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Marathon: 50 years in Alaska - Natural gas pipelines the next big issue Marathon talking to state about pipeline regulatory issues Kristen Nelson Petroleum News Editor-in-Chief
Cook Inlet used to have a lack of drilling. “We used to say more wells need to get drilled in Cook Inlet,” says John Barnes, Marathon Oil’s Alaska business unit manager. Industry is now drilling wells, but that has exposed an infrastructure problem, he said. “The next thing is we need to have an efficient, effective pipeline mechanism so that more pipelines get built to move gas around.”
Marathon has been concerned for some time about how long it is taking to get a tariff on the new Kenai Kachemak Pipeline, and about how much the regulatory process for that pipeline is costing. Barnes said it will probably be more than 36 months before it gets an approved tariff for Kenai Kachemak, and the regulatory cost is still running.
This isn’t good in an area that is going to need more gas pipelines, he said.
“There’s a lack of incentives for investing in new and existing gas pipelines in Cook Inlet,” Barnes said, and “… new pipeline investments are going to be needed as new fields are discovered.” RCA must find balance The Regulatory Commission of Alaska, which approves tariffs, “has a challenge,” Barnes said, since they have to balance the desire of a pipeline owner for a fair return on investment, the desire of a shipper to have a low tariff and the desire of the state to have a high netback — which translates into a low tariff. But, he said, if the tariff is too low, there will be no one to build new gas pipelines that will be needed as new gas fields are discovered.
Barnes said Marathon thinks the state has an opportunity to look at things like a reasonable rate of return, and ask “how do we create an incentive for pipeline development?”
And it’s not just new pipelines.
Kent Hampton, Marathon’s marketing manager for North America natural gas, said “there are a lot of pipelines that could be recycled” to carry gas in Cook Inlet, lines that were built to serve the oil and gas needs of the inlet decades ago. These lines “can be recycled and reused,” Hampton said, but that will require “a lot of investment.” The direction in which lines flow may need to be reversed and metering and other equipment may need to be installed.
“But the bottom line is, you need an incentive to do this. … It’s great to drill all these wells, but if you can’t get it to the market it doesn’t do any good. … We need to focus on the glue that holds the production and markets together, and that is the pipelines… That will complete the picture.”
Doug Thierwechter, Marathon’s manager of government affairs, described it as an experience issue. In the Lower 48, he said, major producing states have dealt with the regulatory complexities of pipelines for decades. Marathon doesn’t have any specific solutions, he said, but is talking with the state administration and Legislature: “We’re in the process now of just pointing out where we see the problems.”
Barnes agreed. This is “nothing we haven’t shared with the Legislature,” along with Marathon’s concern with permit streamlining. The state had a pipeline regulatory process that really wasn’t being used, he said, so “it wasn’t an issue.” Now it is.
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