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ConocoPhillips, Anadarko differ on North Slope gas pipeline access, tariffs Those without gas concerned about access to pipeline, especially to expansion capacity; producers assure legislators all comers will have equal access Kristen Nelson Petroleum News Editor-in-Chief
ConocoPhillips and Anadarko Petroleum have different views on gas pipeline tariff and access issues, and Alaska legislators had an opportunity to hear both views July 28.
There is normally tension between pipeline owners and natural gas shippers and that tension helps keep tariff rates as low as possible, Mark Hanley, Anadarko Petroleum’s public affairs manager in Alaska, told members of the Alaska Legislative Budget and Audit and Senate Resources committees at an Anchorage hearing.
But does that tension really play out at the Federal Energy Regulatory Commission in tariff rate hearings if shippers and pipeline owners are subsidiaries of the same companies, he asked.
Hanley said Anadarko agrees with most of what legislators are hearing about issues surrounding a natural gas pipeline, but, he said, the companies involved here — those with known gas reserves and those who still need to explore — are competitors. Anadarko best serves its shareholders by being skeptical, he said, even when it is assured that the FERC will carefully review costs before approving tariff rates. Expansion open to all Legislators also got some clarification.
Contrary to what legislators were told at a June hearing, said Pete Frost of ConocoPhillips, the FERC does not allow original shippers on a gas pipeline right of first refusal for expansion capacity on that pipeline.
Right of first refusal, he said, relates to a shipper’s contract, and gives the shipper first rights to contract again for some or all of its existing capacity. Frost, director of regulatory affairs for ConocoPhillips’ Gas and Power Marketing Group, said he had been asked to testify on behalf of the major North Slope natural gas owners, BP, ConocoPhillips and ExxonMobil.
On the cost issue, Frost said “the FERC has a statutory obligation to ensure that the rates that come out of the application are just and reasonable — and they take that role very seriously.” Acreage only, no gas Anadarko does not have gas to ship, but holds acreage in the Foothills of the Brooks Range, an area believed to be gas-prone. Along with EnCana, which also holds Foothills acreage, Anadarko in 2002 won a state bid for royalty gas. The companies planned to use the state’s royalty gas to backstop their own gas. They would bid on capacity in an initial open season, ship the state’s royalty gas, and then turn it back to the state if they were successful in discovering and developing their own natural gas.
The contract was never brought before either the state’s royalty board or the Legislature.
Hanley said Anadarko has been assured that 1 billion cubic feet a day of expansion is planned into the pipeline design, so those who don’t have known gas reserves now can bid for expansion capacity.
The producers have known reserves and are in a position to bid on capacity in an initial open season. Hanley said he accepts that the risk to the producers of having some of their capacity prorated for royalty gas is “a legitimate concern, I’m not saying it isn’t.”
But, he said, Anadarko has been “told from the beginning,” not to worry about expansion, that if Anadarko develops gas, “there’ll be adequate capacity” in an expansion. If expansion space will be readily available, he asked, why did the producers oppose the royalty in kind sale, and tell the state that it would increase the risk of the pipeline? They could bid on additional capacity in an expansion open season, he said.
Frost told legislators that the FERC has no requirements for when an open season is held, and while all companies have an opportunity to bid, “there are always issues of timing: whether an open season is held today or a year from today or two years from today, different parties will be in a different position to participate in the open season,” he said. Capacity is on a take-or-pay basis, so those contracting for space pay whether or not they are shipping gas.
And for parties that aren’t in a position to participate in an initial open season, he said, “there is an opportunity as stated by the project sponsors for the pipeline to be expanded” and potential shippers can request an expansion to ship their gas.
And under the enabling legislation that is before Congress, FERC would be given the ability to force an expansion.
But a “pipeline always has an economic incentive to expand,” he said, and “many expansions often result in a lowering of rates to all parties, so there’s an economic incentive to get as much gas on the pipeline” as possible, both through the initial open season and subsequent expansions.
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