Natural gas interests warn FERC not to exacerbate fragile energy markets

Natural gas trade groups urged FERC to be mindful that energy markets and the financial community need "appropriate" price signals to ensure that gas infrastructure will be built to meet future demand.

By OGJ editors

WASHINGTON, Oct. 29 -- Natural gas trade groups urged the US Federal Energy Regulatory Commission Oct. 25 to be mindful that energy markets and the financial community need "appropriate" price signals to ensure that gas infrastructure will be built to meet future demand.

FERC officials held the public meeting "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."

Representing the nation's pipeline operators, the Interstate Natural Gas Association of America urged the commission to improve the market signals needed for pipeline expansions by first promoting a better understanding of which pipeline services are firm, and which are interruptible. "Merely because a shipper has not been interrupted should not be proof that the service is firm," said Fred Fowler, INGAA chairman, and a group president of Duke Energy Corp. He also argued that FERC should modify policies that "undermine incentives for shippers to contract for capacity to meet their firm peak needs," including the "no harm, no foul" rule. "A shipper should not be doing a cost-benefit analysis of paying for new capacity vs. paying a penalty on the rare occasion when he over-runs on a pipeline critical day."

In describing the current pipeline business climate, Fowler stated that: "We are living in a 'hair trigger' business environment, where any negative news triggers a worst-case scenario for a particular company and even an entire industry sector." The result has been an increase in the cost of capital, which in turn has caused the industry to rethink a number of future capital expenditures.

Regulatory framework
The Natural Gas Supply Association and the American Gas Association both urged FERC to expand efforts to streamline permitting all along the supply chain from the wellhead to the burnertip to ensure future demand needs are met.

"All sources of natural gas are needed to meet domestic demand," said Mike Stice, president, gas and power, for ConocoPhillips and president of NGSA's issues committee. "We hope FERC acts on this message and assists our industry in the removal of the barriers to meeting our country's energy needs," Stice said.

"In the long run, producers are experiencing tight decline rates, basin exhaustion, and increasing land access restrictions. Where will supply come from? In addition to our traditional sources of production, we will need to expand our unconventional production, push the limits of technology in the deepwater Gulf of Mexico, bring more natural gas into the US from Canada, provide access to reserves on state and federal lands, expand LNG capacity, and, once commercially viable, tap into our vast supplies of natural gas in Alaska," he added.

Retail view
Representing the AGA, executives echoed NGSA's and INGAA's concerns, saying FERC needed to establish policies designed to promote infrastructure expansion and prudent growth of interstate pipeline facilities, especially those that deliver natural gas to electric power generation facilities.

AGA Chairman William Michael Warren, who is also chairman, president, and CEO of Energen Corp. of Birmingham, Ala., addressed gas supply issues of concern to his members. He stressed that while he was "confident" natural gas supplies would be adequate this winter, longer-term supply is needed to ensure stable retail prices.

"There is no doubt that increasing our natural gas supply options will help smooth out the roller coaster ride in natural gas prices that we have experienced during the last 3 years. And while millions of Americans may like roller coasters, they do not want to feel as if they have been taken for a ride when paying their utility bills," Warren said.

To lock in that stability, Warren said cooperation among natural gas producers, pipelines, and utilities and the federal and state officials who oversee them will be vital to expanding the natural gas infrastructure—such as deepwater drilling rigs, interstate pipelines (including the proposed Alaska natural gas pipeline), local distribution pipelines, underground storage facilities, and LNG terminals.

"Regulatory certainty in the contracting process is an important part of this stability. This means that programs, such as negotiated rates, which have enabled shippers to structure contracts that provide long-term price stability, should not be eliminated. Additionally, AGA is on record on the affiliate rule and would ask the commission to consider its comments carefully as it deliberates on that final rule," he said.

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