Saturday, December 1, 2007
Controversy flares over LNG quality standards.(Washington watch)
1 December 2007
Underground Construction
Stephen Barlas
Spectra Energy's Algonquin Gas Transmission is getting hit from all sides over the quality of the liquid natural gas (LNG) it expects to bring into the U.S. via the Northeast Gateway project in Massachusetts Bay. Greg McBride, vice president, rates and economic analysis, Spectra Energy, says, "As you would expect, the pipelines for the most part are in the middle in this. The LNG suppliers are on one side; they want gas quality specifications that are fairly broad. Customers want more narrow specs."
The debate has also set LNG suppliers against local distribution companies, both of whom have engaged in some creative name calling. For example, Consolidated Edison, a major northeast distributor, sniffed that Statoil, the Norwegian company which apparently won't even drop off LNG at Northeast, is taking a "cavalier" approach toward Con Ed's peak-shaving facility, which Con Ed says "is not a bakery." Dominion Transmission Inc., another LNG supplier like Statoil and essentially its ally, says Algonquin is following the "Goldilocks Theory" arguing that because some say its proposed nitrogen limit is too high and others say it is too low, it must be just right.
Rhetoric is definitely flowing fast and deep as FERC decides whether it should reconsider the gas quality standards it has already approved for Algonquin which has completed 13 miles of pipeline to connect its existing offshore terminal to a fleet of specially designed Energy Bridge Regasification Vessels (EBRVs) owned by Excelerate Energy L.L.C. The FERC's reconsideration of such things as the Wobbe range, nitrogen level and hydrocarbon content of the LNG. Algonquin expected to start selling in late November and that underlines what is likely to be the precedent-setting nature of FERC's final decisions as new LNG delivery points coming on board, such as the Suez Neptune facility which will compete with Northeast in Boston, the Repsol Energy North America Corporation facility in Canada which will start delivering LNG through Spectra's Maritimes to the U.S. in November 2008 and Weaver's Cove, project slated for Fall River, MA.
Algonquin, the major natural gas supplier to the northeast U.S. along with Iroquis, already brings in about 7-8 percent of its 1.6 Bcf/day of throughput from the Distrigas facility in Boston. Distrigas gets its LNG from Trinidad; there have been no issues about the quality of that gas. However, Algonquin could take as much as 800,000 Mcf/day from the Northeast Gateway project, which was supposed to start operating in late November.
Algonquin had tried for the past two years to hammer out a consensus agreement on gas standards with local distributors such as KeySpan (the largest firm customer on Algonquin), Con Ed and local New England LDCs. Owners of electric generating capacity such as FPL and gas suppliers such as BP have been involved in the discussions, too. But players in each of those three categories have big problems with the Algonguin gas standards that FERC has endorsed. The FERC is now taking a second look at those standards.
Some of the local distributors in New England and Con Ed are unhappy with the 2.5 percent nitrogen cap Algonquin has proposed. They want a 2 percent cap instead. Distributors store liquefied LNG in peak-shaving facilities during the summer for use during the winter. Too much nitrogen in the LNG leads to frozen liquid. Potential suppliers such as Statoil and BP want a higher nitrogen cap at around 4 percent because they often add nitrogen to the gas they bring in to the U.S. in order to drive down high Wobbe numbers. Wobbe is a measure of the interchangeability associated with different qualities of natural gas, and is expressed in a numerical range.
The issues are so complex that some key parties take Algonguin's side on one issue, but oppose it on another. For instance, KeySpan supports the 2.5 percent nitrogen cap. However, KeySpan is opposing Algonquin on a second issue: it wants a limit on hydrocarbon constituents for ethanes and heavier hydrocarbons of 10 percent. Algonquin, which has proposed a 4 percent level, calls a 10 percent level "unacceptable," arguing it would cut off an additional six sources of LNG supply.
The New England LDCs are siding with KeySpan on the hydrocarbon constituent issues but part company on nitrogen, supporting a 2 percent nitrogen level; they cite Algonquin's historical data which shows that nitrogen levels on the Algonquin system are between 0.5 percent and 1.75 percent. Statoil and BP argue that even the 2.5 percent nitrogen level will cut off important supplies. It says LNG from places such as Qatar, Algeria and Nigeria will need nitrogen injection to reach the Wobbe numbers specified by Algonquin. Statoil wants a 4.0 percent nitrogen cap.
House Considers Diluting FERC's Authority On LNG Siting
While LNG gas quality standards are at issue at FERC, across town on Capitol Hill the siting of LNG terminals is again raising its head as a controversial political issue. When Congress passed the energy bill of 2005, it gave FERC exclusive authority to determine whether an LNG terminal could be built in a city or county. But with new LNG sites being proposed almost daily, and local groups seeing their political influence eroded by the 2005 legislation, Democrats on Capitol Hill are attempting to provide local opponents of LNG some new political muscle.
That would be in the form of amendments to the Coast Guard authorization bill (H.R. 2830) about to be passed by the House. The Coast Guard, a division of the department of homeland security (DHS), has responsibility now for only ensuring that a tanker carrying LNG can get up and down a ship channel to deliver its LNG to a terminal. The Coast Guard, while it does have some security responsibilities with regard to LNG, does not have final responsibility for siting a terminal. Only FERC has that authority.
But the amendments sponsored by Rep. Ed Markey (D-MA), whose district includes the Distrigas terminal in Everett, MA, seems to give the DHS veto power over FERC on LNG siting. The bill requires the approval of the secretary of homeland security in the licensing, approval, and authorization process for LNG facilities. That approval would have to be based on a very comprehensive investigation on the facility's vulnerable to potential terrorist attacks. Moreover, another amendment would allow the federal government to tax LNG carriers for security provided by the Coast Guard.
Bill Cooper, executive director, Center for Liquefied Natural Gas, calls that a discriminatory tax because LNG ships are only a small proportion of the ships entering a harbor with an LNG terminal. What makes it worse, he adds, is that the tax receipts would go to the federal Treasury, not the Coast Guard, so the money could be spent on anything. With regard to the two amendments, Cooper states, "They are something to worry about, and something to work on, which our member companies are doing." Of course, the Coast Guard, even minus the new authority the Markey amendments would give it, has slowed down some LNG projects. In October, the Coast Guard stopped the Weaver's Cove terminal in Fall River, MA, which already has FERC construction approval. The Coast Guard was concerned about bridges obstructing passage of LNG tankers, and some other issues. Jim Grasso, a spokesman for Weaver's Cove Energy, calls the Coast Guard ruling "a setback." But he says Weaver's Cove is confident it will be able to resolve the Coast Guard concerns.
