Major producers have called on FERC to reject El Paso Natural Gas Co.’s proposal to abandon more than 90,000 hp of compression in the San Juan Triangle and North Mainline of the pipeline’s system, saying it would result in constrained capacity and potentially higher transportation rates.

The pipeline, a subsidiary of El Paso Corp., is seeking to abandon its San Juan Mainline Compressor Station, Flagstaff Compressor Station, Navajo C Plant Compressor, Dilkon A Plant Compressor, the Williams C Plant Compressor and the Seligman B Plant Compressor. The proposed abandonments would reduce El Paso’s sustainable capacity in the San Juan Triangle System by about 275 MMcf/d on a summer basis and 220 MMcf/d on a winter basis.

It would reduce the sustainable capacity on the North Mainline System by approximately 376 MMcf/d on a summer basis and 407 MMcf/d on a winter basis.

“El Paso’s proposed abandonment appears to be an attempt to create artificial capacity constraints in the San Juan Triangle, and along the North Mainline, so that El Paso can generate higher revenues through increased transportation rates,” said Indicated Shippers, which include BP America Production Co., BP Energy Co., ConocoPhillips Co. and Shell Energy North America (US) L.P., in a protest filed at the Federal Energy Regulatory Commission [CP12-45].

El Paso’s maximum recourse rate for short-term services (i.e. short-term firm, interruptible and/or hourly firm and interruptible) is currently subject to a cap that is 250% of the maximum long-term firm recourse rate. “Given that shippers are using short-term services, if capacity constraints are created, then the cost of acquiring such short-term capacity increases up to the 250% cap,” the producers said.

“There is market demand for El Paso’s capacity, just not at El Paso’s currently effective, but not just and reasonable, maximum recourse rate.” The pipeline said it received no recourse rate bids on either a long-term or short-term basis during its open season in November.

ConocoPhillips, however, said it offered El Paso a one-year (with potential rollover into subsequent years) negotiated rate bid for up to 500,000 Dth/d for firm transportation capacity pathed through the San Juan Triangle and the North Mainline. “At the time the bid was made, ConocoPhillips calculated the potential revenue to El Paso at approximately $20 million for the first year of service. El Paso rejected ConocoPhillips’ bid, even though the additional revenues would have been five times higher than the annual savings amount that El Paso estimated it would accrue if its abandonment application were approved,” Indicated Shippers said.

BP Energy said it also communicated to El Paso its interest in acquiring capacity that would be affected by the proposed abandonment of the compressors.

Indicated Shippers further noted that El Paso’s abandonment proposal “does not take into account the fact that producers have identified a new shale supply source within the San Juan basin, called the ‘Mancos Shale,’ which has the potential to bring additional supplies to El Paso. This potential new supply is being tested this year, and an abandonment of facilities that would serve the San Juan basin would send the wrong signal to producers, when investment decisions are being made about developing this resources and the future availability of pipeline capacity to move incremental gas supplies to access markets is critical.”

The Mancos Shale play resides in the Piceance and San Juan basins. The Piceance basin is a geologic structural basin in northwestern Colorado. The San Juan basin’s main portion covers around 4,600 square miles encompassing much of northwestern New Mexico, southwest Colorado, and parts of Arizona and Utah.

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