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Pipeline applies to increase tariff
The Kenai Beluga Pipeline has applied to the Regulatory Commission of Alaska for an increase in the rate it charges for the shipment of natural gas through the line. The pipeline company, a subsidiary of Hilcorp Energy, wants to increase the rate from 29.15 cents to 63.98 cents per thousand cubic feet, a rate increase that would impact some of the transportation costs of utility gas moving around the Southcentral Alaska gas transmission line network.
According to testimony presented to the commission an increase in operating costs coupled with a drop in gas throughput are forcing the need for a rate rise.
Critically important The Kenai Beluga Pipeline is critically important to the transportation of gas from the Cook Inlet gas fields: The line connects fields in the southern Kenai Peninsula to Enstar’s gas transmission system in the northern part of the peninsula, to the Cook Inlet Natural Gas Storage Alaska, or CINGSA, storage facility near Kenai and, by running under the waters of Cook Inlet, to the gas transmission network on the west side of the inlet.
With the center of gravity of Cook Inlet gas production tending to move to the east side of the inlet in recent years, the Kenai Beluga Pipeline’s transmission link under the inlet enables the delivery of Kenai Peninsula gas to the Matanuska and Susitna valleys region via the inlet’s west side. The fact that the CINGSA gas storage facility, a key element of the gas infrastructure needed to support high winter gas demand, is on the east side of the inlet also drives a need for adequate east to west gas transportation under the inlet.
One increased cost element that the pipeline wants to now recover from its rates is the cost of installing two additional gas compressors on the Kenai Peninsula, to increase the pipeline’s east to west carrying capacity under the Cook Inlet and thus ensure that gas can be delivered to utilities at a sufficient rate to meet peak demand during cold winter weather. The commission had approved the addition of this compression as part of a tariff settlement in 2014. The compressors cost about $13.2 million, a figure well below the original estimated cost of $16 million, Richard Novcaski, vice president and operations manager of Kenai Beluga Pipeline told the RCA in testimony over the proposed rate increase. Since installation, the new compressors have been in almost continuous use, Novcaski said.
Four pipelines combined The Kenai Beluga Pipeline is an amalgamation of what used to be four separate pipelines: the Beluga Pipeline, the Kenai Kachemak Pipeline, the Cook Inlet Gas Gathering System and the Kenai Nikiski Pipeline. The four pipelines had previously been owned and operated by Union Oil Company of California and Marathon Oil Co. - Hilcorp purchased the pipelines and subsequently took over operatorship of the lines in 2013. Hilcorp then negotiated a settlement with the various pipeline users, to operate the lines as a single pipeline entity with a single “postage stamp” shipping rate.
Prime reasons for consolidating the pipelines and instituting a postage stamp rate were simplified pipeline management and increased flexibility in pipeline usage.
Under the previous operating and ownership arrangements, each pipeline had a distinctly different shipping rate, a phenomenon that drove gas shippers to route their gas based on cost rather than routing distance. The result was congestion in some lines and under use of others, and general inefficiency in gas shipment. A postage stamp rate, in which a shipper pays the same rate regardless of which sections of the pipeline system the gas moves through, enables the shipper to pick a transmission route that has highest efficiency rather than lowest cost.
But Kenai Beluga Pipeline’s new tariff filing points to a downside in the postage stamp approach: A shipper needing to use only a short section of the pipeline system may be deterred from using the line because of the relatively high shipping cost per unit distance. The resulting loss of total pipeline throughput increases the unit cost of shipping gas in the line, a major factor in the increased shipping rates that the Kenai Beluga Pipeline now wants to charge.
Bypass lines For example, to reduce the cost of transporting gas from the CINGSA facility to Enstar’s transmission lines in the northern Kenai Peninsula, in 2015 Enstar built a 4.1-mile pipeline that bypasses the relevant section of the Kenai Beluga Pipeline. According to testimony presented to the RCA in justification for the bypass line, use of the new line would reduce the shipping rates and eliminate the cost of adjusting the gas pressure to match that in the Kenai Beluga Pipeline.
As an apparent consequence of the implementation of Enstar’s bypass line, gas withdrawals from CINGSA passing through the Kenai Beluga Pipeline dropped from 6,099,184 mcf between November 2014 and March 2015 to 209,360 mcf between November 2015 and March 2016, Novcaski said.
Novcaski also told the commission that Furie Operating Alaska intends to construct or purchase a pipeline to bypass the use of the Kenai Beluga Pipeline for the shipment of gas from Furie’s Kitchen Lights gas field to Homer Electric Association’s gas-fired power plant at Nikiski - the Kitchen Lights onshore gas processing facilities are a short distance north of the Nikiski industrial complex. The Furie bypass line would probably eliminate 3,516,111 mcf of annual gas throughput from the Kenai Beluga Pipeline, Novcaski told the commission.
Bruce Webb, Furie senior vice president, told Petroleum News in a June 6 email that Furie is in the process of right-of-way identification and pre-permitting activities for a potential bypass line.
A third factor impacting Kenai Beluga Pipeline throughput is a pause in the export of liquefied natural gas from ConocoPhillips’ LNG plant at Nikiski. ConocoPhillips has informed the pipeline company that there are unlikely to be any LNG exports from the Nikiski plant in 2016, Novcaski said.
- ALAN BAILEY
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