New Flavors of Natural Gas (Certified and Renewable) are Showing up in Pipeline Tariffs

What’s the issue?

As the energy evolution continues, producers of natural gas are seeking to find ways to differentiate their product from geological natural gas that is conventionally produced. Two significant versions of this differentiated gas are renewable natural gas, captured from waste sources that would otherwise simply be vented, and certified low-carbon geological gas that can show it is produced in a manner that has a lower environmental impact.

Why does it matter?

Interstate pipelines want to transport both of these types of differentiated gases, which means that they will be blended in with the traditional gas flowing on the system. But each gas requires the pipelines to adjust their tariffs to accommodate the development of these new sources.

What’s our view?

Pipelines are further along in adapting to renewable natural gas, but that process points out some of the problems that are encountered when the producers of these new types of gas want to use pipelines that are not used to all of the constituents of a new gas, which could be instructive for hydrogen gas in the future. Certified low-carbon gas, on the other hand, needs adjustments to tariffs so that it can be commercially viable when it is mixed with non-certified gases. Both types of tariff changes have faced opposition and FERC will likely look at every proposal on a case-by-case basis and will continue to strongly encourage collaborative resolutions to all such filings for the foreseeable future.


 

As the energy evolution continues, producers of natural gas are seeking to find ways to differentiate their product from geological natural gas that is conventionally produced. Two significant versions of this differentiated gas are renewable natural gas (RNG), captured from waste sources that would otherwise simply be vented, and certified low-carbon geological gas that can show it is produced in a manner that has a lower environmental impact. Producers of both of these types of differentiated gas want it to be transported on the interstate pipelines, which means that the differentiated gas will be blended in with the traditional gas flowing on the system. But each requires the pipelines to adjust their tariffs to accommodate the development of these new sources.

Pipelines are further along in adapting to renewable natural gas, but that process points out some of the problems that are encountered when new types of gas want to use pipelines that are not used to all of the constituents of a new gas, which could be instructive for hydrogen gas in the future. Certified low-carbon gas, on the other hand, needs adjustments to tariffs so that it can be commercially viable when it is mixed with non-certified gases.

 

Renewable Natural Gas

The proposed tariff for Great Basin Gas Transmission Company, formerly known as Paiute Pipeline Company, offers a very good definition of RNG, as “gas substantially composed of methane that is produced by the breakdown of organic matter in the absence of oxygen.” “Sources may include landfill gas, dairies or feedlots, sewage treatment plants, and wastewater plants.” The concern that many pipelines have is that this new form of gas may contain bacteria, pathogens and other substances that could be injurious to pipeline facilities or that would cause the gas to be unmerchantable and which are not commonly found in geologic natural gas.

Because of these concerns, pipelines that have received substantial interest in transporting this new form of gas often seek to modify their gas quality provisions to make sure that any constituents that might likely occur in such gas is reduced to a tolerable level. Whenever pipelines seek to modify their gas quality provisions, however, they often find that the producers of gas have very different views of what is tolerable as compared to the pipeline or the end users of the gas that is transported.

This has led FERC to establish some basic standards concerning gas quality provisions in tariffs, as it explained in rejecting an RNG proposal offered by Eastern Gas Transmission & Storage (EGT&S), formerly known as Dominion Energy Transmission, Inc. In its opinion rejecting the proposal offered by EGT&S, FERC stated that its policy is to encourage pipelines and their customers to collaborate to “develop gas quality and interchangeability specifications based on technical requirements,” because such specifications must “balance safety and reliability concerns with the importance of maximizing supply, as well as recognizing the evolving nature of the science underlying gas quality and interchangeability.”

Thus, FERC looks at each gas quality tariff provision on a case-by-case basis and will consider the general level of support or opposition to the proposal in determining whether the pipeline has made reasonable efforts to achieve that balance. In the EGT&S case, FERC stated that when a pipeline proposes new gas quality limits, the pipeline has the burden of demonstrating an operational or other reason to support its proposal. In that case, FERC found that EGT&S had not clearly demonstrated that its proposed limits on new constituent elements in RNG were required to preserve the safe and reliable operation of its system. However, FERC encouraged EGT&S to continue working with its customers so that it can safely add RNG to its system.

A look at the filings that have proposed either modifications or additional limits to the gas quality provisions of the tariffs show that there are some common elements over which pipelines have concerns.

 

Gas Quality Provisions chart

 

A very common concern is the total inert gases and if the pipeline did not have a limit on such inert gases previously, it will often seek to set one. It appears that a limit of 4% is generally acceptable. One limit that appears to be directed at RNG in particular is for siloxanes, but there does not appear to be a consensus yet on what is an appropriate limit.

 

Certified Low-Carbon Natural Gas

The other trend that recently found its way into the tariff of a pipeline is certified low-carbon natural gas. This is geologic natural gas that has been produced in a manner that results in less carbon emissions than “typical” geologic natural gas. To claim this badge, the gas producer is generally required to sign an agreement with an independent auditor that certifies that the gas from specific wells has been produced in a manner that limits the carbon emissions during the exploration and production process. The problem, of course, is that once this low-carbon gas is mixed into the stream of a pipeline, the pipeline cannot guarantee that the buyer on the other end of the pipeline actually gets this low-carbon gas.

This problem is potentially solved by the proposal made by Tennessee Gas Pipeline Company (TGP) last month, in which it proposed establishing paper pooling points on its system that would only be available to producers and buyers of certified low-carbon gas. TGP had originally requested an effective date of January 17, 2022, but when the filing drew some adverse comments, TGP amended the filing and asked for it to become effective on March 1, 2022, to give it time to address the concerns raised prior to a FERC decision.

In its application, TGP explained that the establishment of these pooling points on its system is intended to encourage the transportation and trading of natural gas supplied by producers that have obtained certification(s) from qualified third parties that their gas supply meets certain minimum environmental, social and governance standards. However, a group of shippers including BP Energy Company, Chevron U.S.A. Inc., Direct Energy Business Marketing, LLC, and Shell Energy North America (US), L.P filed an objection to the proposal and asked FERC to set up a technical conference regarding the proposal. These shippers asserted that, far from encouraging the development of a market for certified low-carbon natural gas, TGP was trying to insert itself into the market in a manner that should not be allowed by FERC.

These shippers argued that TGP’s proposed tariff would “install itself as a gatekeeper” for certified low-carbon natural gas, and “arrogate to itself the exclusive right to appoint third-party entities to act in a role to certify gas as having met its self-announced standard.” They also asserted the proposed tariff provisions would allow TGP to create a bundled, physical market along its pipeline for a trade in environmentally preferred resources, which would be a significant departure from how the buying and selling of environmentally preferred energy resources typically has occurred in this country. They compared this proposal to the power markets where renewable energy certificates (RECs) are the basis in trade for environmentally preferred power products. These RECs are certified by regional and state registries, none of which are controlled or designated by a single public utility.

To date, FERC has not taken any action on the proposal and it is unclear whether TGP has been able to work with the objectors to resolve their concerns. We would expect there to be a FERC order prior to the March 1 effective date that will likely suspend the proposed tariff for the full five months and set a technical conference.

 

Hydrogen

The tariff changes sought by pipelines to facilitate these new forms of natural gas are a good indicator of some of the problems that may be encountered if interstate pipelines seek to blend hydrogen into the gas stream. As demonstrated by both, it will be critical for any such measures to be discussed fully with a pipeline’s shippers and even then will likely draw concerns from those shippers. However, it is FERC’s role to ultimately decide whether these adaptations to a changing marketplace are allowed to be reflected in the tariffs, and so we expect to continue seeing such filings for the foreseeable future.

If you would like more information about the proceedings mentioned in this article, please contact us.

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