US LNG Gas Quality: FERC Declines to Set National Standards

The recent decision of the US Federal Energy Regulatory Commission not to impose national gas quality standards has important implications for liquefied natural gas (LNG) developers, producers, pipelines, local distribution companies (LDCs), and end users. In particular it means

* New pipelines and new LNG import facilities will likely have to conform to the most restrictive existing tariff provision for gas quality and interchangeability of the pipelines to which they will directly interconnect.
* The North American gas market will continue to operate on a low heat content standard, potentially requiring remedial facilities for LNG terminals handling rich gas, and with a potentially adverse effect on the economics of the LNG value chain.
* Different gas quality and interchangeability standards across global markets and within markets (as in North America) could impede suppliers' strategy of operating liquefaction and regasification facilities on a portfolio basis so as to maximize profits and minimize price and volume risk.
* Pipelines will continue with current standards that protect the efficiency, reliability, and safety of their systems, while LDCs and end users will have a strong legal tool with which to protect themselves from changes in gas quality standards.

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