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Unocal: Ship more with us and pay less Declining throughput on pipeline leads one owner to offer discount to shippers willing to commit to move 5,000 barrels per day Eric Lidji Petroleum News
Unocal, the company with the smallest share of the trans-Alaska oil pipeline, is looking to discount its shipping rate as a way to compete with the other owners of the pipeline.
The company is asking regulators for permission to cut shipping rates by around 38 percent to any company that commits to ship at least 5,000 barrels of oil per day.
The move is Unocal’s attempt to compete for customers at a time of declining throughput on the 800-mile pipeline running from the North Slope of Alaska to tidewater at Valdez.
The pipeline can move some 2.1 million barrels of oil per day at maximum capacity, but hasn’t hit that peak since 1988. Current throughput is below 700,000 barrels per day.
That spare capacity, combined with recent rate increases by four of the five owners of the pipeline, has put Unocal at a competitive disadvantage, the company said in filings.
Late last year and early this year, the Regulatory Commission of Alaska let four of the five pipeline owners increase in-state shipping rates by 57 percent on a temporary basis.
BP has lowest rates BP, which owns the largest share of the pipeline, decided not to request a rate increase.
The move created a rare disparity in shipping rates among the owners of the pipeline.
BP now has the lowest in-state shipping rate of the five companies, and also has plenty of capacity to spare. The company owns nearly 47 percent of the pipeline, or around 985,000 barrels per day of capacity, more than the entire daily North Slope production.
BP, ConocoPhillips and ExxonMobil are the largest North Slope producers and also own the largest shares of the pipeline. But two other North Slope producers, Anadarko and Pioneer Natural Resources, don’t own any stake in the pipeline and must rent space.
Unocal Pipeline Co. owns 1.36 percent of the pipeline.
Since the rate increases took effect, Unocal has seen a drop in shipping volumes, which the company attributed to the “availability of the significantly lower” rates from BP.
The discount, called a “volume incentive rate,” is meant to make Unocal competitive.
For example, a company taking advantage of the discount would pay $1.90 to ship a barrel of oil from Prudhoe Bay to the Valdez Marine Terminal, rather than $3.05, the temporary rate approved earlier this year for Unocal and the three other owners.
The previous rate, and the one still used by BP, was $1.96 per barrel.
Discount doesn’t cover costs In regulatory filings, Unocal insisted the discounted rate isn’t high enough for the company to recover its cost for providing transportation services, but “given the current competitive environment, (Unocal) is willing to offer service at these non-compensatory rates in an effort to recover some portion of its costs from incremental shippers.”
Unocal made similar requests from both RCA and the Federal Energy Regulatory Commission, which regulates shipping rates on oil headed to markets outside Alaska.
The State of Alaska protested the request before FERC, saying the incentive proposed by Unocal offered a discount to a flawed rate. The state is among a group of parties arguing that the shipping rates on the pipeline have been and continue to be too high.
FERC approved Unocal’s request for the discounted rate, but acknowledged the company could be required to refund shippers depending on the results of other ongoing rate cases.
Unocal is asking for the discount to become available on June 1.
Unocal proposes to offer the discount to customers on a month-to-month basis.
Discount has a precedent Volumetric incentives are relatively common in the Lower 48, where shippers can often choose between competing pipelines, but less common on the North Slope, where there is only one pipeline taking oil to market and rates are generally consistent among owners.
The Unocal request is not unprecedented in Alaska, though.
State regulators approved a similar incentive rate for Mobil Alaska Pipeline Co. in 1997, but raised concerns about the company offering the incentive to only some customers.
The Unocal proposal is the same discounted rate for all its potential customers.
The five owners of the pipeline are BP Pipelines (Alaska) Inc., ConocoPhillips Alaska, ExxonMobil Production Co., Unocal Pipeline Co. and Koch Pipelines (Alaska) LLC.
Each company owns an undivided share of the pipeline.
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