Renewable Natural Gas: Pipelines, FERC and Tariffs

Opportunities for renewable natural gas (“RNG”) continue to grow spurred by corporate activity in the form of mergers and acquisitions, government research grants, and technology breakthroughs. RNG’s popularity is not surprising at a time when emissions reduction goals are quickly accelerating. Primarily comprised of biomethane, RNG’s chemical composition is nearly identical to natural gas extracted from traditional underground sources making it a like-for-like replacement for geologic natural gas. The substitution of RNG for geologic natural gas provides one pathway to more quickly decarbonize the energy system because it is relatively cheap to produce and has a plentiful feedstock in the form of crop residues, animal manure and the municipal waste that can be treated through anaerobic digestion to release methane, the key component of natural gas. It also has the added benefit of turning solid waste into usable energy. Akin has written extensively on the potential of biomethane as a tool for decarbonization.

RNG is also popular because unlike other types of sustainable fuels such as hydrogen or green ammonia, it does not require significant new infrastructure development. RNG has been using the existing natural gas pipeline transportation network to reach downstream markets for years. Hence, no new pipeline technology or retrofitting is necessary to transport RNG. But, while infrastructure to transport RNG is available, an increase in the volume of RNG transported may necessitate new rules for the pipelines’ customers. Increasingly, pipeline companies are proposing tariff changes specific to RNG. In some cases, these changes are responses to shipper needs to develop new product markets, or to lure more RNG and other “lower carbon” natural gas onto a pipeline system. Indeed, the North American Energy Standards Board recently adopted an update to the standard contract used by buyers and sellers of natural gas to account for RNG and natural gas that meets certain environmental attributes, known as “certified gas,” or “responsibly sourced gas,” and some pipelines have adopted policies to further those markets.¹ And, pipeline operators are keen on increasing the share of RNG that flows through their facilities as they look for ways to lower their own Scope 2 emissions.

With heightened frequency, pipelines are proposing changes to the gas quality specifications in their tariffs, and sometimes garnering controversy in the process. For pipelines transporting natural gas in interstate commerce, these changes require approval from the Federal Energy Regulatory Commission (“FERC”). Based on FERC’s own statements, the agency is not entirely comfortable with serving as the gatekeeper for tariff changes that may promote or hinder the transportation of RNG, and would rather lean on the industry to forge solutions.² And, as is evident in the pleadings filed in these dockets, gas quality tariff changes may permit more RNG onto a pipeline’s system, or may become a barrier, depending on how they are implemented.³ Because FERC-regulated natural gas pipelines must operate “open access” systems in a not unduly discriminatory or preferential manner, there are only a handful of ways that an operator can keep certain volumes off of its pipeline when it has capacity to transport. Ensuring that a shipper adheres to gas quality standards published in a tariff is one not unduly discriminatory way that a pipeline can deny access.

Whether gas quality tariff changes are necessary to support RNG pipeline transport is an ongoing question. Pipelines have carefully crafted gas quality specifications that govern, among other things, the heat content of the natural gas, the percentage of contaminants and inert gases permitted in the gas stream. RNG may not meet these specifications because it tends to have a lower heating value than geologic natural gas as measured in British thermal units (“Btus”), particularly depending on the RNG’s feedstock. And, because of the way biomethane is extracted, it also may have a different composition of contaminants, including heavy metals such as arsenic, copper, and lead. However, most interstate pipelines have discretion to waive gas quality requirements in order to transport out-of-spec gas if it will not jeopardize the safety of the pipeline’s operations. Some interstate pipelines transport over 1 billion cubic feet of natural gas per day. The volumes of RNG currently transported, by comparison, are tiny, albeit growing, suggesting that RNG can be blended without compromising the quality of the gas stream or pipeline operations, but raising questions as to whether that can continue if volumes increase.⁴ As RNG grows in popularity, more pipeline gas quality and interchangeability specifications may require revisions. Blending significant volumes RNG may lower the overall heating value of the other pipeline customer’s natural gas, while the presence of contaminants could degrade the operations of the pipelines themselves. This may cause individual gas quality waivers to become less tenable.

Changing gas quality specifications in a pipeline tariff to specifically account for increased RNG volumes is not a simple task. In 2006, FERC published a policy statement on natural gas quality and interchangeability in order to harmonize gas quality specifications amongst interconnected pipelines.⁵ FERC applies the policy statement’s framework to gas quality proposals when enforcing the Natural Gas Act’s edict that tariff changes be “just and reasonable” and not unduly discriminatory or preferential. The Policy Statement was not crafted with RNG in mind. When it was enacted, FERC was focused on disputes over the quality of regassified liquefied natural gas imported from overseas and the presence of heavier hydrocarbons, such as propane and butane, from “wetter” natural gas production basins, and their impacts on pipeline integrity as well as natural gas commodity values. FERC wanted the interstate pipeline systems to be able to serve all pipeline basins, which each have various mixtures of hydrocarbons and contaminants.

The Policy Statement encompasses five key principles: (1) only natural gas quality and interchangeability specifications published in FERC-approved tariffs may be enforced; (2) such tariff provisions must be flexible; (3) pipelines should develop such specifications in partnership with their customers; (4) specification development should be guided by certain FERC-endorsed scientific reference; and (5) disputes over gas quality and interchangeability specifications that otherwise cannot be resolved may be resolved by FERC on a case-by-case basis, on a record of fact and technical review.⁶ Earlier this year, FERC set for hearing a dispute over RNG gas quality specifications after impacted parties argued that the pipeline had not followed the Policy Statement prior to proposing tariff changes.

As the rules applied to RNG are starting to shift, with more natural gas pipelines revising their tariffs to create “special” RNG provisions, a patchwork of what is acceptable is starting to emerge. To assist industry participants with tracking FERC regulatory developments related to the transportation of RNG, we have created the following chart that summarizes the state of tariff provisions that could impact U.S. domestic RNG projects in operation and under development. Moreover, FERC’s consideration of gas quality tariff provisions related to RNG will be instructive if operators start revising their tariffs to accommodate greater concentrations of hydrogen in the natural gas stream.

Click here to download a PDF of the below Renewable Natural Gas Tariff Provisions in FERC Regulated Pipelines charts.

^{1 See e.g., Tennessee Gas Pipeline Co., L.L.C., 181 FERC ¶ 61,063 (2022) (permitting the pipeline to implement a producer certified gas (“PGC”) pooling service option to encourage the transportation of PGC on the Tennessee system and enable market participants to independently trade, on a bi-lateral basis or by using a third-party platform or registry, the environmental attributes associated with PGC).}

^{2 See Fla. Gas Transmission Co., LLC, 182 FERC ¶ 61,204 at P 24 (2023) (recognizing, “that the issues pertaining to RNG and its transportation on FERC-jurisdictional pipelines are unique, new, and worthy of further consideration by the Commission,” while encouraging the parties to resolve their differences collaboratively through “cooperative discussion” as “Settlement is encouraged and would help to establish industry standards in the field of RNG.”).}

^{3 See id. at PP 9 – 19 (describing the positions of various parties in a proceeding to modify the gas quality provisions of an interstate pipeline tariff).}

^{4 According to the Coalition for Renewable Natural Gas, by 2025, 230 billion cubic feet per year (“Bcf/yr”) of RNG is projected to be produced, based on an assumed 30% annual growth rate. However, even with this growth rate, RNG will still account for only 0.7827% of the total interstate natural gas market by 2025. Fla. Gas Transmission Co., LLC, Docket No. RP23-466-000, Presentation of the Coalition for Renewable Natural Gas to the May 23, 2023 FERC Technical Conference at 3 (filed May 24, 2023).}

^{5 Policy Statement on Provisions Governing Natural Gas Quality and Interchangeability in Interstate Natural Gas Pipeline Company Tariffs, Docket No. PL04-03-000 (issued June 15, 2006) (“Policy Statement”).}

^{6 Id. at PP 29-33.}