The controversy over how to define natural gas gathering in the Outer Continental Shelf (OCS) is likely to ratchet up a few notches at the Federal Energy Regulatory Commission and in the courts in the months ahead.

At a public conference convened by FERC Tuesday, producers and interstate pipeline representatives alike called on the Commission to consider reformulating its existing central-point-of-aggregation test for distinguishing between agency-exempt gathering and jurisdictional transportation facilities in the Gulf of Mexico. The test was applied first in FERC’s landmark Sea Robin Pipeline case, which resulted in the OCS pipeline being split into jurisdictional and non-jurisdictional sections. The ruling was upheld by the U.S. Court of Appeals for the District of Columbia Circuit in August 2002.

A coalition of producers and ExxonMobil Corp. separately have petitioned the Supreme Court to review the lower court’s Sea Robin decision. They claim the appellate court’s ruling ignored a 1963 Supreme Court opinion involving Northern Natural, which they said defined “the end point of gathering on the OCS” as the stage where gas is treated and measured and readied for injection into a pipeline to be transported ashore. Under this view, facilities closest to producers’ platforms would be declared exempt gathering, while all other facilities would be jurisdictional.

In related petitions, the coalition of producers and Shell Offshore separately have asked the high court to review a decision in which FERC permitted Transcontinental Gas Pipe Line to spin down several jurisdictional transportation systems to affiliates to be operated as gathering.

Producers have requested that the Supreme Court consider all four cases together, said James M. Costan, a Washington, DC attorney representing the group of producers. He expects a response from the court by mid-November or early December as to whether it will take up the cases.

The coalition includes Devon Energy Corp., Dominion Exploration & Production Inc., Forest Oil Corp., The Houston Exploration Co., Hunt Oil Co., Newfield Exploration Co., TOTAL E&P U.S.A. and Westport Resources Corp.

In the meantime, producers and pipes are looking to FERC to take a fresh look at gathering in the shallow waters of the OCS. “A lot of existing [OCS] facilities that are regulated would become non-jurisdictional,” which would allow them to charge their shippers (mostly producers) whatever the market will bear, if FERC were to continue with its central-point-of-aggregation method for distinguishing between gathering and transportation, Costan believes.

Gas producers recommended that the Commission draw the line between gathering and jurisdictional transportation at the platform where gas is treated, while pipeline representatives called on the agency to move the demarcation point to behind the plant, which essentially would classify all OCS pipelines as gathering and exempt from FERC jurisdiction.

A precise definition of what constitutes gathering and what is jurisdictional transportation has eluded the Commission for years. “This is an issue that FERC has been wrestling with for sometime,” noted Costan.

FERC decided to once again take up the complex issue because there is a “growing concern” at the agency that gathering facilities in the offshore may be exercising market power over captive shippers, said Commissioner William Massey. It will be up to Commission staff to recommend whether FERC should adjust its gathering test and how, he noted.

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