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High Island Abandonment Plan Draws Multiple Protests at FERC

A proposal by HIOS (High Island Offshore System) LLC to abandon 66 miles of mainline pipe to be repurposed for an offshore liquefied natural gas (LNG) terminal has drawn multiple protests at FERC from various shippers/producers.

HIOS recently asked the Federal Energy Regulatory Commission for authorization to abandon its jurisdictional 42-inch diameter mainline, a pig launcher and the system's platform at West Cameron Block 167 in the Gulf of Mexico so that they could be repurposed for use by Delfin LNG LLC, which has proposed an offshore LNG export terminal [CP16-20]. After abandonment, the facilities would no longer be FERC jurisdictional, nor would the remaining, nonabandoned HIOS gathering facilities (see Daily GPI, Dec. 2).

The Indicated Shippers group was among those protesting, saying the proposed abandonment "...would strand the production of producer-shippers that entered into firm service agreements with HIOS...that required those shippers to commit offshore reserves to HIOS...HIOS has offered only seemingly unenforceable time-limited, partial, and qualified assurances of continued service to its current shippers.

"Even these limited assurances appear to require the cooperation of other pipeline companies that are not on record as having agreed to cooperate. In view of the bedrock principle under the NGA [Natural Gas Act] in support of a presumption of continued service, HIOS's proposed abandonment of its jurisdictional system is simply unlawful."

Additionally, Indicated Shippers said HIOS wants to abandon the facilities before the end of their useful life "...presumably to earn a greater economic return (which HIOS refuses to divulge)." By abandoning the mainline, HIOS would be able to keep the "largely depreciated gathering facilities," which would no longer be subject to NGA Section 4 regulation, shippers said.

In a separate protest W&T Offshore Inc. said that while HIOS cited declining throughput and argued that multiple rate cases would be necessary in the future to ensure that it recovered its cost of service, such a scenario is not unusual.

"Interstate pipelines routinely file to increase their rates when circumstances (e.g., decreasing throughput) warrant," W&T said. "In fact, and HIOS admits on pages 10-11 of its application, the parties to HIOS's last rate case agreed by way of settlement reached just over one year ago to permit HIOS to make an NGA Section 4 filing to change its rates if annual system throughput declined below a certain level.

"...HIOS's alleged justification...in order to spare its customers from the imagined horrors of future rate cases is, simply put, nonsensical. HIOS is not locked into a situation in which it cannot seek to increase its rates due to diminished throughput."

Filing motions to intervene in the docket, as of Wednesday, are Chevron U.S.A. Inc., Apache Corp., ExxonMobil Gas & Power Marketing Co. and Fieldwood Energy LLC. Filing to intervene and protest are W&T, as well as Walter Oil & Gas Corp., M21K LLC, Castex Offshore Inc. and Arena Energy LP.

Producer Castex is an interruptible shipper on the HIOS system. "...[I]t is clear that HIOS is not proposing to abandon the repurposed facilities and its attendant certificated service obligations because their continued operations are uneconomic or operationally infeasible," Castex said. "Rather, HIOS has made a premeditated decision to jettison its certificated obligations in order to chase what it apparently believes is a better business opportunity -- providing service to Delfin...[I]t is no reason for the Commission to grant the proposed abandonment request."

Delfin recently decided to increase the capacity of its planned four moored floating LNG vessels from 2 million tonnes per annum (mtpa) each to 3 mtpa each and has filed at FERC to increase the capacity of the onshore feed gas pipeline associated with the project [CP15-490].

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