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Controversy Flares over LNG Quality Standards

Pipeline & Gas Journal, December 2007

Spectra Energy’s Algonquin Gas Transmission, LLC 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 sniffs “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 expects to start selling in late November 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, Massachusetts.

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 mmcf/day from the Northeast Gateway project, which is suppose 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 the 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. Gas within a particular range will burn comparability.

The issues are so complex that some key parties take Algonguin’s side on one issue, but oppose it on another. So, 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.

The Wobbe numbers themselves are a separate issue in dispute. The Wobbe number range comes into play for the utilities with dry low-Nox electric generators. Algonquin has proposed 1314-1400. Con Ed says while Algonguin’s range is reasonable, and may well be the right range long term, but in the short-term, while it is retooling its peak shaving facility in Astoria, Queens with what is called “auto-tuning” equipment, Con Ed wants an interim Wobbe range of 1314 and 1385. FPL Energy says 1314 to 1389 while Calpine supports 1314 and 1373.