FERC plans conference to discuss natural gas industry

Oct. 1, 2002 — The Federal Energy Regulatory Commission (FERC) said it was planning a conference in October to discuss policy issues facing the natural gas industry.

The commission scheduled the conference for Oct. 25. It will be open to interested members of the industry and the public. See below for details on how to attend.

FERC said the purpose of the event would be to engage industry members and the public in a dialogue about policy issues facing the natural gas industry today and the commission’s regulation of the industry for the future.

The commission said it expects a wide ranging discussion that will help it establish its regulatory goals for an industry that anticipates long term growth to reach 30-Tcf annually.

The commission anticipates exploring issues concerning:
“- supply and demand
“- the application of the commission’s open access policies to liquified natural gas (LNG) import facilities
“- the commission’s Outer Continental Shelf (OCS) gathering policy
“- the flexibility pipelines need to serve historical load as well as new demand

In addition, FERC will provide an opportunity for market participants and other interested persons to raise issues and make policy recommendations for consideration.

In 1997, the commission held a conference to revisit its approach to natural gas regulation in light of significant changes in the structure of the natural gas industry that occurred as a result of Order No. 636. Since that time, the energy industry has continued to experience ongoing structural changes that impact the supply and demand of natural gas.

Some of these changes include shifts in the industry from regulated to non-regulated gathering operations. Over the past five years, the commission has seen an increase in abandonment of these facilities from the regulated companies to non-regulated affiliated and non-affiliated gathering companies.

Changes from regulated to non-regulated services raise important issues that the commission needs to consider in assuring unrestricted access to necessary supplies from the OCS.

In Order No. 637, issued in 2000, the commission revised, among other things, its regulations relating to scheduling procedures, capacity segmentation, and pipeline penalties to improve the competitiveness and efficiency of the interstate pipeline grid and to enhance pipeline transportation services.

Changes in historical pipeline operations brought about by Order No. 637 may impact investment in much needed pipeline infrastructure to fulfill future demand for natural gas.

The increasing demands placed on pipelines by new electric generation load may impact the flexibility pipelines currently have in meeting the service demands of historical customers. In its Annual Energy Outlook 2002, Energy Information Administration (EIA) forecasts that natural gas for power generation will grow 4.6 percent annually, reaching from 9.65 to 10.36 Tcf in 2020 depending on economic growth (consumption in 2000 was 4.24 Tcf).

The economy, mild weather patterns, and major developments in the financial foundation and structure of the energy industry may also have important repercussions on long term markets, supplies, and investment in infrastructure.

Reduction in market capitalization of many major energy players, substantial layoffs, the exiting and restructuring of many companies’ energy trading businesses, bankruptcies, the sale of major assets by major energy players, and the cancellation of many future gas-fired generation projects all may potentially affect natural gas markets and the infrastructure it depends upon.

Even with the nation’s current economic slowdown, however, natural gas demand continues to grow. Overall, EIA projects that the natural gas market will grow from the 22.83 Tcf consumed in 2000 to between 30.02 to 32.63 Tcf in 2015, with projections for 2020 from 32.03 to 34.99 Tcf, depending on economic growth. All the above mentioned events may impact the industry’s ability to prepare for and meet the future anticipated demand.

The purpose of this conference is to discuss short and long term issues that may impact the commission’s regulation of the natural gas industry. The commission wants to explore whether the commission’s current regulatory approach in natural gas fosters or impedes supply production and investment in development of the infrastructure needed to meet the anticipated long term growth to 30-Tcf annually. In addition to providing an open forum for communicating with the commissioners, the commission wishes to address the following topics.

Supply Forecast
EIA projects that natural gas consumption could reach 34.99 Tcf annually in 2020. Decreasing gas prices have resulted in a reduction in capital expenditures for development in natural gas production. Evidence indicates that production in traditional supply regions, including onshore gas production in the Permian Basin and offshore in the shallow shelf of the Gulf of Mexico, is in decline.

At the same time, Canadian imports have been falling while domestic exports to Mexico have been increasing. Additionally, concerns have been raised relating to potential barriers that may restrict the domestic producing community’s ability to meet the projected demand. The commission wishes to explore natural gas supply issues and their impact on the infrastructure needed to meet forecasted demand.

Liquefied Natural Gas
In the 1970s the commission authorized the construction and operation of several LNG import terminals to provide a needed supplemental source of gas supplies to U.S. markets. In response to more recent demands for natural gas, the commission has approved the reactivation of two of the original LNG import projects and the expansion of an existing LNG terminal.

Additionally, there are two pending applications for other LNG expansion projects and one for a new LNG import facility.

The commission recognizes that LNG imports are expected to become a key supply source in the U.S. over the next ten years. We believe it is time to reexamine our existing policy in light of the changes that have occurred in the gas industry since that time.

While the commission recently denied a request to disclaim jurisdiction over the siting, construction, and operation of LNG facilities, it has not reviewed its open access policy as it pertains to LNG import facilities. The commission wishes to explore regulatory goals that will remove unnecessary barriers to the development of LNG facilities and supply as a major source of natural gas to meet the forecasted future demand.

Offshore Gathering Policy
In ExxonMobil Gas Marketing Company v. FERC, the court affirmed the Commission’s gathering policy as it pertained to facilities located in the OCS. In Order No. 639, the commission determined that under the commission’s authority under the Outer Continental Lands Act (OCSLA), gatherers in the OCS must report information regarding service provided through their gathering facilities.

The commission believes that such information is necessary to assure that the gatherers providing service in the OCS do so on an open and nondiscriminatory basis. Subsequently, however, the court determined that the OCSLA did not give the commission authorization to promulgate such a requirement. The commission wishes to explore future regulatory policies and goals that would promote the further development of offshore supply sources in the OCS.

Flexibility in Pipeline Operations
Natural gas is now the fuel of choice for new power generation due to the efficiency of technology, low initial investment costs, relative ease of siting new plants, and lower pollutant emissions.

Electric generation load is more variable through a given day than a traditional pipeline customer load. Therefore, electric generation customers require transportation services and facilities that can accommodate hourly rather than daily swings in gas consumption and wider fluctuations in consumption volumes.

Because of the large amounts of gas used at gas-fired generation plants, and their potential to cause rapid and unanticipated hourly consumption demands, traditional pipeline customers have expressed the concern that the ramping-up of one or more power plants could lead to pressure drops which, in turn, could result in a reduction in both the pressure and rate of gas flowing through the meter station and distribution facilities.

The commission believes it is imperative that the future pipeline infrastructure meets the flexibility and service needs of all of their customers. We wish to explore issues related to serving new demand to meet current and future needs.

Open Forum
In addition to addressing the above mentioned issues, the commission also seeks to encourage industry representatives and interested individuals to raise other issues for the Commission to consider in shaping its future regulatory policies concerning the natural gas industry. The commission envisions that the conference will consist of panels and an open forum that will give all interested individuals an opportunity to raise issues.

How to Participate
The conference will be held on October 25, 2002 at FERC, 888 First Street, N.E. in Washington, D.C. in the commission Meeting Room. The public is invited to attend. Anyone interested in participating should contact Ken Niehaus at 202 502-6398 or at kenneth.niehaus@ferc.gov by October 15, 2002.

Requests for participate should include information concerning the issue or issues the participant would like to raise. FERC will issue further details on the conference, including the agenda and a list of participants, as plans evolve.

The conference will be transcribed. Those interested in acquiring the transcript should contact Ace Reporters at 202-347-3700 or 800-336-6646. Transcripts will be placed in the public record ten days after the commission receives the transcripts. Additionally, Capitol Connection offers the opportunity for remote listening and viewing of the conference.

It is available for a fee, live or over the Internet, via C-Band Satellite. Persons interested in receiving the broadcast, or who need information on making arrangements should contact David Reininger or Julia Morelli at Capitol Connection (703- 993-3100) as soon as possible or visit the Capitol Connection website at http://www.capitolconnection.gmu.edu and click on “FERC.”


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