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FERC: Lifespan no longer an issue Federal regulator rejects request from shippers, state to reconsider ruling that Alaska oil pipeline’s usefulness ends in 2034 Rose Ragsdale For Petroleum News
The federal agency that oversees interstate shipments of crude through the trans-Alaska oil pipeline has rebuffed efforts by some shippers and the State of Alaska to keep alive the question of the remaining useful life of the 800-mile conduit.
In early September, the Federal Energy Regulatory Commission rejected requests filed May 29 by Anadarko Petroleum Corp., Tesoro Corp., Tesoro Alaska Co. and the state requesting a rehearing of the commission’s April 16, 2009, order. The commission said the protesters failed to show a basis why the commission should reopen its prior finding of the litigated issue of the end-life of the pipeline that transports crude produced on Alaska’s North Slope to tidewater in Valdez.
In the April 16 order, the commission accepted the pipeline owners’ proposed interstate shipping rates for 2007 and those proposed for the 2008 rate on an interim basis, subject to refund. The five-member panel also directed a FERC administrative law judge to hold a public hearing on most of the issues raised and to correctly calculate a 2008 interstate tariff for the pipeline. The five owners — BP Pipelines (Alaska) Inc., ConocoPhillips Alaska, Unocal Pipeline Co., Koch Pipelines (Alaska) LLC and ExxonMobil — appealed the ruling.
In the order, FERC also rejected earlier protests that the remaining useful life of the pipeline should be reviewed in the 2008 rate hearing.
Rehearing sought Anadarko-Tesoro and Alaska sought rehearing on this point, citing several reasons why the commission erred and the remaining useful life of the pipeline continues to be a material issue of fact that should be addressed in the proceeding.
Their contention was among concerns raised by both sides before the commission in the long-running dispute over interstate shipping rates charged by the pipeline’s owners.
The commission ruled in a June 2008 order known as Opinion No. 502 that interstate shipping rates calculated using a method established in a 1985 court settlement were “unjust and unreasonable” and directed the pipeline’s carriers to use actual costs to recalculate interstate shipping rates for the years 2005-08.
In January, the carriers filed a new interstate rate for calendar year 2008 in compliance with Opinion No. 502.
But the shippers and the state protested the tariff, citing various problems with it, primarily the “incorrect” useful life estimate.
The commission said it is true that a finding on a rate input in a rate proceeding does not foreclose investigating that issue in a subsequent proceeding if the circumstances relevant to the input have changed.
However, circumstances have not changed, according to the commission.
End-life litigated The end-life of the pipeline was an issue that was litigated in the Opinion No. 502 proceeding. Issue No. III.D. in that proceeding was “What is the appropriate depreciation expense,” and “the parties agree that depreciation expense is calculated using the net property balance and a reasonable estimate of the remaining useful life of (the pipeline),” the commission said.
“Thus, (the pipeline’s) end-life was clearly an issue to be litigated, and the (administrative law judge) found ‘the correct end life of the pipeline is 2034 as corroborated by several witnesses,’” FERC said.
Given the considerable uncertainty of attempting to forecast economic or physical lives for periods beyond 30 years, the sensitivity of the forecast to changes in crude price, technological innovation, environmental regulations, North Slope field performance and the term of the recently renewed federal and state right-of-way grants for the pipeline expiring in 2034, the commission said a truncation period of 30 years was used for estimating the pipeline’s remaining life.
“We disagree with Anadarko and Alaska’s primary argument that since there was no reserve study in the Opinion No. 502 proceeding, there was no evidentiary basis to support the 2034 end-life finding,” the commission wrote in its Sept. 2 order.
“While a reserve study may not have been introduced in the Opinion No. 502 proceeding, all sides did introduce evidence on the issue of the useful life of (the pipeline),” FERC said.
Witnesses cited The commission cited a carriers’ witness who testified “it is my understanding that complainants have sponsored a useful life through 2033,” and another carriers’ witness who then explained that “the economic life of (the pipeline) is directly linked to the availability of crude oil on the North Slope, and the ability of producers to produce that oil economically. Estimates of oil reserves on the North Slope indicate that there are sufficient reserves to operate (the pipeline) until 2034,” the witness added.
FERC said even Anadarko’s witness at the Opinion No. 502 proceeding, Barry Sullivan, conceded that “the carriers’ witness Spanos presented a new depreciation study which … correctly uses a useful life for… (the pipeline) extending through 2034.”
“Whether or not a ‘reserve study’ was included in the record in the Opinion No. 502 proceeding, it is beyond dispute that the economic life of the pipeline was at issue in that proceeding, and there was a finding that 2034 should be the end-year for the pipeline’s economic life,” the commission concluded.
FERC also pointed out that Anadarko and Alaska, or any other party could have introduced a reserve study at the Opinion No. 502 proceeding, but did not do so.
The commission also said the shippers and Alaska refer to the strategic reconfiguration program that the carriers have pursued in recent years as potentially having impact on future production.
“This of course, is highly speculative since the SR program is also designed to correct existing problems on (the pipeline),” the agency said.
“Whether circumstances may change in the future that would provide a basis for challenging the year 2034 as the end of TAPS’ useful life is speculative at this time. Nothing has been shown that there has been such a change since the Opinion No. 502 proceeding. Moreover, that there might be some oil reserves on the North Slope after 2034 does not establish that it would be economical to produce such reserves in sufficient quantities to continue TAPS’ operation,” the commission added.
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