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RCA issues orders for Kasilof pipeline
Alan Bailey Petroleum News
The Regulatory Commission of Alaska has issued two orders that open the way for the operation of the pipeline that connects Marathon’s new Kasilof gas field with the Kenai Kachemak pipeline on Alaska’s Kenai Peninsula. Marathon has told Petroleum News that it hopes to start production at Kasilof by Nov. 1.
In an order issued on Sept. 29, RCA approved the interconnection arrangement between the two pipelines near milepost 114 of the Sterling Highway. The new pipeline extends 4.2 miles to the Kasilof south pad on Cohoe Loop Road and, with the interconnection, becomes zone 3 of the Kenai Kachemak pipeline. Zone 1 of the Kenai Kachemak pipeline consists of the original 31.48-mile section that runs south from the southern end of the Kenai Nikiski pipeline to the Ninilchik unit (there is also a short extension to zone 1 at Ninilchik). Zone 2 of the pipeline runs 12.36 miles east from the Ninilchik unit to the Happy Valley gas field in the Deep Creek unit.
Kenai Kachemak Pipeline LLC, the operator of the Kenai Kachemak pipeline, is jointly owned by subsidiaries of Marathon and Chevron.
In a second order, also issued on Sept. 29, RCA is allowing zone 3 operation with tariff rates of $1.1834 per thousand cubic feet for interruptible transportation and $35.99 per thousand cubic feet per month for firm transportation. Kenai Kachemak Pipeline LLC has told the commission that gas deliveries from Kasilof will not impact tariffs on zone 1, because the development of the zone 1 tariffs anticipated the Kasilof production — shippers who transport gas through zone 3 will pay the zone 3 rate in addition to the zone 1 rate.
Six-year life Zone 3 rates are high relative to the rates in zones 1 and 2 because of the relatively short six-year anticipate life of the Kasilof field, according to counsel for Kenai Kachemak Pipeline LLC. That short field life results in a high annual depreciation expense and relatively low expected gas throughput — both of these factors push up the required tariff. Additional gas discoveries that could use zone 3 would trigger a tariff reduction, counsel said.
RCA said that the zone 3 tariffs are consistent with the Kenai Kachemak pipeline settlement agreement that the commission approved in 2005. That settlement agreement stipulated rules and rates for each pipeline zone and general guidance for future pipeline extensions.
But, although RCA is allowing zone 3 operation under the filed tariffs, the commission is suspending indefinitely the tariff filing, rather than approving the tariffs. That indefinite suspension will ensure the rights of future interested parties to protest the zone 3 tariffs, the commission said. The commission has also approved an Oct. 1 start date for the zone 3 tariffs, one day ahead of the end of the 90-day public notice period for the tariff filing.
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