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A simplification for Cook Inlet gas RCA is reviewing the agreement for consolidating four Hilcorp gas transportation pipelines into a single gas pipeline entity Alan Bailey Petroleum News
In what is presumably the closing chapter in the lengthy and complex process of amalgamating four Cook Inlet gas pipelines into a single pipeline system, a Regulatory Commission of Alaska hearing on Oct. 15 formally gathered information that the commissioners need to adjudicate over the proposed pipeline consolidation.
Hilcorp Alaska had acquired the four lines - the Kenai Nikiski Pipeline, the Kenai Kachemak Pipeline, Cook Inlet Gas Gathering System and Beluga Pipeline - when the company took over Chevron’s and Marathon’s Cook Inlet assets a few years ago. Hilcorp wants to manage the four pipelines as a single pipeline entity, the Kenai Beluga Pipeline, or KBPL. Following protracted negotiations between the gas producers, utilities, pipeline companies and other parties with interests in the pipeline system, at the end of August Hilcorp published a settlement agreement, laying out the terms and conditions under which the new pipeline entity would work.
The implementation of KBPL requires Regulatory Commission of Alaska approval - Hilcorp wants the new system to go into operation on Nov. 1, with temporary operating authority from the commission if necessary.
Postage stamp rate KBPL will have what is called a “postage stamp” transportation rate, meaning that shippers of gas through the system will pay the same dollar fee per volume of gas shipped, regardless of where the gas enters and leaves the system. This arrangement will presumably eliminate the transportation costs from the complex equation of figuring out the optimum pipeline route through which to ship gas. Under the existing four-pipeline configuration, each line has its own tariff and shipping rate, an arrangement that can lead to considerable inefficiency in pipeline use and needless bottlenecks in gas delivery. And high transportation costs at some points on the pipeline system can put some gas fields at an economic disadvantage.
Ed Jaroch, pipeline manager for Hilcorp Alaska, told the commission that, in addition to forming Kenai Beluga Pipeline LLC to manage the company’s Cook Inlet gas pipeline assets, Hilcorp has formed a company called Harvest Alaska LLC that will hold all of the company’s regulated pipelines in Alaska. In addition to the gas pipelines, those pipelines include the Swanson River oil pipeline on the Kenai Peninsula, the Cook Inlet oil pipeline on the west side of the inlet, and five North Slope pipelines that Hilcorp is acquiring from BP, assuming that the North Slope acquisition closes later this year.
Became integrated system Jaroch reviewed the history of his company’s Cook Inlet gas lines, saying that the pipelines had been built independently for various purposes, with two of the lines starting out as oil and gas field gas-gathering lines. For various reasons, over the years the pipelines had transitioned into a more integrated, public-service gas transmission system, with some of the lines also being converted for bi-directional gas flow, Jaroch said. And, following the startup of the Cook Inlet Natural Gas Storage Alaska facility, or CINGSA, on the Kenai Peninsula, the pipeline system became fully bidirectional, Jaroch explained. The unbundling or dispersion of gas-fired power generation capacity around the Southcentral Alaska electric utilities has also increased the number of gas shippers using the pipelines, he commented.
And given the amount of pipeline integration, the separate management of four independent pipelines had become unwieldy, increasing regulatory costs by a factor of four and stacking the costs of long-haul gas shipments, as the gas molecules traverse from one pipeline to the next, Jaroch explained.
The KBPL consolidation provides a solution to all of these problems, Jaroch said.
“I’m here to support this settlement agreement. It is a tremendous thing,” he said.
Working gas A key additional benefit that the settlement agreement will bring is the ability for Hilcorp to hold what is referred to as “working gas,” extra gas that the company can keep in hand to smooth out mismatches between shipment requests by shippers and pipeline gas throughputs. The company is already in the process of moving 50 million cubic feet of working gas into the CINGSA storage facility, he said. The working gas will enable a reduction in the frequency with which gas shippers have to nominate how much gas they want to ship.
“That working gas is a tremendous benefit to the system,” Jaroch said. “It allows us to go from as many as 24 nominations per day across four pipeline systems to six cycles per day on one pipeline.”
Hilcorp is introducing an Internet-based system for shippers to enter nominations and manage their own gas shipments.
The settlement agreement also accommodates the possibility of adding extra gas compression to the pipeline system, to improve the east to west transportation capacity of the system and to provide additional system reliability.
Gas imbalance handling The agreement also includes the possibility of using operational balancing agreements, or OBAs, between KBPL and parties connecting to the pipeline system, Jaroch said. OBAs deal with gas imbalances, the inevitable discrepancies between the shipment volumes that shippers have requested and the volumes that are actually shipped. Currently imbalances are distributed between shippers, pro-rata the volumes of gas that the shippers are transporting. Under an OBA, KBPL and a connecting party, another pipeline for example, would agree on how to deal with any gas imbalances at the pipeline interface, thus guaranteeing shipper deliveries and taking the shippers out of the imbalance adjustments.
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