RCA approves Unocal-Enstar natural gas sales agreement

Kristen Nelson

The Regulatory Commission of Alaska has approved, as amended, the natural gas sales agreement between Unocal and Alaska Pipeline Co. (a wholly owned subsidiary of Semco Energy Inc., of which Enstar Natural Gas Co. is a division).

In the Dec. 21 order accepting an addendum and approving the agreement, the RCA said Unocal and Enstar filed an addendum, as required by the commission, Nov. 14. The addendum limits the term of the gas sales agreement, limits Unocal’s ability to sell third-party gas and provides Enstar with first-right of refusal to purchase non-economic gas.

The commission had conditionally approved the gas sales agreement Oct. 25, subject to the filing of an executed addendum limiting the agreement.

The RCA said the amendment limiting the agreement to 450 billion cubic feet “allows Unocal sufficient incentive to explore and recover its investment while providing a limit to the contract and giving us an opportunity to review whether continuation of the GSA remains in the public interest.”

The price which Enstar will pay Unocal for gas will be determined annually based on a 36-month daily average of the Henry Hub natural gas futures and a floor price of $2.75 per thousand cubic feet adjusted for one-half the inflation rate after 2002.

The RCA said the Henry Hub futures price structure is higher than previously approved contracts and might encourage arbitrage. To protect ratepayers, the commission limited Unocal’s ability to sell third-part gas under the contact to 15 percent of total annual volume.

The RCA also required revision of the original agreement’s provision allowing Unocal to suspend its obligation to sell gas to Enstar during any period when gas production became uneconomic and to sell that non-economic gas to third parties. As amended, the agreement allows Enstar right of first-refusal to buy non-economic gas on the same terms and conditions as Unocal is willing to sell it to third parties and gives Enstar 30 days after receiving written notice from Unocal to determine whether or not to exercise that right.