United States: FERC Notes "Highly Persuasive" Nature Of Geochemical Data, Discounts Seismic Data, In Considering Request To Expand Natural Gas Storage Reservoir And Claims Of Gas Migration

On June 1, 2016, FERC granted in part and denied in part National Fuel Gas Supply Corporation's ("National Fuel's") request for rehearing regarding its request to expand the reservoir and buffer boundaries of its Beech Hill Complex natural gas storage facility. In its initial order, issued December 17, 2015, the Commission stated that it "grants jurisdictional storage field operators additional certificate authority to revise the boundaries of storage fields when the applicant can demonstrate, with engineering and geological data, that such authorization is required . . . to improve the operation of a storage field or to maintain its integrity." In its June 1 rehearing order, the Commission found geochemical data and evidence of hydraulic connections to be persuasive evidence that gas was migrating, discounted theories based on seismic evidence, and observed that "[w]hile geochemical data is not always required to support expansion of certificated boundaries, it is highly persuasive."

In a June 13, 2014 filing, National Fuel requested permission to expand its Beech Hill Complex, located in Allegany and Steuben Counties, New York, by a total of 12,953.7 acres. National Fuel's proposal would have almost doubled the size of its storage field but would not change the capacity or deliverability of the storage field. National Fuel requested the boundary expansion because it was "necessary to contain the migration of storage gas and protect the integrity of the storage field." National Fuel requested authorization to expand the reservoir and buffer boundaries in seven areas of the Beech Hill Complex. In support, National Fuel provided to FERC seismic data, records of wellhead pressures, and geochemical data (i.e, tests of whether storage gas had been found at wells outside the reservoir area).

The initial December 17, 2015 order granted in part and denied in part National Fuel's expansion request and also denied its request to convert one of its gas wells, Well 7451, from observation to withdrawal-only status. On January 15, 2016, National Fuel filed a request for rehearing, which included an affidavit by an expert geologist. While some information in the affidavit had been in the record at the time of the initial December 2015 order, other information, and the affidavit itself, had not been. FERC rejected the affidavit and its attachments as an untimely attempt to supplement the record.

With respect to Area 1, the December 2015 Order authorized expansion of the reservoir boundaries, to encompass a well formerly in the buffer zone, because FERC determined that geochemical data showed that storage gas had migrated beyond the reservoir boundary and was found at the buffer zone well and, similarly, wellhead pressure data showed "a hydraulic correlation" between the buffer zone well and an "indicator well" generally representative of pressure in the storage field. The December 2015 Order rejected National Fuel's request to expand the buffer zone in Area 1 by 16.09 acres, finding no data or explanation to support it. On rehearing, FERC approved the 16.09-acre expansion based on National Fuel's representations that it already controlled the storage rights to these acres and using them would create a uniform buffer zone around the well newly incorporated into the storage reservoir.

At the Beech Hill Complex, National Fuel stores the natural gas in a layer of Oriskany Sandstone. For Area 2, National Fuel had conducted recent seismic analysis causing it to reinterpret the structure of the Oriskany Sandstone. National Fuel sought to expand reservoir and buffer zone boundaries to better align with its reinterpretation of the Oriskany Sandstone structure. The December 17 order denied this request, noting that National Fuel had failed to provide geochemical data from Well EC-537, located in the existing buffer zone in Area 2. The Commission further noted that the Oriskany Sandstone dips downwards and becomes less porous, forming a natural barrier to gas migration. On rehearing, National Fuel argued that it was unable to provide useful samples from Well EC-537 because of its depth, that the seismic data showing the structure of the Oriskany Sandstone should be accepted as persuasive evidence, and that the strong rate of production from an existing well within, but near the border of, the storage reservoir further supported the requested expansion. The Commission found these arguments unpersuasive, noting that "[i]n order for the Commission to authorize . . . expansion of the boundary and buffer zones, and with it the potential use of eminent domain, National Fuel must provide definitive data that would justify the expansion." National Fuel did not provide such data. While National Fuel explained why it could not produce a relevant geochemical sample, it failed to explain how its seismic data, alone, provided sufficient support for its Area 2 request.

National Fuel sought to expand the reservoir and buffer zone boundaries in Area 3 to include areas relating to two southwest-northeast trending faults and a third fault situated even farther to the northeast. These faults, National Fuel argued, facilitated gas migration. In the initial December 17 Order, the Commission permitted a limited expansion of reservoir boundaries to encompass three wells in buffer zones for which analysis showed evidence of storage gas, but declined to expand boundaries to encompass areas relating to the two trending faults. On rehearing, National Fuel argued that the Commission should have approved the expansion to include the entirety of the areas related to the two faults, but the Commission declined to grant rehearing because National Fuel provided no evidence that gas was actually migrating through the faults. The Commission stated: "[w]hile National Fuel has established that faults exist, it has provided no evidence that gas is actually migrating through them." The Commission held that the "presence of a fault alone does not provide a sufficient basis to expand the certificated reservoir boundary."

For Area 4, National Fuel presented well tests and wellhead pressure analyses revealing that gas geochemistry of three of four existing observation wells in the proposed reservoir expansion area was that of storage gas, and that a direct hydraulic connection existed between the current and proposed reservoir areas. The Commission accepted this evidence in its initial December 17 order as justifying the requested expansion; hence, no rehearing was requested with respect to Area 4.

For Area 5, National Fuel had recent seismic data indicating that a "closed structure" existed half within its existing buffer zone, and half outside of it. National Fuel also presented analysis showing that gas from a well in the buffer zone was storage gas. In the December 2015 Order, the Commission authorized the expansion of the buffer zone boundary around the closed structure and the reservoir boundary through it. On rehearing, National Fuel argued that the Commission set the evidentiary bar too high by requiring solely geochemical data and ignoring its seismic data. The Commission granted rehearing to expand the certificated reservoir boundary to better coincide with the closed structure and other seismic data and in light of the geochemical data underlying its holding in its initial order.

With respect to Area 6 and Well 7451, National Fuel requested to add 5,123.06 acres to the reservoir boundaries and 990.34 acres to the buffer boundary, and convert Well 7451 from observation status to a withdrawal-only well to recover migrated storage gas. The Commission denied the request, and on rehearing, National Fuel stressed that geochemical analysis of Well 7451 showed the presence of storage gas. However, the Commission emphasized that "the hydraulic connection between the [existing reservoir] and the [area] where Well 7451 is located was weak because Well 7451 did not appear to be influenced by the Beach Hill [Complex] injection-withdrawal cycles." The Commission also found that the periodic operation of Well 7451 as a withdrawal well in the past explained the presence of storage gas because it had induced storage gas to flow from the Beech Hill Complex to the area where Well 7451 is located. Therefore, the Commission denied rehearing with respect to Area 6 and Well 7451.

Lastly, on rehearing, National Fuel stated that Area 7 must be included for expansion because seismic data showed that it has a structural trap of similar characteristics to Area 6. However, the Commission stated that this "is not a reasonable basis to expand the certificated reservoir boundary." Accordingly, the Commission denied the request for rehearing as to Area 7.

A copy of the Commission's order is here.

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