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Settlement reached on pipeline tariff Cook Inlet gas producers, utilities agree on booking and fee arrangements for transporting gas in key part of Beluga gas line infrastructure Alan Bailey Petroleum News
The parties to a Regulatory Commission of Alaska investigation into a proposed new tariff for the Beluga gas pipeline on the west side of Cook Inlet have reached a settlement over the terms of the tariff and have asked the commission to approve the settlement within 30 days.
The 100,000-cubic-feet-per-day capacity Beluga line connects gas fields on the west side of Cook Inlet to Chugach Electric Association’s Beluga gas-fired power plant and to the southern end of Enstar Natural Co.’s gas transmission line that carries gas north into the Matanuska-Susitna Borough area. With the line being a critical link in the natural gas infrastructure on the west side of the inlet, the tariff on the line is of great importance in determining how gas producers and utilities transport gas to market, and in determining the cost of that gas on delivery.
New tariff In December 2010 Beluga Pipe Line Co., a subsidiary of Marathon Oil Co., filed a new tariff proposal, involving an annual fee of $46.67 to reserve one thousand cubic feet per day of line capacity, rather than charging for the volume of gas actually shipped. The tariff would have enabled the shipping of gas in unreserved capacity under certain circumstances, but at a greatly elevated volumetric fee of $2.5416 per thousand cubic feet. Beluga Pipe Line had been charging its customers 25.44 cents per thousand cubic feet to transport gas on the line.
Beluga Pipe Line said that the new tariff was addressing the problem of shippers only using its line during spikes in gas demand, especially during the winter, a usage pattern that renders a traditional volume throughput fee impractical to operate. But the tariff proposal provoked a flurry of questions from gas shippers, concerned about the cost impacts of perhaps having to reserve more pipeline capacity than they need, or having to incur high fees for using unreserved space.
And the various parties involved in the debate embarked on negotiations, assisted by an RCA-appointed judge, to find a mutually agreeable tariff solution.
Choice of methods Under the terms of the resultant settlement, gas shippers will be able to continue to transport gas on the line at the current rate of 25.44 cents per thousand cubic feet, but without a guarantee that there will be space available on the line to ship the gas. Shippers will be able to pre-book guaranteed capacity on the line at a cost of 25.44 cents per thousand cubic feet per day, a cost that would equal the current cost of using the line if a shipper uses all of its reserved capacity. Any unused capacity can be carried forward for use at a later date in the same contract year.
And, as part of the settlement agreement, Chugach Electric Association and gas utility Enstar Natural Gas Co. signed five-year contracts reserving capacity on the line. CEA has reserved a capacity of 21 million cubic feet per day for each year, while Enstar has reserved 4 million cubic feet per day in year one, declining to 2 million cubic feet per day in year three and reserving no capacity in years four and five.
Pipeline infrastructure Enstar operates two gas transmission lines for the delivery of utility gas into main gas demand centers in the Municipality of Anchorage and the Matanuska-Susitna Borough. One line runs north from the west side of Cook Inlet and one, on the east side of the inlet, runs north through the northern Kenai Peninsula. Another gas line called the Cook Inlet Gas Gathering System, or CIGGS, runs under Cook Inlet and carries gas from oil and gas fields on the west side of the inlet into the gas pipeline infrastructure on the Kenai Peninsula, including the Enstar transmission line on that side of the inlet.
Although CIGGS connects with the southern end of the Beluga pipeline, and hence with CEA’s Beluga power station and with Enstar’s transmission line running north into the Matanuska-Susitna Borough, gas producers on the west side of the inlet have tended to ship their gas through CIGGS to the Kenai Peninsula for delivery to market. This pattern of gas movement appears to result, at least in part, from the fact that gas being delivered into CIGGS on the west side of the inlet can be transported through CIGGS to the east side of the inlet at no incremental cost, while also avoiding the cost of moving the gas through the Beluga line.
Flexibility needed However, the Cook Inlet gas industry is changing significantly, thus driving a need for greater flexibility in the way in which gas is shipped. Changes include the development of new gas fields on the east side of the inlet, the imminent mothballing of an LNG export terminal at Nikiski on the Kenai Peninsula and the development of a new gas storage facility near the City of Kenai. In addition, ever tightening gas supplies from the Cook Inlet basin require utilities and gas producers to be able to make nimble changes to gas delivery routes, to ensure that gas can be delivered efficiently from gas wells to gas consumers during periods of peak gas demand.
Companies involved in the Cook Inlet gas industry have for some time been negotiating technical and commercial arrangements for bi-directional flow in CIGGS, arrangements that would enable gas to be shipped east to west under Cook Inlet and up through the Beluga line, when appropriate.
Bi-directional flow on CIGGS would add greatly to the flexibility of gas transportation around the Cook Inlet basin, including the shipment of much needed gas from storage during peak winter demand. But, pipeline tariffs, including the tariff on the Beluga line, play an important role in determining the price paid for that flexibility.
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