Going With the Flow: Shift in Direction Presents Challenges

November 2013, Vol. 240 No. 11

Brian S. Heslin, attorney, Moore & Van Allen, Charlotte, NC

Fracking in the Marcellus Shale has markedly increased the supply of natural gas produced in the Appalachian Basin, which is typically of higher quality than gas produced from the Gulf. This increased supply has resulted in a shift in the historical pattern of gas flow.

Natural gas historically has flowed downstream from the Gulf to the North, and gas did not physically flow upstream in the reverse direction. To transport gas from north to south, gas would be taken out upstream (in the South) and the same quantity of gas would be put back into the pipeline downstream (in the North).

This displacement of gas known as backhaul transportation also would take place in the transportation of gas from east to west on pipelines that historically have transported gas from west to east. The increasing quantities of natural gas entering pipelines from the North has resulted in gas actually flowing both downstream and upstream through pipelines and has required pipelines like Texas Eastern to address controlling the quality of gas now flowing upstream.

The Quality Of Natural Gas
Natural gas is composed primarily of methane and contains a mixture of other hydrocarbon gases and additional components that affect natural gas quality, including ethane, propane, butane (“C2+ gases”), and water, carbon dioxide, oxygen, sulfur, hydrogen sulfide, nitrogen and helium. The levels of these C2+ gases and additional components differ depending upon the original source of natural gas, and gas is subjected to processing to remove some of the contaminants and hydrocarbon gases that can be liquefied as natural gas liquids (NGL).

The resulting variations in the composition and quality of natural gas presents a challenge to pipelines in that many of the contaminating components and NGLs pose a threat to the safety and reliability of pipeline and end user operations and equipment. With the increasing interdependency of the natural gas and electric industries, the bidirectional flow of natural gas presents challenges to gas-fired electric generators.

High C2+ gases can cause serious problems for gas-fired electric generators by impairing the functionality of gas turbines and possibly waiving the warranty on the turbines, particularly if the C2+ gas levels exceed 12%, the heating value exceeds 1110 Btu, and the Wobbe Index Number (a measure of gas interchangeability) exceeds 1400.

To mitigate the threat posed by contaminants and NGLs, pipelines establish gas quality limits in tariffs that delineate acceptable levels of contaminants and C2+ gases in the natural gas that will be transported through the pipeline. Pipelines also may blend streams of natural gas of differing qualities in order to create a combined stream that meets its gas quality standards.

The Texas Eastern Control Zone
To address the increased supply of higher quality natural gas from the Appalachian Basin, Texas Eastern came to an agreement with its customers in 2010 to establish a control zone that allows the pipeline to receive gas that exceeds its tariff quality specifications between the discharge side of the compressor station in Berne, Ohio and the discharge side of the compressor station in Uniontown, PA.

Under this Control Zone Exemption to its tariff, Texas Eastern agreed to accept non-conforming gas in the Control Zone, with the proviso that a blended stream of gas can be created that meets the tariff specifications by the time the gas reaches the control point at the discharge side of the Uniontown compressor station. Texas Eastern agreed to accept non-conforming gas with up to 17% C2+ gases, a heating value of 1150 Btu, and a 1430 Wobbe Index Number, and the mechanism of the control zone allows the pipeline to blend the gas to ensure that conforming gas flows east as it leaves Uniontown.
The control zone, as initially established, protects the pipeline and its customers east of Uniontown. But, the volume of non-conforming gas produced in the Appalachian Basin that flows into the zone at times exceeds the demand of Texas Eastern’s customers east of Uniontown, and the excess gas is directed to flow in reverse to customers west of Berne.

In June 2013, Texas Eastern filed a request for a tariff revision to establish a second control zone west of Berne to control the quality of gas now flowing west on its system. Texas Eastern argued that the Control Zone Exemption was created based on the critical assumption that gas would continue to flow from south to north and west to east. Therefore, the unanticipated volume of production from the Appalachian Basin and resulting change in the direction of gas flow constitute material changes that would permit modifications to the tariff under the terms of the 2010 settlement agreement.
Texas Eastern proposed to add a second control point west of Berne, which would allow the pipeline to implement the same mechanics to ensure that conforming gas flows west on its system. According to FERC’s July 31, 2013 order, “Texas Eastern contends that the consequences of delivering the high C2+ gas west of Berne could be serious because this area includes delivery points for a number of gas-fired generators that could experience significant impacts to their operations if C2+ levels exceed 12%, the Btu level exceeds 1110, and the Wobbe Index Number exceeds 1400.”

Texas Eastern has taken the position that the bidirectional flow of non-conforming gas along its pipeline threatens the pipeline and its markets west of Berne, constituting an “operational emergency.”

Texas Eastern’s proposal to create a second control zone was met with mixed reactions. Some parties opposed the request on the grounds that the reverse flow of gas does not present an operational emergency or material change sufficient enough to modify Texas Eastern’s tariff under the settlement agreement.

Parties argued “the reversal of flow on the Texas Eastern system does not constitute an operational emergency as suggested by Texas Eastern because the reversal was quickly remedied by critical alerts and voluntary producer actions consistent with Texas Eastern’s existing tariff.”

Others contended “gas quality specifications must be as flexible as possible and that Texas Eastern’s assertions concerning issues with gas quality simply do not support its proposal to institute new limits which upset tariff provisions that resulted from years of discussions with its shippers.”

FERC ultimately concluded that a technical conference was the best forum to address the concerns raised about Texas Eastern’s proposal to create a second control zone, which “may be unjust, unreasonable, unduly discriminatory, or otherwise unlawful.” FERC accepted and suspended Texas Eastern’s proposed tariff record until Jan. 1, 2014, pending the outcome of the technical conference.

The Sept.12 technical conference and subsequent motions to intervene filed by additional parties have further illuminated concerns regarding the threat posed to pipelines and end users by exposure to gas exceeding quality specifications.

The technical conference revealed that settlement negotiations had been underway and presented the possibility that the quality of gas flowing east on Texas Eastern’s system also may be affected by a resolution. This prompted additional Texas Eastern customers to take an interest in the outcome of the proceeding. (See Chesapeake Utilities Corp.’s Motion to Intervene Out-of-Time.)
Following the technical conference, FERC granted Texas Eastern’s pending request for rehearing of its previous Order suspending the tariff record, “for the limited purpose of further consideration

Author: Brian Heslin is an attorney with Moore & Van Allen, representing energy companies in regulatory proceedings at the state and federal level. In addition, he provides advice on business and strategic planning, upstream natural gas supply and capacity negotiation, compliance and other related services. He can be reached at brianheslin@mvalaw.com.

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