FERC FLORIDA GAS QUALITY RULING FRUSTRATES LNG SUPPLIERS, POWER GENERATORS

As North American gas market participants increasingly consider liquefied natural gas (LNG) imports a major new source of gas supply, users and suppliers face the issue of gas quality and interchangeability. Most of the world operates on gas quality standards that differ from those in North America. These differences complicate business for LNG producers shipping gas to various countries as well as for US pipelines and end users receiving LNG that may not conform to US standards.

In April 2007 the Federal Energy Regulatory Commission (FERC) issued its first order addressing gas interchangeability for LNG imports into Florida. After a three-year litigated hearing process, the FERC order has established new gas quality and interchangeability standards for all gas received or delivered in Florida by Florida Gas Transmission Company. The order has several implications for North American gas market participants, including

*Tariff standards on gas quality and interchangeability will be set on a case-by-case basis, implying that there are no guarantees about the direction of future decisions on this matter.

*The key decision was the range for the Wobbe Index, a measure of the heat generated by a given burner. A standard of 1,340-1,396, plus or minus 2 percent was set using publicly available fuel specifications of gas turbine manufacturers. It was narrower than the guidelines supported by LNG importers and wider than the range recommended by power generators.

*End users who incur additional costs to burn a gas stream that includes LNG cannot expect to recover such costs from either their pipeline or LNG suppliers.

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