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Impact of Order 436/500 on Natural Gas Storage

Previous HitLauraTop L. Langer

Order 436 was adopted by the Federal Energy Regulatory Commission to make further adjustments in the regulation of interstate transportation of natural gas to ensure competition, low rates, and reliable long-term service. The program would affect existing transportation programs, new pipeline services, take-or-pay obligations, and pipeline billing procedures. Order 500, an interim ruling, further addressed take-or-pay obligations and the ability of an end user to convert a purchase contract to a transportation contract.

Interpretations of how storage fits into the open access market vary depending on the storage operator. In a public utility environment, storage is used primarily to meet seasonal fluctuations in demand. In the interstate and private environments, storage is primarily used for spot market purchases to fulfill least-cost acquisition policies either for the end user or for the seller of the gas.

In Order 436, the commission has determined that some types of storage should be considered an extension of the pipeline system and thus subject to the nondiscriminatory access condition. This determination has not been accepted without question by those holding storage capacity.

AAPG Search and Discovery Article #91031©1988 AAPG Eastern Section, Charleston, West Virginia, 13-16 September 1988.