BOARD MEETING DATE: June 5, 2009
AGENDA NO. 40

PROPOSAL:

Proposed Rule 433 – Natural Gas Quality

SYNOPSIS:

Fluctuations in natural gas quality may adversely impact emissions from natural gas-fueled equipment. The objective of Proposed Rule 433 is to monitor the quality of natural gas being supplied to end users located within the AQMD and determine the effects of new supplies of natural gas, such as those derived from imported liquefied natural gas (LNG) on natural gas quality and emissions.

COMMITTEE:

Stationary Source, April 17, 2009, Reviewed

RECOMMENDED ACTIONS:

Adopt the attached resolution:

1. Certifying the Notice of Exemption for Proposed Rule 433 – Natural Gas Quality; and
2. Adopting Proposed Rule 433 – Natural Gas Quality.
    

Barry R. Wallerstein, D.Env.
Executive Officer

Background

The Energia Costa Azul liquefied natural gas (LNG) receipt terminal, located between Rosarito and Ensenada in Baja California, Mexico and owned by Sempra Energy, completed installation this year with the intent to regasify and supply up to 1.0 billion cubic feet per day of imported natural gas to Baja California and Southern California in the United States. Other LNG receipt terminals are proposed to be installed in Southern California. Since one terminal can deliver up to 40% of the natural gas supplied by Southern California Gas Company (SoCalGas), imported LNG could substantially displace domestic supplies and even change the composition of natural gas in AQMD. Indeed, LNG sources in Indonesia and Russia are in the process of completing their commissioning for Energia Costa Azul; therefore, LNG-derived natural gas may be delivered to AQMD by the end of the year.

The current composition of domestic natural gas supplies to AQMD is typically over 95% methane and less than 3% of higher hydrocarbons such as ethane and propane. Imported LNG generally has increased concentrations of the higher hydrocarbons, resulting in more VOC content, and a higher heating value (Btus per standard cubic foot.) Natural gas with a higher heating value than traditional supplies has also been supplied to California in increasing amounts in recent years from the Rocky Mountains.

When natural gas with this higher heating value is delivered to users in AQMD, it will cause changes to the air-to-fuel ratio for most combustion equipment and may adversely impact NOx and other criteria pollutant emissions from such equipment. There are millions of natural gas-fired equipment in AQMD: water heaters, furnaces, ovens and stoves in homes; small boilers and cooking equipment in commercial buildings; ovens, furnaces, driers, engines, gas turbines and large boilers in industrial facilities; and natural gas-fueled vehicles. Because of the many different types of burners and combustion controls, the effects of fuel quality changes differ between equipment. Some types of equipment are tolerant to changes in the air-to-fuel ratio with no effects on safety or air pollutant emissions. Certain equipment, however, are sensitive to changes in the air-to-fuel ratio, with effects ranging from increased CO and VOC emissions in some equipment, to increased NOx emissions in others. As such, changes in natural gas quality could cause some equipment to exceed an AQMD rule emission limit, without the operator even noticing any change or knowing about the emission violation.

SoCalGas and contractors for the California Energy Commission have tested some natural gas-fired equipment and are in the process of testing other equipment and vehicles. AQMD staff has participated on advisory committees for these efforts.
 

Proposal

Proposed Rule 433-Natural Gas Quality is a monitoring and reporting rule. It has four elements that require:

1. Reporting of baseline natural gas quality data for 2006 to 2008;
2. A Gas Quality Monitoring Plan for monitoring the quality and quantity of natural gas received into the gas distribution system and the changes to gas quality in AQMD;
3. An LNG Rollout Plan that includes customer education, equipment testing, and mitigation measures such as combustion equipment retuning; and
4. Estimation of the emission impacts of changes in natural gas quality on natural gas-fired equipment in AQMD.

As detailed in the attached Staff Report (see Chapter 1, section Natural Gas Utilities, and Chapter 3, section Exemptions), AQMD staff believes that due to proposed exemptions, the rule will only apply to two natural gas utilities: investor-owned SoCalGas and the municipal gas utility in the City of Long Beach. Their respective Gas Quality Monitoring Plans will only require SoCalGas and the City of Long Beach to monitor and report data that they already monitor. Currently, much of this data is not publicly available.
 

The LNG Rollout Plan will require SoCalGas to formalize a plan that it has already started for the San Diego area and intends to do in AQMD as well. San Diego is expected to be the first area that receives significant quantities of LNG-derived natural gas.
 

A consultant for SoCalGas has already prepared an estimate of the impact of LNG-derived natural gas on emissions of natural gas-fired equipment in AQMD. The proposed rule would require it to be updated annually based on new information.
 

Key Policy Issues

SoCalGas has advocated that AQMD and SoCalGas work together on a joint study to achieve the objectives of Proposed Rule 433, rather than adopt a rule. Staff believes that these objectives can be best achieved by adopting Proposed Rule 433.
 

Emission Inventory and Emission Reduction

Proposed Rule 433 does not specify emission limits. However, retuning of sensitive combustion equipment is done as part of the LNG Rollout Plan, then some emission increases may be reduced or eliminated. Staff does not plan to claim any emissions reductions in the State Implementation Plan (SIP) as a result of this rule at this time.

CEQA

The AQMD has reviewed the proposed project pursuant to the CEQA Guidelines §15002 (k)(1). The proposed rule requires affected operators to submit data that is currently being collected at existing gas monitoring stations. Because the rule requirements involve planning studies for possible future actions and for information gathering purposes, it is statutorily exempt from CEQA pursuant to state CEQA Guidelines § 15262 – Feasibility and Planning Studies, and categorically exempt pursuant to § 15306 – Information Collection. If approved, a Notice of Exemption, prepared pursuant to CEQA Guidelines §15062 - Notice of Exemption, will be sent to the county clerks for each county in the district for filing.
 

Socioeconomic Analysis

The proposed amendments do not directly affect air quality or establish emissions limitations. Therefore, a socioeconomic assessment is not required. Nonetheless, staff conducted a cost analysis to assess the impact on two gas utilities in the utility sector. The costs for reporting and plan submittal are not expected to exceed a first-year cost of $42,780 and an annual cost of $36,080 per year. However, additional costs will occur associated with the implementation of a LNG rollout plan.
 

AQMP and Legal Mandate

Proposed Rule 433 will implement Control Measure CMB-04 – Natural Gas Fuel Specifications, of the 2007 Air Quality Management Plan (AQMP).
 

Implementation and Resources

Proposed Rule 433 will be implemented within current staffing levels. The plans submitted by the gas utilities will be subject to Rule 306 – Plan Fees.

Attachments (EXE, 1.58k)

1. Summary of the Proposed Rule
2. Rule Development Process Flow Chart
3. Key Contacts
4. Resolution
5. Proposed Rule 433
6. Staff Report