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Blending Hydrogen Into U.S. Natural Gas Pipelines: Three Issues to Resolve

Nov. 16, 2020, 9:00 AM

About 3 million miles of natural gas pipelines connect natural gas production areas, facilities for gas treatment and storage, and distribution systems in the U.S., and they constitute the most integrated and dynamic natural gas marketing and transportation system in the world. Blending hydrogen into the natural gas stream may allow the industry to leverage this existing pipeline network relatively quickly and could propel the U.S. into a leading position in the growing hydrogen sector.

To realize these benefits, natural gas industry stakeholders—including transmission pipelines, utilities, industrials, appliance manufacturers, and other pipeline customers—will have to address multiple challenges. Below we address three of these critical issues.

How Much Hydrogen Can Be Blended Into the Methane Stream?

Studies indicate that existing natural gas pipelines may be able to transport a natural gas blend with up to 15% hydrogen, but contractual, regulatory, and technical obstacles currently limit the existing network’s ability to blend this volume of hydrogen in the gas stream.

A review of dozens of interstate natural gas pipelines’ tariffs on file with the Federal Energy Regulatory Commission (FERC) reveals that only five pipelines specifically address hydrogen in their gas quality specifications.

For hydrogen to seamlessly flow between natural gas pipelines and leverage the size and interconnectedness of the U.S. pipeline grid—and to begin to build scalable hydrogen projects—the interstate pipeline industry will need to collaborate with regulators and shippers to develop an approach to hydrogen blending.

Interstate natural gas pipelines grappled with similar gas quality and interchangeability questions in the early 2000s, as the U.S. first began to import significant volumes of liquefied natural gas (LNG), then later in the decade began to produce natural gas from shale. Through an industry-wide collaborative, and a strict avoidance of a one-size-fits-all solution, many interstate natural gas pipelines established FERC-approved quality and interchangeability standards to reflect the increasingly diverse supply of natural gas.

Establishing standards for blending will require similar collaboration among industry stakeholders, including regulators such as FERC and the Pipeline and Hazardous Materials Safety Administration (PHMSA), the latter of which already has jurisdiction over the safety of hydrogen pipelines and certain hydrogen storage solutions.

Discussions among stakeholders would include issues related to disparities in the age of existing pipeline infrastructure, safety and pipeline integrity concerns, and individual needs of the spectrum of pipeline shippers.

Who Would Regulate This?

Efforts to set gas quality standards that accommodate hydrogen blending may be in vain without clear regulatory authority to oversee and enforce standards.

The Natural Gas Act (NGA) grants FERC broad jurisdiction over the interstate natural gas pipeline and storage systems. It appears unlikely that FERC has jurisdiction under the NGA over interstate pipelines and storage facilities that transport and store hydrogen exclusively. There is an open question, however, when it comes to whether FERC would have jurisdiction over hydrogen blended into a natural gas stream.

FERC oversight in this space would have the benefit of providing an established process for considering and managing issues. FERC has a long history of overseeing diverse natural gas supplies and addressing gas quality and pipeline interconnection issues.

Additionally, FERC has significant legal precedent and established policies across a range of natural gas transportation issues that also may be implicated for transportation and storage of hydrogen-natural gas blends. This includes FERC’s robust secondary market for firm interstate natural gas pipeline capacity, and its protection of that market through its capacity release regulations and policies. While stakeholders may have differing views of FERC precedent, regulatory certainty has significant benefits.

Who Would Pay for the Necessary Investments?

Of course, accommodating hydrogen blending in interstate pipelines would not be without cost, and the question of who would pay for any investments necessary to incorporate hydrogen into the gas stream looms over all the regulatory and technical discussions.

In addition to the cost of the research and consensus building required to develop standards, the existing pipeline network likely would need upgrades to accommodate additional volumes of hydrogen. For example, hydrogen molecules can cause steel embrittlement, and additional upgrades may be needed to limit leakage.

Assuming that FERC would regulate hydrogen transported as part of the natural gas stream and, thus, also would regulate the rates for such interstate pipeline transportation, there are several considerations that could come into play. These include whether the U.S. hydrogen economy first develops in concentrated regions or if it develops more evenly nationwide.

This may affect whether modifications would be systemwide or limited to particular lateral lines in specific geographic areas, leading to questions about which shippers pay, particularly in light of FERC’s policy that rates not result in a subsidy by one shipper of another shipper’s service.

While FERC generally disfavors allowing pipelines to levy surcharges, in 2015, FERC permitted pipelines to utilize surcharges for cost recovery related to modifications required under new PHMSA regulations. FERC could authorize a similar mechanism for modifications to allow for hydrogen blending.

Collaboration Is Required

As efforts to decarbonize through deployment of zero-emissions energy increase, a common goal of stakeholders will be the development of hydrogen at scale. While large-scale collaboration will be important, smaller scale successes could play an important role in large-scale deployment. Blending hydrogen in existing natural gas pipelines can help in both regards.

The earlier stakeholders begin collaborating on issues like hydrogen blending, the more likely the U.S. will secure a leading role in the emerging global hydrogen economy.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

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Author Information

David L. Wochner is a partner in the Washington, D.C., office of K&L Gates LLP, and serves as a leader of the firm’s global policy and regulatory practice area.

Sandra E. Safro is a Washington, D.C., and Houston-based partner and a leader of the firm’s oil, gas and resources practice.

Jennifer Bruneau Abbey and Michael L. O’Neill are associates in the firm’s Washington, D.C., and Boston offices, respectively, both in the oil, gas and resources practice.

All four were among the authors contributing to K&L Gates’ The H2 Handbook, an extensive review of the legal, regulatory, policy, and commercial issues affecting the future of hydrogen.

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