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RCA to investigate new Beluga tariff Gas line on west side of Cook Inlet wants shippers to pay to reserve space on line rather than for the volume of gas shipped Alan Bailey Petroleum News
The Regulatory Commission of Alaska announced Jan. 26 that it is going to investigate a radically new tariff that Beluga Pipe Line proposes to implement on its gas line on the west side of Cook Inlet. The new tariff involves charging pipeline shippers fees to reserve space on the line, rather than charging for the volume of gas shipped.
The intricate issue of how to ship utility gas from Alaska’s Cook Inlet gas fields to Southcentral Alaska power stations and gas users revolves around the capacities, interconnections and capabilities of various pipelines around the inlet. But the fees charged to ship gas through the pipelines also play a big part in transportation decisions: Making maximum use of gas pipelines that have the lowest tariff rates can make a significant difference to the cost of delivered gas and generated electricity.
And so, the new Beluga pipeline tariff is of particular importance to anyone with a stake in the future cost and availability of Cook Inlet gas. The 100,000-cubic-feet-per-day capacity Beluga line connects gas fields on the west side of Cook Inlet to Chugach Electric Association’s Beluga gas-fired power plant and to the southern end of Enstar Natural Co.’s gas transmission line that carries gas north into the Matanuska and Susitna valleys.
Alternative route Traditionally, much of the gas produced on the west side of the inlet has been carried under the inlet through dual gas lines that are part of the Cook Inlet Gas Gathering System, or CIGGS, for use on the Kenai Peninsula or for transportation north to Anchorage and beyond through an Enstar gas transmission line on the peninsula. The Beluga pipeline connects to CIGGS on the west side of the inlet and has provided an alternative route north, while also providing some flexibility in the sourcing of gas for the Beluga power station, especially as production from the Beluga gas field, located right under the plant, declines.
But in recent years gas producers have tended to mainly use the Beluga line during spikes in gas demand, especially during winter weather, Craig Chambers, commercial manager of Beluga Pipe Line, a subsidiary of Marathon Oil Co., told the RCA commissioners during an RCA public meeting on Jan. 12. Consequently, Beluga Pipe Line now wants to charge its customers to reserve capacity on the line, rather than use the traditional mechanism of charging a shipper for the volume of gas that the shipper transports, said David Robinson, attorney for the company.
“What we’re finding is that Beluga is now being used as the pipeline of last resort when it’s very cold or when there is pipeline maintenance going on in other pipelines,” Robinson told the commission. “So we see some really steep spikes in throughput on a few days of the year … and on that type of usage pattern it is very difficult to design a rate based on volume.”
Currently Beluga Pipe Line charges its customers 25.44 cents per thousand cubic feet for gas transportation.
No incremental CIGGS cost West-side gas directly connected to CIGGS, such as gas from the McArthur River field, can be shipped to the east side of the inlet at no incremental CIGGS shipping cost. This encourages CIGGS shippers to deliver gas to Enstar’s east-side receipt points, potentially creating a bottleneck on Enstar’s east-side pipeline, Chambers said. But moving west-side gas north through the Beluga line, rather than taking it under the inlet, would surely be more efficient, he said. The proposed capacity tariff would encourage companies to move the estimated 70,000 cubic feet per day of gas produced on the west side of the inlet through the Beluga line, he said.
And the Beluga line can help with flexibility in moving gas around the pipeline network, especially when the planned Cook Inlet Natural Gas Storage Alaska gas storage facility at Kenai comes on line.
Open season Essentially, the proposed tariff would work by inviting gas shippers to bid for pipeline capacity by e-mail during an annual open season, with the actual pipeline capacity being distributed among the shippers in proportion to their bids. Bidders would have an opportunity to withdraw bids after the allocation of actual pipeline capacity, with the total pipeline capacity then being re-allocated among the remaining bidders. There would also be a mechanism for granting pipeline access to new shippers during the year and for adjusting the annual capacity allocations, if a shipper were to use more than its allocated space at some point during the year.
The annual rate for reserved capacity would be $46.67 per thousand cubic feet per day.
And under some specific circumstances a shipper with insufficient access to pipeline capacity could ship gas on unreserved capacity for a fee of $2.5416 per thousand cubic feet.
A flurry of filings A flurry of RCA filings by Cook Inlet gas producers and local utilities in response to Beluga Pipe Line’s proposal underlines the Cook Inlet gas industry’s concerns about gas pipeline rates.
In a filing for Chevron subsidiary Unocal, attorney Kevin Donley said that Unocal is concerned that the proposed pipeline rates will not prove just and reasonable.
“Prior to conducting the open season (which is an annual event), no prospective shipper will know what portion of firm capacity it has acquired, since the process allows for prorating among participants in the open season,” Donley wrote. “Given the process set out in the proposed tariffs, it appears highly likely that the majority of shippers will be forced to elect tier two shipper status at a rate of $2.5416 per mcf.”
ConocoPhillips asked the commission to conduct a formal investigation of the novel tariff proposal.
“The commission has previously never approved a capacity-based rate and our search of the Federal Energy Regulatory Commission’s records fails to reveal any previously approved capacity-based rate by that agency,” wrote Stefan Lopatkiewicz, attorney for ConocoPhillips.
Aurora Gas, the operator of several small gas fields on the west side of the Cook Inlet, asked RCA to reject Beluga’s proposed tariff without investigation. Attorney Robin Brena argued in an Aurora RCA filing that the proposed tariff violates the Alaska Pipeline Act by eliminating an obligation to provide the public with common-carrier pipeline transportation services. However, Beluga Pipe Line has vehemently challenged that claim, citing tariff features such as annual open seasons as evidence that it will offer services to the public without discrimination.
Brena said that the capacity-based tariff would be devastating for Aurora, given the company’s dependence on the Beluga pipeline to ship volumes of gas well below the pipeline capacity that the company would likely end up having to reserve under the proposed rate scheme.
Changing situation Enstar Natural Gas Co., the main Southcentral Alaska gas utility, also asked RCA not to approve the new tariff, saying that Beluga Pipe Line is ignoring anticipated changes in the Cook Inlet gas market and infrastructure. Those changes include the gas transportation needs of the CINGSA gas storage facility and proposals to have the CIGGS pipeline carry gas east to west under Cook Inlet, rather than just west to east as at present.
And Unocal, Enstar and Aurora all questioned the costs that Beluga Pipe Line had used to determine its proposed pipeline rates, with Aurora also accusing Beluga Pipe Line of inefficiency in its operations.
Chugach Electric Association said that the proposed new tariff appeared to be a “reasoned approach” to responding to fluctuations in Beluga pipeline use. However, RCA needs to develop a full record on how the new tariff would work before endorsing the tariff, CEA said.
“A significant portion of the natural gas for delivery to Chugach’s Beluga power plant flows over the Beluga pipeline,” wrote Mark Johnson, attorney for CEA, in an RCA filing. “In order to generate most of the region’s electric power for the next several years, the Beluga pipeline must remain in operation and in good operating condition.”
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