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Coming to an agreement on gas supply Enstar, Unocal ask approval for a protocol for dealing with fluctuating Cook Inlet gas demand under existing gas supply contract Alan Bailey Petroleum News
As Cook Inlet natural gas supplies tighten, with Southcentral Alaska utility Enstar Natural Gas Co. no longer having all of its needed gas supplies available under firm contracts, the commercial arrangements for the purchase and delivery of gas have become significantly more complex than in the heady days of excess gas availability.
A recent petition to the Regulatory Commission of Alaska for approval of an operational protocol between Enstar and Unocal, a subsidiary of Hilcorp Energy, illustrates the type of complication that can occur in this new situation.
Apparently the two companies had been at loggerheads over complications arising under the terms of a gas sales agreement dating from 2000, an agreement which since 2009 has not required Unocal to meet all of Enstar’s unmet gas needs. Unocal had told Enstar that, under the terms of the agreement, Unocal was only obliged to deliver up to an annual volume of 19.5 billion cubic feet of gas to the gas utility, regardless of whether weather forecasts predicted an especially cold winter and, hence, elevated gas demand.
Enstar’s other main gas supply contracts also have fixed upper limit commitments for supplied volumes, with those limits not always matching Enstar’s daily and annual needs, Enstar told the commission in its petition.
Proportional commitment At the same time, Unocal has insisted that, under the 2000 gas supply agreement, Unocal’s annual committed volume was limited to Unocal’s proportion of Enstar’s total annual gas needs, with that proportion being calculated pro-rata the maximum committed volume in each of Enstar’s various gas supply contracts.
Unfortunately, however, Enstar’s actual annual needs, and hence Unocal’s volume commitment, are not known until the end of the accounting year, after the gas has been supplied and consumed, thus leading to a significant timing issue in determining that maximum committed delivery volume.
To complicate matters further, some companies using Enstar’s pipeline system were benefitting from the issues with Enstar’s supply contracts by not always delivering enough gas into the pipeline system on a daily basis to follow their daily gas demand loads, Enstar said.
“Tension over these issues grew to the point that litigation was imminent,” Enstar said in its petition.
However, rather than resort to the courts, Enstar and Unocal called in an arbitrator and hammered out the protocol which they have now placed before the commission for approval.
Use forecast needs Under the proposed protocol, the companies have agreed that the annual calculation of Unocal’s maximum committed volume will be based on Enstar’s annual gas demand, as forecast in October, thus eliminating the timing problem arising from the use of “after the fact” actual gas demand volumes. And the protocol provides some flexibility in that maximum volume figure, to help Enstar deal with some of the uncertainties in day-to-day gas demand — under the protocol Enstar must purchase at least 94.9 percent of Unocal annual gas commitment, while Unocal is not obliged to deliver more than 105.1 percent of that commitment.
If Unocal agrees to sell more gas to Enstar than 105.1 percent of the commitment, the additional gas will be priced at a “peaking gas” rate. If Enstar buys less gas than 94.7 percent of the commitment, Enstar can purchase the gas shortfall during the following three years, although Unocal will not be obliged to deliver shortfall gas during the winter months. And after three years Enstar must pay for any shortfall gas that it has not used.
Enstar has also agreed that Unocal is not obliged to adjust its share of daily gas deliveries to cover gas transportation imbalances in Enstar’s pipeline system or any shortfall in another gas supplier’s gas volumes.
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