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Looking for resolution on CIGGS dispute Companies in long-running dispute over the operation of the Cook Inlet Gas Gathering System opt for mediation By Alan Bailey Petroleum News Staff Writer
In an attempt to resolve a long-running dispute over the operation of the Cook Inlet Gas Gathering System, known as CIGGS, Agrium Inc., the Cook Inlet gas producers and the state of Alaska entered mediation on May 26.
Agrium spokeswoman Lisa Parker told Petroleum News that mediation will speed up resolution of the dispute.
The Regulatory Commission of Alaska is currently determining whether CIGGS should be regulated and expects to announce a decision in November. Mediation will deliver a solution in July, Parker said.
CIGGS consists of a gas pipeline system that connects the Trading Bay and Granite Point processing facilities on the west side of Cook Inlet with the fertilizer and LNG plants at Nikiski on the east side of the Inlet. Marathon Oil and Unocal jointly own CIGGS, while Agrium owns the Nikiski fertilizer plant. Built in the 1960s The companies operating the Cook Inlet oil fields built CIGGS in the 1960s to move excess gas from the west side of the Inlet to the industrial plants on the east side.
The Alaska Right-of-Way Leasing Act, passed in 1972, mandates that all pipelines crossing state lands or state waters must be regulated as common carrier pipelines or gas utility lines. In general, a pipeline that is regulated in this way must offer service to anyone who needs to transport petroleum products appropriate to the operation of the pipeline.
However, a grandfathering provision in the Right-of-Way Leasing Act allows pipelines built prior to May 20, 1972 to remain exempt from regulation “so long as their original or present purpose and function remain.” As a result, CIGGS has remained a privately operated system, with access only available through commercial agreement with the system owners.
Agrium, anxious to bolster dwindling gas supplies for its Nikiski fertilizer plant, has for some time argued that the private operation of CIGGS constitutes a major obstacle in establishing new industrial gas supplies to Nikiski from gas fields on the west side of the Inlet. The Agrium fertilizer plant is scheduled to close in November 2005 unless additional gas supplies for the plant can be established.
It is possible to move gas to Nikiski from the west side of the Inlet through a series of Enstar Natural Gas Co. pipelines that run up to Wasilla in the Mat-Su Valley and then down to the Kenai Peninsula through Anchorage. However, Enstar has to add odor agents called mercaptans to the gas in these pipelines: the mercaptans render the gas unusable for industrial processing.
Since early 2004 Agrium has filed two petitions with the Regulatory Commission of Alaska to regulate CIGGS. The commission dismissed Agrium’s first petition and is still making a determination on the second petition, filed in October 2004. Regulation or agreement Marathon has in the past said that commercial agreements present the simplest way of enabling new gas shippers to use CIGGS. The company has said that millions of dollars of expenditure would be required to install the metering and control facilities needed to convert CIGGS into a regulated line. And Marathon has also told Petroleum News that major costs and delays resulting from the regulatory process for the Kenai-Kachemak pipeline on the east side of the Inlet demonstrate that regulation is less efficient than a commercial agreement.
Aurora Gas, an operator of several gas fields on the west side of Cook Inlet, sees pipeline access south of Granite Point as a major issue for companies wanting to develop fields in that area. In December 2004 Aurora shut in its Nicolai Creek field because of a commercial dispute regarding the use of CIGGS — Nicolai Creek connects into CIGGS. Recent events In April 2005 RCA denied a motion to allow limited private-carriage access to CIGGS for gas from Nicolai Creek — the commission said that consideration of the motion would deflect resources from investigating regulation of the system. The CIGGS owners had wanted an assurance from the commission that a contract carriage arrangement on the system would not trigger common carriage regulation.
However, on May 10 the commission granted Aurora Gas immediate and continuing access to CIGGS to transport gas from the Nicolai Creek Unit pending resolution of the CIGGS dispute. Then on May 20 Agrium, Unocal, Marathon, Enstar, Aurora Gas and the state of Alaska jointly filed a motion to initiate the current mediation of the dispute, with a commission appointed judge as mediator.
If successful, mediation will result in an agreement signed by all parties.
“We’re looking for a reasonable resolution that meets everyone’s needs,” John Barnes, Marathon’s Alaska business unit manager, told Petroleum News. “Marathon supports the concept of getting to a better resolution more quickly,” he said.
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