Over the objections of consumers, utilities, regulators and congressional lawmakers, FERC Thursday approved Trunkline Gas Co.'s request to abandon by sale 770 miles of a underutilized natural gas system serving Michigan to an affiliate for conversion to oil transmission service.
In an application filed in July 2012, Trunkline asked the Federal Energy Regulatory Commission (FERC) for authorization to abandon a portion of looped mainline gas transmission pipeline from the Gulf of Mexico region to Michigan to an affiliate to be designated by its parent, Energy Transfer Equity LP, for conversion to oil transmission service. Energy Transfer Equity is currently parent of Southern Union Co., which indirectly owns 100% of the equity interest in Trunkline (see Daily GPI,Aug. 30, 2012). With the approval of Trunkline's request, gas transportation through one of its two pipelines serving Michigan will cease.
Turnkline held two open seasons in 2012 to determine whether existing shippers were interested in acquiring long-term firm service on its system. The "open seasons were held both before and after Trunkline filed its abandonment request and, under both scenarios, Trunkline received no requests for long-term firm service," the Commission order said [CP12-491].
"The Commission finds the original and supplemental open seasons held by Trunkline to be sufficient and proper to assess the strength of demand [or lack thereof] for available capacity on its pipeline system," FERC said.
The proposal came under attack from Consumers Energy, which provides electric and natural gas service to nearly 6.5 million customers in Michigan, as well as a number of prominent members of Congress, including Sen. Debbie Stabenow (D-MI) and Rep. John Dingell (D-MI).
The impact of the proposal would be an almost 40% reduction in Trunkline's mainline capacity, raising concerns about the pipeline's ability to meet its minimum delivery requirements, opponents argued.
But Trunkline countered that approximately 90% of its market area contract demand could be served by other interstate pipelines. It said there is currently 32,609 MMcf/d of capacity existing on pipelines from the Gulf of Mexico region and 47,813 MMcf/d of capacity existing on pipelines from Southwest production areas, including Trunkline's production areas in Texas and Louisiana.
In addition, Trunkline informed FERC that the country's traditional natural gas distribution framework has changed significantly over the last few years. The pipeline stated that over 35% of the demand in the Northeast is now supplied from the Marcellus and Utica shale production areas, as compared to less than 15% just two years ago.
Trunkline told FERC that the proposed abandonment of the facilities would have no adverse effect on its customers' firm service requirements and would not affect Trunkline's continuing ability to meet all of its existing firm service obligations. It further said the capacity that it will abandon constitutes less than 2% of the total interstate pipeline capacity into the market area of the Midwest region.
Trunkline said its capacity on the gas pipeline in question continues to be underutilized. The customer base that Trunkline was built to serve no longer relies on the Trunkline system to meet market demand, according to the pipeline. This situation is due in part to the recent emergence of shale gas plays nearer to market areas and the construction of new pipeline infrastructure. Only a small fraction of the total capacity of the Trunkline system is under firm service agreements at the maximum rate, and capacity for those service agreements will continue to be provided through Trunkline's larger, parallel line, which will be unaffected by the abandonment, the pipeline said.