December 02, 2008 --- Vol. 14, No. 109December 2008

Inlet producers decline to sell gas to Enstar below RCA price cap

Enstar Natural Gas Co. has told the Regulatory Commission of Alaska that ConocoPhillips and Marathon Oil Co. have refused to amend gas supply contracts with Enstar to set gas prices below a price cap specified by RCA in a commission order issued Oct. 31. Enstar had agreed to new gas supply contracts for the years 2009 to 2013 with the two Cook Inlet producers but RCA has said that approval of the contracts is contingent on the price formulae in the contracts being modified to comply with the price cap.

Enstar has said that without the new contracts it will have insufficient contracted gas supplies to meet all of its customersí needs beginning Jan. 1.

In an RCA filing dated Dec. 1 Enstar told RCA that ConocoPhillips has agreed to supply gas to Enstar under its new contract with a gas price below Enstarís weighted average cost of gas from all of Enstarís suppliers, rather than with a gas cap related price. However, the amended ConocoPhillips contract would terminate at the end of 2010 rather than in 2013, Enstar said.

Enstar said that it is still trying to reach an agreement with Marathon that would be acceptable to the commission.

Under the terms of Enstarís existing gas tariff the Southcentral Alaska utility can accept without RCA approval a new producer gas price, provided that price is below Enstarís weighted average cost of gas, as is proposed in the amended ConocoPhillips contract. However, Enstar says that, because this is the first time that this particular provision of the tariff has been exercised, Enstar is seeking RCA approval of the precise terms of the price agreement.

Although RCA regulates Enstarís tariff, including the price that the utility charges its customers for gas, the commission does not regulate the Cook Inlet gas producers and the prices that they charge utilities. However, to stay in business Enstar has to pass through to its customers the price that it pays the producers for gas.

See the full story in the Dec. 7 issue of Petroleum News, available to subscribers online at noon Friday, Dec. 5 at

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