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Messing With Texas

Armed with calls for gas price transparency, FERC takes aim at intrastate pipelines—the long-forgotten and largely private preserve of the Lone Star State.

Fortnightly Magazine - October 2007

gate. Nicor maintains major receipt and delivery points with eight interstate pipelines. Wholesale shippers normally may bring in gas from any of those interstate pipes, but Nicor explains that it cannot track through any meter the actual flows of its wholesale shippers. That’s because the gas that flows through Nicor Gas meters, the LDC says, is an aggregate of company use gas, sales to end users, intrastate retail shippers, and wholesale shippers both intra- and interstate.

“It is not a matter of investing in additional equipment,” reports Nicor. “Additional meters would not be able to differentiate between the aggregated flow.”

And even when intrastate gas flows do connect directly to interstate pipes and hubs, aren’t such flows merely duplicative of scheduled flows already reported by the interstate pipelines, as required by FERC Order 637?

Consider also the gathering and processing industries. Hess Corp., a producer, gatherer, and aggregator of natural gas processed at its Tioga gas plant in North Dakota, receives gas deliveries from royalty owners or working interest owners “behind” its processing plant under “percentage-of-proceeds-type” arrangements, that seemingly have no relationship to prices, nominations, or contractual obligations:

“These sellers are not, on their own behalf, active in the daily or monthly gas markets,” notes Hess.

“Instead, all of the behind-the-plant sales are computed derivatively and retroactively through plant accounting, which rests on amassing, often manually, wellhead meter runs, measuring the inlet and residue volumes at the plant … and finally arriving at an amount due [the] seller for the gas month.

“Given the small daily production volumes of many of these wells, it simply is not economic to generate accounting reports down to the wellhead level.”

In short, many intrastate pipelines appear to operate in a purely physical and operational world that appears quite divorced from regional or interstate markets. Flows on such pipelines appear irrelevant to market prices, and may even distort assumptions about deliveries and receipts at hubs, trading centers, or interstate pipelines.

By contrast, Sequent Energy Management LP suggests that FERC would be better served by collecting relevant, real-time trading data from two of the nation’s most active gas trading platforms, the Intercontinental Exchange (ICE) and the Chicago Mercantile Exchange Globex trading platform (CME Globex).

In 2006 alone, as Sequent explains, ICE hosted more than 121 million North American gas contracts with a total aggregate commodity value of $2.289 trillion. Sequent adds that market data produced by ICE “is of sufficient quality to have independent commercial value, as ICE is a wholesale data provider for numerous third-party information vendors, including Bloomberg, CDQ, Interactive Data Corp., and Reuters.”

Noting that such platforms collect real-time pricing, volume, and transaction detail, Sequent recommends that such platforms “be the starting point for the commission’s new information collection activities.”

Metering and Telemetry

Beyond questions of jurisdiction and relevance, however, the primary obstacle facing FERC and its proposed rulemaking stem from the apparently overwhelming cost burden that intrastate pipelines may well face in fashioning compliance.

Simply put, it would be a mistake to assume that Midstream and intrastate pipelines are flush with EFM (electronic