Federal Energy Regulatory Commission Natural Gas Quality & Interchangeability May 17, 2005 FERC Technical Conference FERC Staff Presentation This presentation does not necessarily represent the views of the Federal Energy Regulatory Commission, or of individual Commissioners.

Federal Energy Regulatory Commission The fine print—staff’s standard disclaimer: This presentation does not necessarily reflect the opinions or views of the Federal Energy Regulatory Commission or of individual Commissioners.

Federal Energy Regulatory Commission Overview Why are we here today? The problem The status quo Solutions? –NAESB –NGC+ FERC’s Next Steps?

Federal Energy Regulatory Commission The Problem Liquid Hydrocarbons Toca—2000/01 winter Economics drive processing New & more demanding end use equipment Interchangeability Forecast of increased LNG imports Potential uncertainty of supply source & quality US small slice of world LNG market

Federal Energy Regulatory Commission The Problem--Continued Historic regional variation in quality In a competitive market your gas could come from... anywhere No nation-wide standards for gas quality

Federal Energy Regulatory Commission The Status Quo Pipeline specific tariffs: –Sometimes do not contain specific requirements –Vary from pipeline to pipeline Pipelines may exercise OFOs to deal with unusual problems Blending is discretionary and not subject to transparency Producers, pipelines, and end users talk different languages

Federal Energy Regulatory Commission Shared Goals Secure adequate economical supply from diverse sources while ensuring safe and reliable operations throughout the physically-integrated infrastructure Flexible, fungible and robust markets responsive to changing demand

Federal Energy Regulatory Commission One Last Shared Goal The other guy should pay, or put simply Everyone (else) pays

Federal Energy Regulatory Commission Solutions? NAESB North American Energy Standards Board –Require pipelines to post links to gas quality tariff provisions or a “reference guide” –Require pipelines to post “receipt point dewpoint values” –Pipeline compliance filings required by July 1, 2005, to be effective September 1, 2005

Federal Energy Regulatory Commission Solutions? NGC + Consensus papers on CHDP and Interchangeability Propose common language, terminology and engineering useful for debate of issues ID information gaps and needed R & D Propose interim—2 year—solutions pending results of R&D

Federal Energy Regulatory Commission

I.Hydrocarbon Liquid Dropout: Reached Consensus on Process to Determine Limit II.Interchangeability:  +/-4% of Local Historical Wobbe Average  Subject to 1400 Wobbe Max (not expected to fall below 1200)  Limit Butanes+ to 1.5 mole %  Limit Total Inerts to 4%

Federal Energy Regulatory Commission FERC’s Next Steps Options? Adopt nation-wide standards via NOPR Adopt policy guidelines for review of pipeline tariffs The “no action” alternative

Federal Energy Regulatory Commission Today’s Objectives Identify: How do we best minimize the pain while maximizing supply and market flexibility? How do we equitably share the pain? How do we get there?