Opinion ID: 2511815
Heading Depth: 1
Heading Rank: 2

Heading: the transportation and storage of natural gas

Text: ¶ 6 Panhandle operates an interstate natural gas pipeline system, which is regulated by the Federal Energy Regulatory Commission (FERC). The Panhandle pipeline system begins in what is called the Field Zone [4] in Texas and Oklahoma and consists of pipeline branches or legs connected at metered receipt points with the sources of gas supply located in those states. The branch traversing Texas has no physical connection with the branch traversing Oklahoma until they converge into a single pipeline at a compressor station located in Haven, Kansas. ¶ 7 Shippers purchase gas from suppliers in the Field Zone and contract with Panhandle for its transportation to market. Suppliers deliver the purchased natural gas into one of the branches or legs of the system at one of the metered receipt points. Multiple shippers use the pipeline simultaneously and all of their gas is commingled. Neither Panhandle nor the shippers attempt to trace gas belonging to individual shippers. Tracing of individual molecules of natural gas is physically impossible from the moment the gas enters the pipeline at the supplier's facility. A series of compressor stations along the pipeline create a pressure drop which causes the gas to physically move, eventually arriving at a metered delivery points in the Market Zone [5] from which it is sold to consumers. Gas originating in Oklahoma travels through Woods County to get to the Haven convergence point. ¶ 8 In addition to transporting gas directly from the Field Zone to the Market Zone, Panhandle offers a storage service to its shippers, the terms of which are set out in storage contracts. Panhandle has two natural gas storage facilities in the Field Zone: the Borchers Storage Facility located in Kansas on the branch of the pipeline originating in Texas and the North Hopeton Storage Facility located in Woods County, Oklahoma, on the Oklahoma branch of the pipeline. ¶ 9 The transportation and storage of natural gas is subject to certain physical laws that govern its movement. Movement is caused by displacement of gas in the system, not by the actual movement of specific molecules from points of receipt to points of delivery. Gas in a pipeline moves in only one direction: from an area of higher pressure to one of lower pressure. In geographical terms, gas in Panhandle's pipeline moves only from the Field Zone toward the Market Zone and never in the opposite direction. Molecules of gas that have passed either of the Field Zone storage facilities cannot physically turn around and end up in storage, nor can gas molecules purchased from a supplier on one branch of the pipeline system end up in storage at the storage facility on the other branch. ¶ 10 The storage facilities operate on an injection-withdrawal cycle that matches the weather-related demand for natural gas. From April through November, when demand for natural gas is relatively low, gas is injected into the storage facilities. During the winter months, from November through March, gas is withdrawn. Just as in the pipeline itself, all gas in storage is commingled and incapable of being traced to a particular shipper. ¶ 11 Natural gas transactions are executed by means of a computerized scheduling system in which nominations are made. A supplier posts on the scheduling system that it will deliver a volume of gas for a shipper's account and the shipper posts on the scheduling system a confirmation that it will receive that quantity of gas from that supplier. At the same time, the shipper uses the scheduling system to arrange for transportation of the gas under a transportation contract and designates where that gas will be delivered. In commensurate, simultaneous transactions, Panhandle can receive into its pipeline the volume of gas purchased by a shipper and deliver a thermally equivalent volume of gas to the same shipper at a delivery point hundreds of miles away. The molecules of gas delivered by the pipeline to the shipper at the delivery point are clearly not the same molecules of gas that the supplier put into the system at the shipper's request. ¶ 12 Shippers also use the scheduling system to nominate gas into storage. In making storage nominations, shippers cannot specify which storage facility is to receive the gas nominated into storage. Although there is not always a direct correlation between nominations into storage and actual injections, the net effect of the process is that a volume of gas equivalent to that nominated is received into whichever storage facility Panhandle determines needs the injection based on a timely analysis of its system's needs. The molecules of gas that go into a storage facility upon a shipper's nomination are very unlikely to be the same molecules purchased by that shipper, but there is no way to know as neither the purchased nor the stored molecules are traceable. Operationally, the pipeline and the storage customer care only that the volume of gas nominated into storage goes into storage. ¶ 13 Similarly, when a shipper nominates gas out of storage, it cannot specify from which storage facility the gas is to be taken. Panhandle can take gas from either storage facility depending on its system's needs. Its obligation is simply to provide its storage customer with gas. In terms of their relationship with each other, neither Panhandle nor the storage customer cares from which facility the gas is removed. The molecules taken out of storage could be molecules originally purchased by the shipper, but they are just as likely, probably more likely, to be molecules originally purchased by another shipper. It is impossible to know the original purchaser of any molecules removed from storage. ¶ 14 Panhandle keeps track of each shipper's storage transactions by means of a storage account. If the nomination is into storage, the shipper's storage account balance is increased; if the nomination is out of storage, its storage account balance is decreased. Panhandle keeps a single storage account balance for each shipper for gas held in storage at Borchers and North Hopeton combined. Panhandle does not account separately for each storage facility. ¶ 15 Although the actual molecules of gas held in a storage facility would not have traveled as far as Haven when they were removed from the pipeline and placed into storage, the parties treat the storage transactions as having taken place at Haven. When gas is withdrawn from storage, it is treated by the parties' transportation contracts as restarting its journey from Haven, not from one of the storage facilities. ¶ 16 The transportation process creates a complete disassociation between ownership of the gas in the system on the one hand and possession and control of the gas on the other. While Panhandle takes possession of gas placed into its pipeline and controls its movement, including the determination of which facility will receive storage gas, it never acquires title to the gas. Title to the gas from receipt into the pipeline to delivery at the point of consumption remains at all times in the shipper, but the shipper has absolutely no control over the movement of its gas in the pipeline.