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Solving the Beluga gas pipeline puzzle Bidirectional flow on pipeline and settlement of tariff dispute should help west Cook Inlet producers move gas to market Alan Bailey Petroleum News Staff Writer
A Nov. 28 document filed with the Regulatory Commission of Alaska appears to signal the end of a dispute between Aurora Gas LLC and Beluga Pipe Line Co. regarding gas transportation tariffs in the Beluga pipeline on the west side of Alaska’s Cook Inlet. The document, a joint unopposed motion by the parties to the dispute to set aside a Dec. 5 RCA hearing, says that “Beluga, Aurora, and Beluga’s parent Marathon Oil Company have reached an agreement in principle which, among other things, will resolve all of Aurora’s concerns in Docket U-04-081.” U-04-081 is the RCA docket for the dispute.
And on Sept. 13 Beluga filed a request to RCA for approval to initiate bidirectional flow on the Beluga line, with an initial postage stamp rate of 25 cents per mcf in either direction. RCA approved the bidirectional flow but only permitted a restricted, interim rate, pending resolution of the Beluga pipeline tariff dispute.
Following on the heels of the Sept. 27 settlement of the dispute regarding access to the Cook Inlet Gas Gathering System (known as CIGGS), a settlement to the Beluga pipeline tariff dispute and the instigation of bidirectional flow on the line mark further progress in opening up gas pipeline access for independent gas producers on the west side of the Inlet. Regulated utility line The Beluga pipeline, a regulated gas utility line owned and operated by Marathon, runs from CIGGS, at Granite Point, north to the Beluga gas field, where it connects with the southern end of Enstar Natural Gas Co.’s utility line from Beluga into Enstar’s Southcentral Alaska gas network. Aurora’s Lone Star, Moquawkie, Kaloa and Three Mile Creek fields all export gas through the Beluga pipeline. CIGGS connects gas production facilities in the area around Trading Bay and Granite Point to Nikiski on the east side of the Cook Inlet.
In the past, gas in the Beluga pipeline has always flowed from south to north, thus limiting fields north of Granite Point to markets accessible through Enstar’s pipeline system. Because Enstar has to add odorizing agents to gas passing though its system the gas becomes unsuitable for industrial applications such as LNG or fertilizer production. Agrium Inc., the owner of the fertilizer plant at Nikiski, and others have long argued for bidirectional flow on the Beluga line, to increase the marketing options for gas fields on the northwest side of the Cook Inlet. The provision of north to south flow in the Beluga line will enable fields north of Granite Point to export gas through CIGGS to industrial facilities at Nikiski. Tariff dispute Because RCA regulates the Beluga pipeline, third-party gas producers such as Aurora have rights of access to the pipeline for the transportation of gas, subject to certain terms and conditions. But on Sept. 2, 2004, Aurora filed a protest with RCA regarding the tariffs for the carriage of gas on the pipeline — Aurora said that the tariff rate was based on the original revenue requirements for the pipeline and that, given factors such as the depreciated value of the plant and recent low interest rates, those requirements had subsequently “become excessive.” Aurora also claimed that throughput in the pipeline had “greatly exceeded” the initial projected throughput, upon which the tariff was based.
Aurora raised other issues such as allowances for federal and state income taxes, and assumptions about future pipeline abandonment.
Aurora also said that RCA, in its approval of the inception rate for the Beluga line, had stated that the inception rate was subject to future review, because none of the utilities receiving gas from Marathon directly paid the tariff for use of the line — the tariff was rolled into the transportation cost of the gas that Marathon supplied.
In response to Aurora’s protest, Beluga Pipe Line Co. said that “a full-blown (tariff) investigation at this time is neither necessary not appropriate.”
The company said that in recent years throughput in the Beluga pipeline had declined well below the level that had been assumed for the original tariff determination. A decline in throughput had resulted in revenue requirements for the pipeline not being met, even allowing for a reduced cost of service based on age of the pipeline, the company said.
Beluga also said that Aurora has been able to transport gas from its Lone Creek field at a reduced “bypass rate,” and that the low tariff had further worsened the economics of the pipeline. However, in its complaint, Aurora stated that the bypass rate was simply a prorated version of the full tariff, allowing for the fact that Lone Star connects to the pipeline towards the downstream end.
Beluga said that it would be premature to review the tariff because the company was in the process of assessing the possibility of enabling bidirectional flow on the pipeline. The introduction of bidirectional flow would probably result in increased throughput but would also entail significant capital expenditure.
But, if there were an investigation into the tariffs at the moment “a new rate filing at this time would doubtless result in a rate increase, not a decrease,” Beluga said.
Aurora responded to Beluga’s claims of lower recent throughout in the pipeline by saying that Marathon, Beluga’s parent company, had bypassed the use of the pipeline by exchanging gas delivered on the east side of the Cook Inlet for gas delivered to Enstar and Chugach Electric association from the Belugas gas field on the west side. Aurora also said that plans for bidirectional flow on the Beluga pipeline must “be regarded as speculative and uncertain.” RCA investigates On Dec. 7, 2004, RCA “found good cause to open an investigation into the rates Beluga charges for transportation on the Beluga Pipeline.” Meantime, Agrium, Enstar and the state of Alaska all petitioned to intervene in the RCA docket. And the Alaska attorney general elected to participate.
RCA held a public hearing on the docket in January 2005 and subsequently heard testimony from witnesses.
Aurora and Beluga entered negotiations to seek a settlement in the case and on May 12 RCA issued a procedural schedule, leading to the public hearing on Dec. 5 that the parties to the dispute have now asked RCA to set aside.
In response to the motion filed on Nov. 28 RCA has required Aurora and Marathon to submit a formal stipulation of their agreement by Dec. 15. Otherwise, RCA will call a prehearing conference to establish a new procedural schedule.
But it does look as if the pieces of the Beluga pipeline access puzzle are finally slotting into place.
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