INGAA's Fowler Says Pipeline Segment Needs to Better Educate FERC

Listing the education of FERC as one of the pipeline industry's biggest problems to date, Fred Fowler, chairman of the Interstate Natural Gas Association of America (INGAA) and president of Duke Energy Corp., said oftentimes when the Commission says it is trying to help a situation, their directive only "exacerbates" the problem.

"I think that's one place that we kind of, as an industry, dropped the ball at FERC," Fowler said at a meeting Wednesday in Washington, DC. "As we see some of the [FERC] orders come out, it is clear to us that we have not done a good enough job of educating the staff on how this business works. That's not FERC's problem, that's our problem."

Regarding the Federal Energy Regulatory Commission's credit protections for pipelines against shipper failure and credit problems, Fowler said he is unhappy with the protections because he does not think they have been thought through. "How are you going to attract the capital from the debt markets or the equity markets on 33 year-type investments when you're only given one year of credit protection and the top issue in business today is liquidity and financial strength of balance sheet," he said.

Noting that the pipeline segment is experiencing tough times much like the rest of the industry, Fowler said, "Even though times of extreme challenge are very tough, they are also times of great opportunity. We are in a tough period being the pipeline industry, there is no doubt about it. We've got some companies that are fighting for their financial survival." Fowler said he believe's INGAA's role is to figure out how to keep this very fast-changing industry focused on the things that are really critical.

He noted that it is important to keep focused on FERC policy affecting pipeline rights, services and operations, pipeline safety and security, the promotion of new gas supply and assisting in efforts to restore confidence in the entire energy sector.

Fowler said INGAA is looking to do a number of things in 2003, including:

  • drafting a response to FERC initiatives that preempts pipeline parent company management discretion;
  • promoting policies that support construction and utilization of natural gas infrastructure, including Alaska;
  • monitor any proposed changes to the Natural Gas Act that might arise during consideration of energy legislation; and
  • enhancing the credibility of the pipeline industry through education and outreach.

Addressing the likelihood of an Alaskan pipeline coming to fruition, Fowler said he believes the market is "giving you a clear signal" today additional supplies of natural gas are needed. "We have ridden the old original reserve basins about as far as they can be ridden." Fowler said there are three methods of increasing gas in the country, and in his opinion, all three are needed. They include:

  • getting Alaskan gas to the Lower 48 (via pipeline);
  • siting domestic LNG terminals; and
  • opening currently restricted lands to drilling.

He noted that the three options all have a different time horizon, with opening restricted lands as the quickest, followed by siting LNG terminals. Building an Alaskan pipeline is expected to take much longer.

Fowler said the only reason the Alaskan line would not be built is because "nobody will step up and sign long-term contracts that will justify the financing of the project. As a result, it is going to take some kind of an incentive to make it happen."

As to why there is not more of a drilling boom in light of the current $4-5 gas prices, Fowler said he believes that in addition to the lack of capital, companies don't feel that they have the right risk/reward ratio potential. He added that companies don't believe that the current market environment is going to last, noting that they are scared to get caught up in a situation like the one that occurred three years ago. When prices went up, drilling went up, then prices fell to $2, leaving producers exposed. In addition to producers, Fowler said "the banks are being extremely tough because of what they went through during the last little head fake that we had."

In response to a question on price indices, Fowler said he believed they did need more structure around them. "You're probably better off with some kind of industry solution with probably some regulatory oversight, as opposed to doing some kind of centralized government reporting system," he said. He said he believed either FERC or the Commodity Futures Trading Commission could serve in the oversight role.

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