Remarks by Mark Maddox
Principal Deputy Assistant Secretary for Fossil Energy
to the
Platts Natural Gas Interchangeability and Quality Forum
Houston, Texas
November 7, 2005

Thank you and good morning.  It’s a pleasure to be here.

I want to begin by commending Platts for organizing this timely and interesting forum. I’m pleased to have the opportunity to offer the Department of Energy’s perspective to an audience of people from the natural gas sector who have a vital interest – and a vital role to play – in making our natural gas system a continuing success story.

Helping to ensure natural gas interchangeability and quality is a high priority of the Department of Energy. I’d like this morning to present the reasons for the Department’s high level of interest in gas interchangeability and quality, as well as what we propose to do to support decision-making on interchangeability and quality standards.

All of you know how important natural gas is to our present and future national energy picture. Natural gas today accounts for about a quarter of our national energy consumption, and could account for up to 28 percent by the year 2025.

The market has done its job in managing the supply-demand equation in recent years. High prices for natural gas in a period of tight supply have kept demand fairly steady at 22 to 23 trillion cubic feet of gas per year, and the Energy Information Administration forecasts that the recent supply interruption from the Gulf of Mexico and the resultant record high prices will actually cause a reduction of more than one percent in demand this year, compared to 2004.

But with a healthy and growing economy, that will not last. The EIA projects demand will grow by three percent in 2006, and by as much as 35 percent by 2025. That’s an increase of about 8 Tcf a year.

A secure, reliable and affordable supply of high-quality natural gas will only grow more important over time.

That need raises two obvious questions: Where will the needed supply come from? and How will we guarantee its quality in a vast, nationwide system?

The answer to the first questions is, we will continue to get our supply from the same sources we get it from today: domestic conventional and unconventional gas and gas imported from Canada and in the form of LNG from overseas producers.

The difference is that the volumes of unconventional gas from coal seams, tight sands and deep gas, and the volumes of liquefied natural gas from worldwide sources will rise, and conventional gas volumes will decline.  The EIA projects that LNG imports could increase from 680 Bcf this year, to 1 Tcf next year, to as much as 6 Tcf a year by 2025, about 20 percent of total U.S. demand.

Lower 48 unconventional gas production could grow by 2 Tcf, from 6.6 Tcf to 8.6 Tcf by 2025. And let’s not forget Arctic gas coming to us through the Alaska Natural Gas Pipeline beginning in about ten years, as well as from Canada’s McKenzie Delta. 

The answer to the second question, how will we guarantee gas quality from these diverse sources, is 1) through information and idea exchanges such as today’s forum; 2) through the comprehensive study of all the issues related to interchangeability and quality that the Department of Energy has undertaken, and 3) through the standards promulgated by the Federal Energy Regulatory Commission after its members have considered the issues as presented by the industry and the recommendations of the DOE report.

The rapid rise in LNG imports – nearly tripling from 2002 to today – and the questions about interchangeability and quality raised by the introduction of so  much new gas, prompted then-FERC Chairman Pat Wood last May to send a request for assistance to DOE Secretary Bodman.  He asked that DOE conduct a study to identify the impacts of new gas supplies, with varying constituents, on existing equipment and processes that consume natural gas, and to develop adequate testing regimes for new equipment developed in the future.

FERC asked DOE to conduct the study because we have the expertise and the resources to do it properly. We got right on it and gave our National Energy Technology Laboratory, which specializes in fossil fuel research, the task of coordinating the study.
We have identified a Path Forward for our study and we are moving ahead while we await comments from FERC.

What we are doing is similar to what we did in 2003-2004 when the safety and security of LNG operations were a major concern of communities that were the sites or proposed sites of LNG regasification terminals. In order to clear up any existing confusion concerning the safety and security of LNG operations over water, the Department asked the Sandia National Laboratory to conduct a painstaking, year-long study that resulted in a report that for the first time established an orderly process for defining the parameters of the safety and security problem.

With the Sandia study in hand, federal and state regulators, local community leaders, safety and security experts and private industry have been able to work together to provide communities near existing or planned LNG terminal sites with definitive answers to questions about the risks associated with LNG operations.

The Sandia study was an important step forward in our progress toward the goal of ensuring an adequate supply of imported LNG to meet natural gas demand in coming decades. 

We believe the proposed NETL study on gas interchangeability and quality will have equally far-reaching effects on the future of natural gas supply and consumption by 1) identifying the problems the industry faces in ensuring high quality and interchangeability, 2) recommending the most cost-effective solutions, and 3) estimating the costs entailed.
FERC is DOE’s customer for this study; FERC will determine which recommendations to accept and what standards to promulgate. Those decisions will determine how the associated costs will be apportioned and who will pay them.

Let me give you the reasoning behind our study and some specifics of the work we are doing.

The first thing to note is that there is little data and information available today for the
accurate assessment of the impact variable natural gas compositions may have on either emissions or the performance of end-use equipment such as appliances, turbines and compressor engines.

The large-scale introduction of new sources of gas supply has presented us with some evidence of complications related to the operations of appliances, turbines, compressor engines and industrial burners tuned to comply with state and federal emissions standards. There are reports circulating around the natural gas sector of difficulties related to gas supply changes, among them:

• Turbine engine damage caused by gas liquids dropout;
• Increased emissions leading to failure to comply with standards, and
• Disruptions of gas processing plant operations.

To provide the definitive answers to these questions that the industry, regulators and the public need, NETL’s Office of Science and Technology is conducting an expedited study that will result in the delivery of a final, peer-reviewed report to FERC.

This is how it will work.

The researchers are assessing and consolidating all the publicly available data information on small appliances, large equipment and gas composition. After conducting gap analysis and preparing test plans, they will undertake a series of experiments and tests of small appliances and large equipment, and further refine data on gas composition.  The results of each of these steps will be made available to the public and posted on the NETL website for review and comment. In addition, public databases for small appliances, large equipment and gas composition will be released to the public on completion of the report.

Those databases will contain small appliance data and information including the results of an examination of prior research that indicates fuel variability has a limited effect on the operation of older appliances with an interchangeability and emissions-measuring Wobbe number of less than 1,400, as well as tests to determine whether concerns are warranted about the effects of fuel variability on newer, high-efficiency appliances. The tests will evaluate common parameters including emissions, yellow-tipping, flashback and lifting.

For large equipment, the need to conduct experiments and tests where data is not available could be complicated by the high cost of testing such large equipment, which may prove to be prohibitive. To resolve this problem, NETL plans to devise a limited number of surrogate tests on representative lab-scale system designs and conduct tests in its laboratory.  

On gas composition, NETL is collecting and compiling gas composition data from all LNG sources. Similar data for conventional gas supply will be collected on a regional or pipeline basis. The composition data will be fully characterized to include Wobbe number, hydrocarbon and inert concentrations, heating value, and other measurements, providing a comprehensive summary of available domestic gas compositions for end use applications. 

The researchers will employ computational fluid dynamics to evaluate gas mixing dynamics within pipelines, with particular attention to blending efficiency and overall blending rate and distance.

In addition, the researchers are collecting information on LNG delivery methods from public sources and from the five currently operating LNG terminal operators.  Analysis will provide average ranges of gas composition and “worst case” possible gas compositions. We need to definitive test assertions such as that of Washington Gas that the gas from Maryland’s Cove Point LNG terminal was responsible for negative effects on pipeline seals.

There isn’t a great deal one can say about the most desirable gas quality, or range of gas quality in advance of the study’s findings. We have numerous questions to answer on the effect of gas composition all along the gas value chain:

• How much deviation in gas composition is technically acceptable?
• What is the level of turbine tolerance for different gas compositions?
• What range of gas composition will home appliances accept?
• What is the effect of differing gas compositions on compressor engines, pipe seals and other gas transportation infrastructure and equipment?
• What effect will the employment of a specific grade of gas have on the price of gas to the consumer?
• And, what are the minimum gas specs we can accept in the event of another disruption similar to the one we experienced -- and are still experiencing – in the Gulf?

As a near-term issue we will be watching the quality of gas going to pipelines this winter as Gulf area gas plants work to get back up to speed.

Those are a few of the questions to which I cannot offer an answer this morning.
I can, however, tell you this much.
NETL has to date:

• Collected data from more than 120 gas pipelines and over 25 LNG shipments;
• Compiled appliance test results from 21 appliances and fuel specs from over 200 appliances; and
• Collected public information from FERC dockets on gas turbines and is adding  OEM fuel spec data, as well as data from lab experiments.

As for the study’s timeline, the researchers plan to complete external data collection by the end of December and publish initial results early next year.

I don’t think I’ll be giving away any big secrets by telling you that results so far indicate that interchangeability is apparently not going to be a big issue for small appliances, and that the results for gas turbines are mixed. We have more work to do in that area and NETL plans to conduct verification experiments for blended gas tests in NETL’s turbine combustion and reciprocating engine labs. 

The test matrix will be established in first quarter of 2006, with testing occurring in the second quarter.
     
I can also tell you that one thing the Department of Energy will not be doing is supporting or endorsing the imposition of a one-size-fits-all national gas interchangeability and quality standard. FERC’s goal – and ours – is to define an acceptable range of natural gas characteristics that can be consumed by end users while maintaining safety, reliability and environmental performance. This objective applies equally to all sources of natural gas – domestic conventional and unconventional gas, imports by pipeline and LNG.
The market will be interested in where gas from these various sources falls along the range of acceptability; gas that attracts the greatest demand will cost more than other useful but less desirable gas, adding another feature to the market’s determination of price.

The information and views exchanged at this forum over the next two days will be very valuable to everyone involved in resolving the issues of interchangeabilty and quality that are so important to the energy future.

We welcome your participation in our study.   If you have data or input on the planned experiments that you would like to contribute to the study, please contact NETL’S Chris Nichols. He is in the audience this morning and I urge you to make it your business to meet with him some time in the course of the next two days.

Gas interchangeability and quality is one of those “below-the-radar” issues that virtually no one who is not directly involved knows about but that will affect the life of every American.
As so often happens in the energy field, all of us in this room and elsewhere in the gas sector get to work on the solution to a critical problem without the prospect of understanding or appreciation from anyone other than our colleagues. Who said life was fair?

The Department of Energy, NETL and its Office of Science and Technology Assessment look forward to learning from this forum’s discussions and to working with all of you in the months to come to deliver a definitive document that will help FERC to base its rule-making on sound science and good sense – and help the American natural gas sector to thrive as never before.