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Enstar and Marathon settle KNPL dispute Marathon will file a rate case for the major Cook Inlet pipeline next year in preparation for injections into CINGSA this coming April Eric Lidji For Petroleum News
Enstar Natural Gas Co. plans to withdraw its complaint against the Kenai Nikiski Pipeline after settling with Marathon Oil Co., the owner of the Cook Inlet pipeline.
The Regulatory Commission of Alaska must now approve the settlement.
Enstar and two affiliates filed a complaint in mid-August to force Marathon to detail certain financial information about the 17.5-mile pipeline on the Kenai Peninsula, particularly its operating costs, throughput volumes, affiliates and depreciable life.
Because there hasn’t been a full rate case for KNPL since 2004, Enstar and its affiliates argued that the current tariff structure on the pipeline isn’t based on actual costs.
Marathon, as well as current and future KNPL customers Union Oil Co. of California, Chugach Electric Association, ConocoPhillips and the Homer Electric Association-affiliate Alaska Electric and Energy Cooperative Inc. joined the case in early September.
The RCA held a settlement conference in mid-September, but two weeks after the conference those parties and the Alaska Attorney General reached a settlement.
Under the terms of the agreement, KNPL’s existing firm and interruptible rates would remain in effect until the end of the year, at which point they would become interim and refundable. Marathon would be required to file a new rate case by April 1, 2012. A secondary interruptible rate, used for natural gas that reached KNPL by first traveling through the Cook Inlet Gas Gathering System, would remain unchanged until that case.
Supplied LNG and Agrium The case highlights the changing nature of the Cook Inlet natural gas market.
KNPL started its life in 1965 as a private pipeline built by Marathon and Union Oil to supply a liquefied natural gas export terminal and a nitrogen fertilizer plant under construction with gas from the Kenai gas field and later from the Cannery Loop field.
The pipeline took on added importance in the region in 2003, when Marathon and Unocal built the Kenai Kachemak Pipeline connecting southern fields including Ninilchik, Happy Valley and Kasilof to gas-consuming facilities on the northern Kenai Peninsula.
Still, those facilities remained major customers for decades. The KNPL sent 70 percent of its volumes to the LNG plant and 17 percent to the Agrium fertilizer plant between April 2005 and April 2006, according to testimony given by Marathon in December 2006.
That KKPL connection prompted KNPL to become a public and rate regulated utility. In 2004, Marathon negotiated a rate structure with state regulators based on anticipated transportation volumes, but because of declining throughput, KNPL requested and received a total of nine changes to its rate structure between early 2008 and mid-2010.
With natural gas production falling in the region, Agrium mothballed the fertilizer plant in 2007 and ConocoPhillips plans to soon do the same with the LNG plant. (ConocoPhillips recently bought out Marathon’s ownership stake in the facility.)
Worried about declining deliverability, Enstar began planning the CINGSA storage facility that should become the largest customer of KNPL. Not only will CINGSA buy supplies of its own to maintain storage pressures at the facility, but third-party customers of CINGSA will be forced to use the pipeline to store and retrieve excess supplies.
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