H₂S Impact on Southwest Kansas Natural Gas Consumers

Minutes

May 6, 2005

The second meeting investigating H₂S contamination and low pressure problems in the Hugoton gas field was held in the Aquila Energy Liberal Kansas office. The attendance list is attached to this document. The meeting was attended by 69 stakeholders representing legislators, gas gatherers, producers, transmission companies, distribution companies, agriculture and residential consumers, and various state agencies. Thirty-nine of the attendees were also present at the March 1 meeting. At the conclusion of the meeting, Stephen Morris, President of the Kansas Senate addressed the group. Sen. Morris expressed his gratitude for the support and participation of the task force members in working to resolve the issues related to low pressure and H₂S contamination. He also noted that we still have a significant amount of work to do, and he encouraged the producers, gas gathering system operators, and consumers to continue assisting the task force in data acquisition and working toward a solution.

The meeting was chaired by Leo Haynos from the KCC staff. Mr. Haynos reviewed the preliminary results of the data acquisition in developing a map of the low pressure and H₂S contamination in the Hugoton field. The recently signed HB2263 and its implications were briefly discussed. He then reviewed the reasons for the task force by listing the mission statement and the product the task force hopes to deliver to the public and to the legislature. The mission statement and deliverables are as follows:

Mission

1. Develop a clear technical understanding of the impact of H₂S and low pressure on consumers of unprocessed natural gas within the Hugoton field area and investigate alternate means of providing natural gas service to these consumers.
2. Acquire input from interested parties on the legal, contractual, and public policy aspects that direct supply of natural gas to rural consumers in the Hugoton Field.

Deliverables

1. Prepare a document for public distribution that has consensus approval from the task force that addresses the seven categories listed in team headings.
2. Provide background information/education/opinions for the policy issues and legal/contractual issues associated with providing natural gas distribution service in rural areas from gas gathering lines.
3. Provide resources and database for appropriate entities that may be used for long range planning and developing alternate supplies of natural gas to end use customers.

Team Reports

After the introduction, each team discussed progress to date. Documents from each team's status are available on the KCC website. PLEASE REVIEW AND PROVIDE FEEDBACK TO THE APPROPRIATE TEAM. THIS IS IMPORTANT TO KEEP US ON THE RIGHT TRACK!!

Below is a short summary of team progress plus any immediate action items that were discussed in the May 6 meeting Also, the action items listed from the first meeting are included at the bottom of these minutes.

Team 1: DATA ACQUISITION, chair Dave Williams, KCC Conservation

Dave discussed the data acquisition to date. Team 1 sent out 247 requests to producers and operators for information on H₂S contamination and operating pressure. As of May 16, data had been received from 31 of the 38 gatherers and irrigators. For the data requests sent to 212 producers, 99 have provided a response, and 85 with no response. So far, we have data from 6531. However, of the 38 gatherers, only 4 have submitted electronic mapping data. Of the data received on 5286 wells, only 6 wells reported levels higher than 400 ppm. One-half of the reported wells had no value reported. It is unknown if this means they had no H₂S or had not taken any measurements.

Action Item 1: Renew contact with remaining companies to get data sent in. Mapping date is an important part of the database that is missing.

Team 2: DEFINING THE H₂S CONTAMINATION, chair Randy Dyer, Aquila

Randy presented the draft report of Team 2 dealing with pipeline gas quality specifications and the concentrations at which H₂S becomes corrosive. The current industry standard for hydrogen sulfide (H₂S) gas quality for gathering and transmission pipeline systems varies by individual system and ranges from 4 ppm to 16 ppm (parts per million). So far, the team's research indicates that a H₂S partial pressure of .001 psia is a conservative threshold value for controlling corrosion from H₂S. Randy noted this level did not consider the effects of carbon dioxide or water in the corrosion reaction. He asked for feedback on performing a corrosion study on a gathering system to test for the corrosion effects in Hugoton field. There was additional discussion regarding the toxic effects of H₂S. Leo Haynos noted that an industrial hygienist with Kansas Dept. of Labor would be reviewing the boiler system in a commercial cattle feeding operation and an irrigation engine operation later this month. The industrial hygienist would provide an opinion on the safety of burning gas contaminated with H₂S in these types of commercial operations. There was also discussion regarding the affects of H₂S once the contaminated gas is dispersed inside a room such as a basement. Other findings discussed were: When dissolved into water forms a weak acid that promotes corrosion and stresses cracking- blistering, pitting, cracking in pipes; H₂S is heavier than air so it will build up in lower areas; Problems from wet gas system are pilot lights going out, adjusting appliance jets, corrosion, etc; If outside of line is catholically protected the line is still not safe from H₂S; Avoid copper, brass and galvanized steel piping if H₂S is present at levels above 5ppm- flaking will be a problem.

Action Item 2: Coordinate industrial hygienist field study

Action Item 3: Pursue pilot study of corrosion effects.

Action Item 4: Further develop air dispersion of gas around irrigation engines and air dispersion in closed structures such as basements.

Action Item 5: Follow up with Kentucky and W. Virginia PUC's to see if they have any experience with H₂S in distribution systems.

Team 5: ALTERNATE MEANS OF SUPPLYING GAS Co-Chair Bob Muirhead, Midwest; Leo Haynos KCC Utilities

Team 5 is focused on four categories: Processed Gas Mapping Effort; Efficiency & Feasibility of extending gas distribution systems; Access to interstate Transmission Line Taps; and Comparison of Alternative Energy Sources. Mapping of processed gas lines is dependent upon the data acquisition effort of Team 1. Leo Haynos requested that any gathering systems operating dry gas lines or processed gas lines for system fuel use please indicate those lines on their maps when they submit their data. We discussed including 3 phase electric lines on our maps and locations of irrigation wells including the type of prime mover, (gas, electric, diesel) on the map. This data has not been compiled since 1989. Team 5 also discussed various economic scenarios regarding the development of distribution gas supplies to irrigation systems. There were additional comments on the gas pricing that is associated with these systems. We also discussed access interstate lines regulated by FERC. The comment was made that cost estimates provided by interstate companies appear to be inflated, and the question was raised regarding an investigation by FERC on tap installation practices. The Team 5 report has several action items listed in it. Below are some of the more pressing items along with items raised during the May 6 meeting.

Action Item 6: Develop protocols to deal with access to map database.

Action Item 7: Get feedback from gathering companies on a). the existence of dry or processed gas fuel lines; and b). on the potential use of these lines to supply gas for distribution.

Action Item 8: Include narrative from Atmos regarding development of irrigation gas distribution systems including experience with systems built in Texas.

Action Item 9: Educate agriculture community on the application of transportation tariffs on LDC systems.

Action Item 10: Update irrigation project narratives to reflect an estimate of the current net cash flow being derived from the irrigation projects.

Action Item 11: Request copies of tap original estimates vs. actual tap installation costs from interstate companies.

Action Item 12: What are the policies of requiring EFM on small volume meters.

Team 6. HUGOTON FIELD RULES FOR MONITORING H₂S LEVELS Chair Maurice Korphage, KCC Conservation

Team 6 discussed initial progress on identifying areas where regulations dealing with H₂S contamination could be applied to Hugoton under field rules or possibly developed as statewide rules. We discussed various rulemakings from Texas, Oklahoma, Colorado, and Arkansas as possible models to be applied to Kansas. We also discussed the need to develop best management practices for well workovers when recovering the treatment fluids. It was noted that very little continuous monitoring is done for H₂S in this area. Costs for installing continuous monitors range from $2,800 to $6,000. If telemetry is installed, the cost is well above that amount. The application of vacuum in various parts of the field was discussed and noted that this technique is not widespread at this time. Field rules will also look at testing frequency and testing technique to assure valid and timely measurements are taken. The question was asked if KCC has the legal authority to require companies to shut in production should the H₂S levels from a well reach a threshold value. A proposal from the committee suggested the team look at rules to require continuous monitoring on the downstream side of treatment if the well had three measured events where the post treatment H₂S levels reached 100 ppm.

Action Item 13: Input from producers on best management practices to control H₂S flowing into gathering system after workovers.

Action Item 14: Continue review of other state regs.

Action Item 15: Consider requirements to establish a threshold value for H₂S production leaving the lease and require controls and automatic shutdown if threshold value is exceeded.

Team 3. PUBLIC AND EMERGENCY RESPONDERS EDUCATION: Chair Tim Hess, and Larissa Long, Aquila

Team 3 has begun to develop a list of associations to contact in an effort to educate the public on the requirements to work around H₂S as well as to request their input in developing a more complete database for contacts. Team 3 work to date is available from the KCC website. Team 3 will also be the main team to compile the final product from all teams and disseminate the product to the public.

Team 4. COMPANY TERMINATION PRACTICES: Chair Gary Wise, Aquila

Team 4 presented a review of their work to date in developing protocols that may be used by production and gathering companies when it becomes necessary to remove service to a consumer. They also are developing a resource that a consumer can use to compare costs of energy when it becomes necessary to switch to alternate source.

Team 7: POLICY AND LEGAL ISSUES OPEN FORUM: Chair John McCannon, KCC Conservation

Leo Haynos presented the electronic forum available for access over the KCC website. Team 7 members will have access to input data on the forum. All comments can be viewed by the public. The team 7 members are as follows:

If anyone other than a Team 7 member wishes to make a comment, they are encouraged to contact a Team 7 member or Leo Haynos to have their comment logged under the appropriate question. The committee was requested to provide feedback on the questions listed also on any additional questions that may be appropriate for the forum.

Meeting 1, March 1, 2005 Action Items:

Listed below are the action items from the Meeting one minutes. Some of these may be complete; however, the list of all items is included as a reminder to the committee members:

1. Company name and contacts for closed gathering systems served by open gathering system.
2. Meter number and meter location (preferably long/lat coordinates) for any consumer, (residential, irrigation, commercial), connected to gathering system. This will include consumers of wellhead gas as well as consumers of gas from gathering line.

Team 1: DATA ACQUISITION

1. required biannual well testing does not necessarily include testing for H₂S; so how do we get the info on every well and how long will it take?
2. Any readings should reflect the highest maximum reading.
3. work with other state agencies using existing databases.
4. Inventory of irrigation wells using natural gas to power engines as part of KWO. reporting requirements. GWMD No. 3 may also be a source for this data. Should note if the engine uses processed or unprocessed gas.
5. Need to capture maps of all operators and gatherers in the area including the non profit units for irrigators.
6. In an attempt to develop a comprehensive database of H₂S contamination in Hugoton, KCC Conservation division is exploring methods to request the gas producers and gatherers to supply the following:
1. Sample gas for H₂S at all consumer taps.
2. Conservation will send out letter to producers/gatherers in an attempt to get H₂S information on individual wells
3. Conservation will send separate letter to producers requesting consumer information connected to any facilities they operate.

Team 2: DEFINING THE H₂S CONTAMINATION

Types of devices used to monitor H₂S. What is the accuracy of the device? (should be assigned to Team 6?)

Team 5: ALTERNATE MEANS OF SUPPLYING GAS

1. Where does any distribution infrastructure currently exist?
2. What are line extension policies?
3. Potential for converting gathering lines to distribution.
4. review existing LDC certificates: location of service territory (metes and bounds parameters), location of existing infrastructure
5. Feasibility of alternative fuel sources (propane, etc.); Who pays?
6. Long term water resources to allow for recovery of installation costs?

Team 6: HUGOTON FIELD RULES FOR MONITORING H₂S LEVELS

1. how to determine whether well has been treated?
2. on going forward basis, suggestion that where H₂S is detected in the future:
1. notify KCC;
2. track back to affected well?

Meeting One OTHER ISSUES DISCUSSED

-if, for whatever reason, end users are disconnected from gathering systems, is there now or should there be any requirement for the “disconnector” to seek abandonment authority or some other form of permission from the KCC

Public utilities sell gas through their tariff at a cost of $/MMBTU but the BTU content is variable. How often should the company be monitoring the BTU content and adjusting the price?

Oil and Gas Leases or Right-Of-Way agreements in exchange for domestic tap
-Consumers’ concerns:

• concern with terms of old contracts
• concern that producers/gatherers “change the rules of the road” without input from users/consumers
• performance under the contract vis-à-vis declining pressure and gas depletion (ability of producer/gatherer to provide gas)
• Concern with differences in contractual arrangements (no uniformity or standard terms and conditions of contract/lease agreements)
• If agreements don’t address the issue of contaminated gas, who’s responsible to clean the gas?