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Pipelines, Producers Argue Investments, Returns

Pipelines, Producers Argue Investments, Returns

Producers are eating a bigger slice of the revenue pie, pipelines claim. Pipelines, however, are piling up a much greater return for a much smaller investment, producers retort. And that's just the beginning of the arguments spawned by FERC's probing the possibility of lighter-handed regulation of pipelines, including negotiated terms and conditions.

An analysis paper issued by the Interstate Natural Gas Association of America Wednesday includes a pie chart showing producers collecting the lion's share or 53% of revenues in 1997, while pipelines took home only 16% and LDCs collected 31%. Revenue shares for both pipelines and local distributors have declined from 23% and 36%, respectively, in 1986, while the producers' share has grown from 40%, INGAA says, claiming producers are threatening the growth potential of the natural gas market by insisting on continued regulatory control of their transportation monopoly.

But that's not the whole story, the Natural Gas Supply Association says. To get that share of the revenue, producers invested $89 billion or 57% of the overall industry's $157 billion invested between 1986 and 1997, while pipelines invested just $26 billion or 17% of the total, according to NGSA's Phil Budzik. That means a 15% to 17% rate of return for pipelines, while producers have collected less than 6%.

Going forward the pipeline paper claims regulated rates will hamper the development of new pipelines to get to the projected 30 Tcf market. Producers, however, say that since much of the new market will be during the summer peak when pipelines are not full, there is no need for a massive pipeline investment. They cite various analysis which show producers investing between $40 and $80 billion, while pipelines top out at $25 billion in getting to the 30 Tcf market.

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