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RCA rules CINGSA can sell found gas Commission denies tariff revision; allows sale of up to 2 bcf; requires report on sales which occur, further engineering evaluation KRISTEN NELSON Petroleum News
The Regulatory Commission of Alaska has ruled on a request by Cook Inlet Natural Gas Storage Alaska LLC for a tariff revision allowing it to sell 2 billion cubic feet of found native gas. The commission denied CINGSA’s request to incorporate the sale into its tariff and also denied the proposed allocation of net proceeds from the sale.
However, the commission said that rather than requiring CINGSA to file a standalone request to sell 2 bcf of found native gas, “for administrative efficiency’s sake we will treat the record in this docket” as a request to sell the gas and address that request.
The commission said it found the CINGSA had adequately evaluated the impact of the sale of up to 2 bcf of found native gas on current operations and future expansion, and would allow the sale. If CINGSA sells any portion of the 2 bcf it “shall file a notice or notices of the sale or sales, including the identity of the buyer, the sales price, the quantity sold, and all other terms and conditions of the sale.”
CINGSA had proposed an allocation of the proceeds and the commission denied that allocation, ruling instead that net proceeds from any sale of the 2 bcf of found native gas should be divided primarily on the proportion of base gas to maximum storage quantity.
Found native gas The issue arose after CINGSA, in the course of drilling a well to support its storage operation, found 14.5 bcf of native gas in a previously pressure isolated section of the reservoir.
CINGSA operates its storage facility in the Sterling C Pool, formerly a producing natural gas field in the Cannery Loop unit operated by Marathon, from whom CINGSA acquired the Sterling C Pool in 2011.
RCA said that at the time CINGSA acquired the Sterling C Pool the pool was believed to be depleted, with no more than 3.6 bcf of natural gas remaining. The pool was selected for the storage project because of its estimated reservoir size and because it was believed to be depleted, the commission said in its decision.
CINGSA perforated the C1c sand interval when it drilled the Cannery Loop Unit No. S-1 storage well in early 2012. The commission said the CLU S-1 is the northernmost of CINGSA’s five storage wells and was directionally drilled to provide drainage for the northern portion of the reservoir.
Within a few days wellhead pressure in the well rose and CINGSA then studied the issue and collected data which indicated that the source of the high pressure was likely a pressure-isolated section of the Sterling C1c sand, “a separate reservoir that previously had no pressure communication with the Sterling C Pool,” the commission said.
CINGSA wasn’t able to determine how much additional gas it had found until the spring of 2014, when it was able to estimate that it had discovered some 14.5 bcf of found native gas.
The commission said CINGSA was also able to confirm that the 14.5 bcf was within the boundaries of its storage field and leases.
Tariff modification sought CINGSA sought to modify its tariff for the storage operation to allow it to sell 2 bcf of that natural gas.
CINGSA plans to evaluate the sale of additional volumes in the future.
The commission said “CINGSA is a public utility certificated to furnish the service of natural gas storage to the public for compensation. Terms and conditions for the commercial sale of natural gas are not appropriate in the tariff of a storage utility.”
The commission denied the tariff modification sought by CINGSA.
It also said that any request to sell native gas beyond the 2 bcf “should be initiated by petition.”
As part of its application to modify its tariff CINGSA presented an engineering review by Petrotechnical Resources of Alaska. PRA said in its review that its dynamic stimulation indicated that CINGSA can produce and sell up to 2 bcf of found native gas and still meet storage and deliverability commitments. The commission said PRA found that “operational limits, such as well bore capacity and reservoir complexity provide more of an impact on CINGSA’s ability to provide” firm storage service than the sale of 2 bcf of found gas.
CINGSA told the commission that it was in the process of acquiring production permits and regulatory approval from the Alaska Oil and Gas Conservation Commission and the Alaska Department of Natural Resources to exercise its production rights to the found native gas.
Stipulated settlement CINGSA, Enstar Natural Gas, Chugach Electric Association and Homer Electric Association had reached a stipulated settlement, but Municipal Light and Power, the Alaska Attorney General and Tesoro did not join in the settlement.
The commission announced during hearings on the issue that a majority of the commission would not accept the proposed stipulation.
“We may accept any settlement without a hearing, including a compromise settlement, if it is supported by all parties of record. The stipulation was not supported by all parties of record. We are not bound to adopt a stipulation by the parties and we may require evidence to support a finding that the stipulation is in the public interest and consistent with controlling law,” the commission said in its ruling.
It did allow CINGSA and the stipulating parties the opportunity to present evidence on the stipulation, which provided that CINGSA would sell 2 bcf of found native gas to its firm storage service customers with the proceeds divided 50 percent between CINGSA and the firm storage service customers, and provided for sales of found native gas beyond the 2 bcf.
The commission disagreed with the allocation of the proceeds and ordered a different allocation; it also said it is not in the public interest to provide for sales of found native gas beyond the 2 bcf allowed under the ruling.
“We do not find that acceptance of the stipulation is in the public interest. Accordingly, we do not accept the stipulation,” the commission said in its order.
Reservoir study The commission also is requiring an additional reservoir study and provided a number of questions for that study to address, requiring the study to be filed with the commission by June 30, 2016. Notices of sale of the 2 bcf of found native gas must be filed with the commission within 30 days of the sale or sales.
Commissioner Janis Wilson dissented in part, saying that while she agreed with the denial of the filed tariff, the record does not indicate that the additional free base gas harms the operation of the storage facility, and the record “does not demonstrate any compelling need, for operational purposes,” to remove the 2 bcf, nor any “compelling need” to keep the gas in the facility.
Wilson said that in her view CINGSA is free to sell the gas or not.
“My task, as a regulator, is to determine how to treat a sale, if it happens, for ratemaking purposes,” she said, noting that this is a decision which does not need to be made until CINGSA’s next rate case.
She said if gas is to be sold, “why should it be the free gas,” and why not gas CINGSA paid for?
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