems for their equipment. This potential problem is particularly important for low-NOx combustors on gas-fired power plants. At the same time, LNG project developers are reluctant to install capital equipment and make operational changes that might not be necessary.
One of the focal points now is the conflict between AES Corp., which is developing the Ocean Express LNG terminal in the Bahamas, and Florida Gas Transmission Co. (FGT), over a proposed interconnecting pipeline in the Sunshine state. 4 FGT sought to impose conditions on its interconnection with the Ocean Express pipeline that AES says are unfair and unduly restrictive.
Further, in late June 2005, several Florida utilities intervened against the Cypress Pipeline Project, an expansion planned by El Paso Corp. subsidiary Southern Natural Gas Co. The project would allow Southern Natural to move regasified LNG from its Elba Island LNG facility near Savannah, Ga., into Florida via an FGT pipeline in Clay County. Utilities intervening in the case cited concerns that “an abrupt change in fuel composition could cause end-users … to experience decreased reliability, increased costs, and equipment safety issues.” In addition, they cited WGL’s allegations of leaks resulting from regasified LNG impacts on seals, and expressed concern over possible similar results on their distribution systems. 5
These two cases came together at FERC in November 2005, when the commission decided in the Cypress Pipeline proceeding that interchangeability issues raised in that case “can be most appropriately resolved” in the AES Ocean Express v. FGT proceeding. In short, FERC is expected to require Southern Natural’s Cypress Pipeline to meet specifications similar to those that emerge from the AES Ocean Express case.
At the time of publication, FERC’s staff filed its brief in the AES proceeding urging the judge to implement various measures in the case. One recommendation is that FERC adopt the gas quality and interchangeability specifications proposed by FGT. Additionally, FERC’s staff recommends that the judge delay the implementation of the new tariff specifications until 2007 so that there can be further testing and investigation to discover whether the increased quantities of regasified LNG coming into the FGT system will impact negatively LDC and end-use facilities, including a determination of necessary “mitigation measures.” Finally, staff requests that the judge allocate costs amongst all pipeline shippers (LDCs, end-users, and the LNG importers), if mitigation measures are required. While the judge will rule independently of the staff brief, it is unclear to what extent the staff is anticipating, or informing, future commission approaches. It is also unclear what staff’s position portends for WGL’s complaint in the Cove Point expansion case.
While FERC has been very involved in gas quality and interchangeability matters, it is not