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Flint Hills still challenging Resid Despite a FERC investigation into the Quality Bank methodology, the refiner wants its original complaint to be reheard Eric Lidji For Petroleum News
Flint Hills Resources Alaska LLC is asking federal regulators to reconsider their decision to dismiss a complaint about the quality bank formula on the trans-Alaska oil pipeline.
The Federal Energy Regulatory Commission recently dismissed the complaint, saying Flint Hills missed a statute of limitations. The refiner believes its complaint was timely.
The FERC decision started counting a two-year statue of limitations from when Flint Hills discovered an alleged discrepancy in the quality bank methodology. Flint Hills believes each payment under the methodology should in some sense start the clock over.
Flint Hills filed the complaint against BP Pipelines (Alaska) Inc., ConocoPhillips Transportation Alaska Inc. and ExxonMobil Pipeline Co., the three owners of the 800-mile pipeline from the North Slope to Valdez. BP asked FERC to uphold its ruling.
The quality bank is a system for compensating oil producers for the varying qualities of crude oil shipped through the pipeline. Producers shipping oil valued below the pipeline average pay into the bank to compensate producers shipping oil valued above the average. The system is currently based on the value of seven petroleum by-products.
Investigation under way The spat about the complaint comes amid a larger investigation into the quality bank.
When FERC dismissed the Flint Hills complaint, it also launched a separate investigation into the matters raised in the complaint. Specifically, the investigation will consider whether the quality bank methodology undervalues Resid, or the residual product that is left behind after all the lighter petroleum products have been distilled from crude oil.
The investigation is in the discovery phase. FERC Administrative Law Judge H. Peter Young has scheduled a hearing for February 2014 and a decision by early May.
The quality bank has often been a source of contention.
A 1984 methodology used gravity to determine the value of oil, but some shippers believed increasing natural gas liquids deliveries were throwing off this measurement.
A 1993 ruling established the current method of determining value based on distillation, but a lawsuit over the past decade challenged the ruling, particularly in regards to Resid.
The current methodology determines the value of Resid based on coking, which splits the product into asphalt and a lighter fuel. Each of those products is valued separately.
The Flint Hills complaint argued that since 2009 the published price of Alaska North Slope crude oil has been higher than the combined value of the products extracted from the stream. Flint Hills blames the valuation of Resid for this apparent discrepancy.
Flint Hills also brought the matter before state regulators, but the Regulatory Commission of Alaska is waiting until Jan. 15, 2014, to decide whether it will hear the case.
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