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Potential shippers, builders, comment on FERC’s regs
Kristen Nelson Petroleum News Editor-in-Chief
When Congress passed the Alaska Natural Gas Pipeline Act in October, it gave the Federal Energy Regulatory Commission 120 days to establish regulations for an open season for an Alaska gas pipeline. At a technical conference in Anchorage Dec. 3, FERC Chairman Pat Wood and commissioners Nora Brownell, Joseph Kelliher and Suedeen Kelly convened for the first time in Alaska to hear comments on proposed regulations, which include advance public notice of at least 30 days for an open season, information about a proposed project that any notice of an open season must contain and an open season length of 90 days. (See related story on page 1.)
Edwin Holden, FERC staff counsel, said comments the commission received before the technical conference included a concern that producers will monopolize pipeline capacity. While the commission has no regulations on open season, Holden said its policy is for a non-discriminatory open season. Congress specified that regulations be put in place for an open season for the Alaska gas pipeline, he said, because of long lead times, environmental concerns and the unique competitive situation. TransCanada: recommends rolled-in rates Tony Palmer, vice president of Alaska business development for TransCanada PipeLines, said TransCanada is working with the state of Alaska to finalize its right of way for the Alaska portion of a gas pipeline, and expects a final decision in the first quarter of 2005. TransCanada is one of two parties negotiating a fiscal contract with Alaska for a gas pipeline from the North Slope.
Palmer was the first of many expressing a concern with wording in the proposed regulations describing information that must be made available for an open season. In addition to specific items, the regulation says “all other information that may be relevant...” TransCanada was involved in the original gas pipeline proposal, he said, and has 27 years of data, much of it confidential and very little relevant to an open season today, and would like to see more specific language in the final regulations.
Palmer said TransCanada believes presubscriptions may be necessary to attract capital, such as the use of anchor shippers in the Gulf of Mexico. Anchor shippers should be allowed, he said, as long as other shippers are not disadvantaged.
On expansion he said the commission should send an “early signal” that it will be open to rolled-in rates to avoid different rates for similar service, and noted that the National Energy Board of Canada uses rolled-in rates. Rolled-in tariffs include expansion costs with original and shippers pay the same rate; in incremental pricing, those who need expansion capacity pay for it. ExxonMobil: regulations need to be clear Richard Guerrant, vice president of gas marketing for the Americas for ExxonMobil Gas, told the commission the “all other information” language is “problematic and unnecessary,” as some information could be proprietary.
He said anchor shippers may not be necessary, but banning anchor shippers could hurt the project.
On the expansion issue, Guerrant said ExxonMobil believes existing industry practices for expansion are adequate, especially since the commission can require expansion, an authority which is unique to the Alaska project, providing a “safety net if needed.” But, he said in response to a question from Wood, before we accept a certificate we’d like to know what expansion looks like.
He noted that the National Energy Board of Canada’s rolled-in rates policy was contentious when developed, so to say it’s good for Canada and it would be good for us is not accurate.
In response to a question from Kelliher on incremental vs. rolled-in rates, Guerrant said industry knows what reserves it has — the risks are with reserves which are not proven and the concern is that we don’t oversize the pipeline.
Guerrant told Wood industry knows it needs to study Alaska needs, it’s in the statute, but it is, he said, a “cart before the horse” issue. We’ll work with the state to see what the needs are and where drop-off points need to be, so everyone knows what the deal is.
But, he said, the real demand won’t be known until the bids are on the table. BP: supports non-discriminatory access Ken Konrad, BP Exploration (Alaska)’s gas business unit leader, told the commission “more Alaska customers would be good news,” but asked the commission not to burden the project with expansion regulations not required in this rule. Expansion issues, he said, should be determined at the time of expansion. “To address it now would be premature,” he said.
In response to Wood’s question on the in-state study, Konrad said the companies are in discussions with the state now and two or three tie-in points have been identified. The best study, he said, is the open season itself.
In response to a question from Brownell on the presubscription issue Konrad said “volume is good,” reducing the unit cost of transportation. We can design any size pipe that’s needed, he said, and anybody who wants to come aboard can. Any credit-worthy shipper can become an anchor shipper.
In response to Kelliher’s question on rolled-in vs. incremental rates, Konrad said the concern is with risk: we take the risk and then our rates go up due to actions of others. If there is an “inefficient expansion” in the future, he said, we get to pay for it.
The FERC’s existing (incremental pricing) policy is good, he said. If rolled-in rates are mandated for an expansion, and FERC approves an inefficient expansion, shippers would pay (through higher tariffs), he said in response to a question from Kelly. ConocoPhillips: challenges remain Joe Marushack, vice president of ANS gas development for ConocoPhillips Alaska, said the FERC’s proposed regulations are “reasonably balanced,” but said the “all other information” language is “too indefinite and overbroad.” For instance, he said, shippers may want to make some disclosures to the pipeline prior to an open season which could then be available to all shippers.
Marushack said ConocoPhillips does not think rates should be treated in open season regulations, because at this point no one has sufficient information. The goal here, he said, “should be to create certainty but allow flexibility.” The fundamental issue, he said, is a healthy, competitive environment on the North Slope.
FERC can mandate expansion, but expansion rules are not required in this rule making and rates should not be addressed here, he said. Rolled-in rates, Marushack said, would conflict with existing FERC policy, and could make voluntary expansion much more contentious and add to uncertainties.
In response to Brownell’s question on presubscription, Marushack said the anchor shipper concept is a win-win. The underlying volumes of gas are huge, and you’d know from presubscription about what size the pipe should be. Then you do an open season and design for what’s actually subscribed, so those exploring have additional time to find gas. Enbridge: Binding agreements critical Ron Brintnell, Enbridge Energy project director for Alaska gas, told the commission that binding agreements are critical and the commission should allow them as soon as possible. And, he said, a range of all pipeline sizes and rates should be allowed.
He said Enbridge believes FERC oversight should begin when an application is filed, but noted the Alaska pipeline has had unprecedented transparency, and said FERC rules shouldn’t result in misalignment with the Canadian portion of the line.
As for studies, the open season will reveal market needs, he said.
On the issue of rolled-in rates, Brintnell said certainty is important: anyone who might step up would want some certainty. He said Enbridge believes a negotiated rate is most likely. Anadarko: pipeline will be a monopoly Mark Hanley, Alaska public affairs manager for Anadarko Petroleum, said it is Anadarko’s view that “there’s no competition, it’s a monopoly” situation for an Alaska gas pipeline — and it should be regulated as a monopoly.
“We’re concerned about the monopoly being controlled by our competitors on the exploration side,” he said.
On the open season regulations, Hanley said the issue is not only the duration of the open season, “but when it occurs.” If the open season is in 2005, he said, there won’t be any local bidders or explorers participating. We need as late an open season as possible, he said.
And, he said, only if an open season for expansion capacity is for gas outside of Prudhoe Bay and Point Thomson would Anadarko feel comfortable that it would have an opportunity for expansion capacity.
Dave Anderson with Anadarko International Energy told the commission Anadarko believes a rolled-in tariff for expansion capacity is essential to promote development of North Slope gas.
Without rolled-in rates, he said, the pipeline would never be expanded beyond the 6 billion cubic feet per day possible with additional compression. Incremental tolling may strand explorer gas, Anderson said.
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