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Vol. 15, No. 10 Week of March 07, 2010
Providing coverage of Alaska and northern Canada's oil and gas industry

FERC gets range of open season comments — from OK to fix it

It’s OK; it’s not OK. That’s pretty much the range of what a handful of commenters told the Federal Energy Regulatory Commission about TransCanada’s proposal for an open season for the Alaska Pipeline Project.

TransCanada is proposing to build a natural gas pipeline to take Alaska North Slope gas to market, connecting either with existing lines out of Canada or with a liquefied natural gas project in Valdez. It has matching funds for up to $500 million in costs from the State of Alaska in exchange for meeting requirements under the Alaska Gasline Inducement Act.

In an open season a pipeline solicits bids from shippers for capacity in a line, negotiating costs and conditions. FERC has jurisdiction over natural gas pipelines and has special procedures for the proposed Alaska line, including approving open season plans in advance of an open season.

TransCanada filed its open season plan with FERC on Jan. 29. FERC accepted initial public comments on the plan through Feb. 24, is accepting reply comments through March 9 and has said it will act on the plan approval request by March 29.

BG Alaska E&P Inc., the State of Alaska and ExxonMobil Gas & Power Marketing Co. — a different ExxonMobil company is TransCanada’s partner in the project — basically found the proposal acceptable.

As gas owners and potential shippers BP and ConocoPhillips found considerable fault with the open season plan, in BP’s case more than 60 pages of detailed fault. As pipeline proponents, the companies are partners in Denali, the competing proposal for a North Slope to market gas pipeline.

BG finds no fault

BG Alaska said it “appreciates that the pre-approval procedures are not intended as a close examination of an applicants’ costs and tariff but rather an opportunity for the Commission and interested parties to ensure that the Open Season Plan fulfills the requirements of section 103(e)(2) of the Alaska Natural Gas Pipeline Act,” which requires including criteria for and timing of any open season; promoting competition in exploration, development and production of Alaska Natural gas; and “for any open seasons for capacity exceeding the initial capacity, provide for the opportunity for the transportation of natural gas other than from the Prudhoe Bay and Point Thomson units.”

BG Alaska — which has a participation agreement for a one-third interest in 2.1 million acres in the foothills of the North Slope in partnership with Anadarko Petroleum and Petro-Canada (Alaska) Inc. — said it has not identified any specifics in the proposed open season plan that are inconsistent with those requirements.

State: Filing continues progress

The State of Alaska told FERC that TransCanada’s open season plan continues progress toward an Alaska natural gas pipeline project, said the plan “should be approved on the time line requested by TC Alaska” and commended “TC Alaska and the APP Parties on the high level of effort and professionalism that is reflected in the proposed open season Plan.”

The state noted that because per-unit production costs for North Slope natural gas “are low relative to other major gas production plans in North America (including shale gas),” the TransCanada project “appears to be highly competitive notwithstanding the significant costs to transport Alaska gas to market.”

TransCanada has said that with FERC approval of the plan its open season would begin April 30 and conclude July 30.

The state said that based on its “initial review of TC Alaska’s filing,” it does not believe the “filing raises any issues that should delay its proposed schedule.”

The state said it reserves the right to comment on any issues that affect it, including when TransCanada files for a certificate of convenience and necessity in 2012, and said several issues on which it had concerns could be resolved in the certificate proceeding.

The state said it “strongly agrees with TC Alaska that there is no need for the Commission to address these and similar issues in its order on TC Alaska’s proposed open season Plan, and the State is not requesting the Commission to address such issues at this time.”

ExxonMobil Gas & Power

ExxonMobil Gas & Power Marketing Co. told FERC the Alaska Pipeline Project open season plan “fulfills all of the requirements of the governing Open Season Regulations for Alaska Natural Gas transportation projects.”

But, ExxonMobil said, there are limits to the pre-approval process and it asked FERC to confirm that “pre-approval of the APP Open Season Plan does not constitute a binding determination with regard to the substance of the submission,” since “at this pre-filing stage of the project, numerous elements of the project will necessarily remain fluid and subject to negotiation.”

ExxonMobil said a finding by FERC that the open season plan is complete “must not preclude bidders from entering into negotiations with APP concerning issues related to the open season. Bidders must have an opportunity to enter into negotiations with APP to ensure that the services that ultimately result achieve both parties’ needs. The documents themselves reflect the recognition that the substantive provisions are intended to be subject to further negotiations with open season participants.”

ExxonMobil noted in its filing that the Alaska Pipeline Project is being advanced by TransCanada Alaska in partnership with ExxonMobil Alaska Midstream Gas Investments LLC, and that the APP parties, specifically EMAMGI, function independently of ExxonMobil according to FERC regulations. Its comments on the open season plan are submitted independently of APP, ExxonMobil said.

ConocoPhillips Alaska

ConocoPhillips said it has numerous questions, many of which “concern issues that ConocoPhillips can raise with TransCanada in commercial discussions,” but some of which relate to the meaning of FERC Order 2005, “and thus require clarification or a direct response from the Commission.”

One of those issues requiring FERC clarification is TransCanada’s explanation of how it will notify open season bidders about its route selection and rejected bids.

On the pipeline route, ConocoPhillips said, “TransCanada reserves the right to make this selection in its sole discretion, and states further that it is entitled to delay providing shippers with this notice if it determines that commercial circumstances justify a later notification.”

On rejected bids, ConocoPhillips said, “TransCanada reserves the right, on a not unduly discriminatory basis, to reject a nonconforming bid or a bid that modifies the substantive terms set forth in its proposed precedent agreement,” and said it would provide FERC with copies of relevant correspondence with bidders whose bids were rejected.

ConocoPhillips said FERC “should clarify that TransCanada must notify all bidders at the same time regarding the results of its open season.” ConocoPhillips also said that TransCanada’s proposal “suggests” that it will notify a bidder whether and why a bid was rejected; ConocoPhillips wants TransCanada or FERC to “clarify that TransCanada will specifically notify a bidder directly, on a timely basis, if TransCanada rejects its bid and provide a detailed explanation for the rejection.”

ConocoPhillips said that TransCanada’s plan for dealing with oversubscription for capacity in the open season allows it to reduce a bidder’s capacity based on each bidder’s proportion of firm transportation capacity, allowing “it to unilaterally impose the economic risk associated with prorated capacity on potential bidders,” and said FERC “must allow a bidder to decline an open season capacity award that is insufficient to meet the bidder’s business needs or regulatory obligations” and should direct TransCanada to revise its open season process accordingly.

BP wants thorough FERC review

BP told FERC that open season requirements for an Alaska gas pipeline include a process which provides non-discriminatory access to capacity on the line and sufficient economic certainty to support construction of the pipeline. It said the standard TransCanada has proposed for review of the open season plan “appears to call for little more than a cursory comparison of each item” in FERC regulations with the TransCanada proposal.

BP said that is not the kind of review “required to determine whether the filing satisfies the goals the Commission identified in Order No. 2005-A.” Correctable flaws and deficiencies in the open season proposal need to be addressed so that shippers can make informed bids, the company said.

“There are three categories of core defects” in the TransCanada filing, BP, said — economic uncertainty caused by the proposed process, lack of data and potential for undue discrimination — each of which is “promptly correctable by TransCanada or the Commission and they need not be the cause of any delay in considering the TransCanada Request or proceeding with the open season.”

Process issues

BP said the issues it identifies should be fixed now because: “The process that TransCanada proposes for the conduct of its open season will create economic uncertainty in securing sufficient bids to support construction of an Alaska natural gas pipeline, as well as promoting exploration and development of natural gas resources in Alaska.”

Examples of BP’s comments on the plan include: the plan fails to outline the procedure TransCanada “will follow to modify the pipeline and rates if the open season results in capacity subscriptions at a level meaningfully different from the filed proposal”; lack of a gas component tracking system so shippers can track natural gas liquids in the gas; and lack of a way for bidders to obtain additional seasonable capacity available on the line in colder months.

BP said the termination provisions are unbalanced: TransCanada can terminate a precedent agreement “and do so without making any termination payment to the shipper — at any time, while a shipper can terminate without incurring an obligation for termination payments only until December 31, 2010.”

BP also said FERC should order a modification clarifying “that prospective shippers will not be bound by their bids submitted in the open season until the conclusion of the five month condition precedent negotiation process described in the filing.”

Also needed

BP said the data that TransCanada made available with its open season proposal was inadequate.

Under FERC regulations, “TransCanada was required to make its data available on the day it filed” its open season plan. “Instead, TransCanada proposes to make its data available at the commencement of the open season, cutting in half the 180 days Order No. 2005-A considered appropriate for review to 90 days.”

BP said FERC requires that documents not published with the notice should be in a public reading room. The data rooms which TransCanada is providing will not be available until April 30, BP said, whereas FERC requirements are that all data should have been available to potential shippers when the open season request was filed.

BP said FERC “should require that TransCanada immediately produce or provide access to all information related to the APP that is in TransCanada’s or its affiliates’ possession.”

If FERC does not do so, “the difficulties in preparing a bid will be further compounded to the detriment of all parties,” BP said.

In additional to technical data, BP said cost information also needs to be provided. It said TransCanada’s proposal “puts all risk for cost overruns on shippers,” so potential shippers need more information than what has been provided.

Information on the Canadian portion of the line is also needed, BP said, because potential shippers must determine whether the entire project — not just the Alaska portion — “is viable from a technical and commercial perspective.”

BP also said there are issues FERC should resolve, asserting that “TransCanada’s proposed rates and terms of service depart in significant ways from Commission precedent,” and while “TransCanada likely will assert these conditions are necessary for development of a natural gas pipeline in Alaska,” FERC should not ignore that once a pipeline is operational there will be “more substantial similarities” between a gas pipeline in the Lower 48 and a gas pipeline in Alaska.

—Kristen Nelson

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