The Federal Energy Regulatory Commission has expunged from its books a 1968 policy statement that encouraged pipeline companies to build joint projects off the coast of Louisiana to defray construction costs and ensure full utilization of gas transportation facilities, as well as to accelerate gas exploration and production.

The 34-year-old policy does not reflect the Commission’s current view that market forces and competition should dictate which pipeline facilities are built, FERC said in a final rule issued Wednesday. Nor does it reflect the new opportunities for gas producers in the deep waters of the Gulf of Mexico, it noted [RM01-7].

“Rather than allocating limited production in the Gulf of Mexico among a limited number of pipelines as set out in [the 1968 policy statement], the Commission now seeks to encourage an interstate pipeline infrastructure capable of transporting natural gas from newly developed production areas in the Gulf of Mexico. This market-oriented approach allows for the most efficient, cost-effective and timely development of new offshore reserves and transportation facilities,” the rule said.

The Commission had first signaled a change in its policy with respect to offshore Louisiana pipes in an ANR Pipeline order in 2000. ANR had asked that its application to build offshore pipeline facilities be consolidated with a proposal of Nautilus Pipeline Co., but FERC rejected the request. ANR challenged the Commission decision in court, saying the agency had directly violated its own regulation. However, the court sided with FERC, noting that it was not bound by a policy statement.

Under the 1968 policy, pipeline companies seeking to build offshore facilities had to comply with a number of requirements: 1) provide a “detailed description” of their efforts to transport gas on another pipeline’s existing or proposed offshore facilities; 2) install 30-inch or larger diameter pipe, or demonstrate the feasibility of a smaller proposed line; 3) show that their proposed facilities would be used at a minimum annual load factor of 60% during the first year after construction, or seek a waiver of the requirement; and file applications for offshore facilities by Sept. 1 of the year immediately preceding the proposed installation of the facilities to allow FERC staff to review all applications on a joint and individual companies basis, at the same time.

In its ANR decision, the Commission ruled that use of these evaluation standards to decide the fate of offshore pipeline projects “could needlessly delay construction of the necessary pipeline infrastructure, delay production plans and retard further exploration and development” in the Gulf of Mexico, according to the final rule.

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