Producers: Proposed Open Season Regs for Alaska Pipe Flout Congressional Directive
FERC's proposed regulations governing the conduct of open seasons on an Alaska natural gas pipeline flout the directive of Congress because they favor the three dominant producers in the state -- BP, ExxonMobil and ConocoPhillips, contend competing producers.
Anadarko Petroleum Corp., one of the world's largest independent oil and gas producers and owner of significant acreage in the North Slope, called on the Federal Energy Regulatory Commission to promulgate open season regulations in a way that "[will] promote competition in the exploration, development and production of Alaska gas," as required by Congress in the Alaska Natural Gas Pipeline Act that was passed in October.
The proposed open season regulations, as currently written, offer "preferential access" to the three major producers in the Prudhoe Bay and Point Thomson areas of Alaska, the Houston-based producer charged.
Shell USA agreed, noting that it strongly believed that it was the "intent of Congress" that FERC's open season regulations promote competition in the exploration, development and production of Alaska gas, and "not to provide economic certainty to the project sponsors to ensure that the pipeline is constructed." In their current form, the regulations give the sponsors of the Alaska gas pipeline the freedom to structure the open seasons for both initial and expansion in a way that "actually discourages competition" in the Alaska gas market.
Both Shell and Anadarko said they were concerned that the proposed regulations fail to require that key information about the pipeline (route, proposed receipt and delivery points, size and design capacity, estimated phase-in dates for expansion capacity, delivery pressure, projected in-service date) be provided in a notice of a binding open season. Shell further noted that the regulations do not specify when open seasons may be held for initial capacity and expansion capacity, and establish too short a timeframe for the duration of any open season.
BP, ConocoPhillips and ExxonMobil own approximately 90-95% of the 34 Tcf of proven natural gas reserves in Alaska, while potential competitors -- Anadarko, EnCana, Forest Oil and PetroCanada -- own undeveloped leases, Anadarko said. The two producer camps are at odds over how the Commission should regulate the open seasons governing capacity awards on an Alaska pipeline, it noted.
"The three incumbent producers prefer light-handed regulation, following the Commission's approach in the Lower 48. A light-handed approach will permit the three incumbent producers to either impose (if they own the pipeline) or insist upon (if they do not own the pipeline) terms, rates and rules relating to capacity awards and capacity allocations on the pipeline that will strengthen their competitive advantage in Alaska," Anadarko told FERC in comments filed on Dec. 17 [RM05-1].
But explorers, like Anadarko, are seeking "relatively tight regulatory controls" over the open season to ensure that they will have access on "fair and reasonable terms" to compete against the three major producers in developing Alaska's gas resources, the independent producer said.
Anadarko is concerned that an Alaska pipeline, whether owned by the producers or owned by an independent pipeline company, will tend to structure its access rules to accommodate those who control the initial throughput -- the incumbent producers. "Whether or not the three major Prudhoe Bay/Point Thomson producers own all of the [Alaska] pipeline, a portion of the pipeline, or none of the pipeline, their control over the gas reserves that will provide the initial throughput of the pipeline will give those producers enormous influence over the rates, and the terms and conditions of service under which the pipeline will transport natural gas. The three producers will also influence the criteria used to award capacity and to allocate capacity in any open season as they will influence the timing of any open season."
Alaska's three top producers submitted a proposal earlier this month to Alaska Gov. Frank Murkowski to build the long-line gas pipeline from the prolific North Slope region to the Lower 48 states (see NGI, Dec. 20). The pipeline project would add roughly 1,800 miles of large-diameter pipe to already existing infrastructure for delivery of 4.5 Bcf/d of natural gas to U.S. markets in the West and Midwest. The overall length of the system, including the already constructed southern segments, would be approximately 3,500 miles. The proposed pipeline is expected to taken about eight years to build, and will have an estimated price-tag of $15-20 billion.
Anadarko said it and others believe that the development of Alaska's estimated natural gas resources (250 Tcf) may require an expansion of the pipeline capacity to 10 Bcf/d. "If the Commission's rules regarding initial and expansion open season parameters fail to facilitate the expansion of this pipeline such that explorers can obtain access to increased capacity on fair, reasonable and competitive terms, explorers will cease their exploration and development activities in Alaska, leaving the incumbent producers to develop, if ever, the 250 Tcf of conventional, undiscovered Alaska natural gas resources."
Participants at a FERC technical conference in Anchorage, AK, earlier this month indicated that the major gas producers would seek to hold their firm capacity on the pipeline for 30 years, "thereby shutting out new gas explorers," Anadarko said.
Producers who are unable to obtain capacity on an Alaska pipeline would have three alternatives, it noted. They could: 1) obtain capacity only after their competitors' Prudhoe Bay and Point Thomson production has declined -- perhaps 17 and 21 years after the in-service date of the pipeline; 2) seek released capacity from their competitors, who control the initial capacity on terms and conditions set by their competitors; or 3) sell gas from their discoveries at distressed prices to their competitors.
"These facts require that the Commission exercise close regulatory oversight over the terms and conditions under which the pipeline awards and allocates capacity, the terms under which the pipeline expands its capacity and the terms and conditions, including the rates, at which the pipeline provides service. Without regulatory constraints, the goal of achieving a competitive and fully explored and developed Alaskan natural gas resource base will not be reached," Anadarko said.