Producer-owned pipeline capacity in the Gulf of Mexico has grownsharply over the past decade while the traditional interstatepipeline’s share of the offshore market is poised for a downturn,according to a pipeline-commissioned study released last week.Producers bristled at the study because it inferred, they said,that greater rate and tariff flexibility from FERC was the onlyreason for their success in the offshore.

The study, which was conducted by Foster Associates for theINGAA Foundation, found that the producer-owned share of newpipeline construction more than doubled in the Gulf during the pasteight years, to 76% of 4,000 new miles of pipe built since 1990compared to a previous share of 32%. In contrast, traditionalpipelines, which the study says have been “handicapped” byinflexible rates and tariffs set in earlier rate cases, built 13%of the new offshore capacity since 1990 compared to 64% prior tothat.

INGAA President Jerald Halvorsen blamed an unfavorable offshoreregulatory policy at FERC, as opposed to pipeline economics, fordriving much of the current development in the Gulf, resulting intraditional pipelines getting a “shrinking piece of the capacitypie” on the Outer Continental Shelf (OCS).

Interstate pipelines and producers presently own about an equalshare of the existing 14,112-mile offshore pipeline network, 48%and 45% respectively. But the balance of ownership is expected totilt in favor of producers in the future, according to the study.Of the 1,512 miles of new offshore pipeline planned, major oil/gasproducers and independent producers will own 70% while traditionalinterstate pipelines are expected to own only 22%, it noted.

Moreover, INGAA projected the natural gas industry will requirethe construction of an additional 7,400 miles of pipeline capacityat an estimated $7 billion over the next 15 years to meet growingproduction in the Gulf. This is in addition to the 4,000 miles($3.5 billion) of new offshore pipe built since 1990, and the 1,512miles ($1.6 billion) of offshore project proposals currentlypending at FERC.

“It’s true that the traditional certificated pipeline company islosing its piece of the [offshore] pie, but it’s not losing itbecause it isn’t able to apply for the same types of certificatesthat producers can apply for,” countered Nick Bush, president ofthe Natural Gas Supply Association (NGSA). The key reason is thatproducers “can build [these pipelines] more economically and runthem more efficiently” than the traditional pipelines, he contends.

“Clearly, producers are building more transmission systems inthe offshore Gulf today because they feel they can do it at a lowercost than the traditional certificated pipeline company can,” Bushtold NGI. “The contention that producer-built pipelines somehowhave advantages unable to be obtained by traditional certificated[pipelines] is simply wrong.” Any pipeline being proposed,regardless of who will build it, “has the same ability to get thesame types of conditions that have been issued recently to some ofthe producer pipeline,” he said.

“Producers have a lot of expertise in the Gulf,” responded AnneRoland, a spokeswoman for the INGAA Foundation. “We’re not in anyway implying that producers aren’t doing a [good] job. The issue iswhether the current regulatory regime is appropriate.”

Bush believes INGAA will use the study as an “advocacy piece” toconvince FERC to forego regulating the offshore under the NaturalGas Act (NGA) in favor of a lighter handed approach under the OuterContinental Shelf Lands Act (OCSLA), a move which the producersoppose. “We think that the current regulatory structure [the NGA]is more than adequate, and we think our actions demonstrate it,” hesaid.

Susan Parker

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